By: Laura Walton AFC®
I recently asked friends and family to share their best and worst financial decisions. Their answers are below. Some are funny; many echo sound financial advice while others share cautionary tales. Their strength is that they are honest, real life answers from people who, over time, have become financially secure.
What was your worst financial decision?
Buying a timeshare. The amount was not huge but it was also an effort to use it and an annual reminder of the bad decision when fees came due.
When I moved from San Diego back to Tucson I cancelled a down payment on a lot for a townhome, needing the money to buy a house here. But, in hindsight had I borrowed some and kept that townhouse as a rental property, it quintupled in value.
Naively accepting advice from brokers to buy different investments without doing my own research, knowing the pitfalls or seeking out a second opinion. A real estate partnership. Heavily loaded front end mutual funds.
Getting a PhD, which set me back 10 years. However, this was one of my better personal decisions as it led to wife #2 and great professional satisfaction.
Was it a typo that I received this mailing???? Don’t EVEN want to think about it let alone talk!!!
My first marriage.
Buying real estate to develop at the top of a real estate cycle. Not being able to say no to a franchise opportunity. Working outside of my area of expertise.
Lending a large amount of money to a friend and expecting to get it back.
Thinking anyone else was the expert and abdicating active involvement in assets.
Loaning money in 1976 to a guy traveling near the town where we lived at the time so he could get to Ecuador to get family money to pay us back with interest…
My worst financial decision was to think, in the 80’s and early 90’s, that I could figure out when to be in, and when to be out, of the stock market (mutual funds). I got out before the 1987 market crash and felt smart, but was so scared by what happened that I did not get back in for years and did not get to ride the market back up, and up, and up. So, I lost out on a lot of gains there. I wish I had always followed a simple buy and hold and rebalance yearly investing method, and not lost years of gains.
Rolling over car debt into a new loan. No reason to throw good money at a depreciating asset.
To buy a house in New Jersey (no offense to NJ) when I moved out of center city Philadelphia due to the city tax issue. My corporate position was in a precarious situation due to a change in leadership. I loved renting a great apartment in Philly, and the transition to a suburb in NJ was isolating. Ended up moving to Arizona (yeah!) several years later and did ok on the selling of the house.
I have to say that the slow and steady method always worked best for us. Whenever I thought I was going to make a fortune with an investment or win the lottery, it was a waste of money. Years back, everyone in my office was investing in a stock that a few people were convinced would go sky high in time. I can’t recall anything about the stock, but I vividly remember taking a $1000 of our hard-earned money and investing it (along with the rest of my office mates). Of course, the stock eventually crashed and I lost my investment…never again to be swooped up by group thinking. I also think about some of the lottery-type tickets I purchased to win a house or a car or whatever…and some were expensive. The get-rich-quick, desperate-mode of thinking never paid off for me.
Hands down, marrying the wrong man! The first two times!!!! Laaaaazy!
What was your best financial decision?
Going into business for myself.
Never pulling out of the market and maintaining steady consistent contributions to retirement plans.
Several blind decisions to sell off investments at the top of the market not knowing it was the top of the market (those can also come under the heading of Lucky). Taking advantage of DRIPs (Dividend Reinvestment Plans) on certain individual stock holdings.
Getting a master’s degree in engineering.
Developing and following a plan made in 1989 to eliminate debt, pre-pay the mortgage and maximize savings.
Buying real property. Saving as much money as possible in a retirement plan.
Buying a house even though my budget was tight.
Diversifying my assets.
My best financial decision was to commit, probably at age 30, to saving 10% of everything I made. I did this, with a few minor exceptions, for my entire working life. When I was in college, in a business law class, we had a guest lecturer with the topic “How to get rich”. Well, that class was well attended; we all thought we were going to get some exciting secret formula. But his secret formula for becoming rich was merely: save 10% of everything you make, no matter how little or how much, and compound interest will make you rich by the time you get to retirement age. Pretty boring. But, although I am far from “rich” that simple formula did help make me financially secure. That and not being a spender, and not being someone who was willing to accumulate debt to buy stuff. For that I thank my frugal parents who made a very modest income, and spent very little, for many years.
Buying my home. I think they say to never spend more than 50% of your net income on your home expenses and for a number of years I was spending 80%, but stretching for an appreciating asset has given me an asset worth twice what I paid.
To mirror my parents philosophy on money. Father: don’t buy anything you don’t have the money for. Mother: always have your own money if you ever get married. One encouragement that I ignored was when I decided to go back to graduate school and fund it myself, my mother thought my focus on fitness wasn’t one that could make money and she encouraged me to earn a MBA. I probably could have done ok in business, but my heart was in fitness and developing a better understanding of motivation. Ends up that focusing on what you want to do and are interested in (versus making a lot of money) brings opportunities your way and you are in a better position to enjoy the ride.
I think our best financial decision was to build an investment property for us (a duplex) on the parcel attached to our home at the time. It was a huge decision and not a decision that family or friends supported. We had little income at the time, so not much collateral if things went wrong. However, we were determined to find additional means of supporting our family. It was a gigantic leap of faith and a financial risk, yet we had confidence in our joint abilities to make it work. We had to refinance our house that was almost paid off in order to build the duplex. I’m not sure where we’d be today had that venture failed. It took a tremendous amount of hard work. Yet the rental business expanded, gave us extra income through the years, and enabled us to retire at an early age.
Marrying a hardworking man!
As this year ends, reflect back on your best and worst financial decisions – we’d love to hear them!