I’ve spent a lot of time working in personal finance, but I didn’t start off there. Before I got into the field, I did some very dumb things with money.
It took me a while to get smart… but you can be smarter faster by not doing the things I’ve done!
“If you would know the value of money, go and try to borrow some; for he that goes a borrowing goes a sorrowing.” — Benjamin Franklin
What I did right
I always have, and continue to be, invested appropriately for the long-term.
This means that all my retirement money is in stock funds. No bonds. (And had I not made the mistakes I’m going to describe below, I would have a pretty decent nest egg as a result!)
But I also haven’t allowed short-term market moves to disrupt my plan. When the tech boom collapsed, was I still contributing to my retirement plan? Yes. Was I still investing in stocks? Yes. Same during the Great Recession.
Unfortunately the mistakes I made were bigger than the thing I got right. Sigh.
Well, avoid these mistakes!
- Lived above my means
I wasn’t making a ton of money, at least by NYC standards, but I was doing pretty well. I could have lived within my means.
But I didn’t care to. I wanted to buy clothes for my already-stuffed closets, shoes, and toys and treats for my dog. I also wanted to eat out a lot and have adult beverages.
However, I couldn’t afford to do all of that with my salary. I could have done some of it, but not all of it. I technically had a savings account, and whatever money went in there came right back out.
2. Lived on credit card debt
Living above my means meant I racked up debt pretty quickly. I only paid minimum payments. I had to check my credit cards frequently to make sure I had enough of my credit limit left.
And yet, I didn’t even really consider making more than the minimum payment. I couldn’t, without adjusting my lifestyle. But I suddenly had all this money I was earning. Wheeee! Let’s spend it all! Maybe tuck a little bit aside for later, but not much.
I think even the most basic personal finance for dummies tells you not to live in debt!
3. Didn’t contribute enough to retirement
I had my retirement contributions pulled out of my paycheck, so at least I put some money away. I only contributed a small amount, nowhere near maximum. I think I was saving the bare minimum for my employer match, but I’m not 100% sure about that.
So while I was doing all the right things with my investments, I didn’t have enough money put to work doing those right things.
Could I have contributed more from my salary? Absolutely. But I wasn’t at the point where I was willing to cut back on my lifestyle to make it possible.
4. Used retirement funds to pay off my credit cards
This is the big one. This is by far the worst of the four.
It’s actually two huge mistakes in one. If you’re planning to just go ahead and make one of the same errors I did, do not make this one! Pick another blooper!
- Wiping out my retirement funds meant that I now had to miss out on all that compounding. At a 6% rate of return, my money would have doubled every 12 years. I would have had some astounding growth over time.
- Paying off my credit cards without doing the work just made me load them up again.
All the growth I lost from my retirement funds started compounding against me to the benefit of the credit card companies. Yeah. Not exactly my finest hour.
So how did I pay it off?
I finally got to the point where I was genuinely tired of having all that debt weighing me down. I’d taken on a new job in personal finance. I’d started to pare down possessions and to read up more on frugality and minimalism.
I put together a plan to get my personal money management in order. Even while attacking my debt, I still invested a small amount toward retirement. I wanted to get at least a little money working for me.
I tackled my highest-interest-rate card first. This is sometimes known as the “debt avalanche” method. The “debt snowball” pays off the smallest card first, to get a quicker win. But I was getting impatient and wanted to be done as soon as possible.
It took me a few years. And It wasn’t fun. But the satisfaction I got from removing this massive weight was pretty intense. By then I’d learned to live within my means, too.
I increased my retirement contributions and savings once the debt was paid off, so I’d have an emergency fund as well. I no longer felt the need to have a lot of things and had gone pretty frugal.
Do the one thing I did right and not all the things I did wrong!
There are plenty of resources to help you with all this. Take advantage of them!
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