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My 5 Worst Financial Mistakes

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My 5 Worst Financial MistakesA few weeks ago, I posted the 5 Best Financial Decisions I Ever Made. Today, we will look at the other side of the coin and share some of my worst financial mistakes. Nobody is perfect and we all make mistakes. The important thing is to embrace your mistakes and learn from them, right? That’s the best way to grow. Imagine how boring life would be if you never made any mistakes. It means you’re being too conservative and never take any chances. Never making any mistakes will limit your personal growth.

“If you’ve never failed, you’ve never tried anything new.” Albert Einstein said that.

I have made my shares of financial mistakes, but I have been pretty lucky and avoided the big ones. A lot of families are in financial trouble because they make many of these fundamental mistakes.

  • Spend more than you make – Obviously, this is not sustainable, but people still do it. The only scenario this would work is if you’re retired and you’re in spend-down mode.
  • Build up high interest debt – The average U.S. household owes over $15,000 in credit card debt. That’s not good.
  • Not saving for retirement – This is why we have a retirement crisis
  • Buy too much house – Your primary residence is not an investment. Buying too much house means you will pay more for furniture, insurance, tax, maintenance, utilities and more.
  • Too much lifestyle inflation – Most of us make more money every year, but a lot of the raise we receive goes right into lifestyle inflation. It can be very difficult to cut back once you get used to your new lifestyle.
  • Gambling – The house always win.
  • Getting a divorce – This is a big one, but it is sometimes unavoidable.
  • No financial goals – If you don’t have long-term goals, you won’t work hard to achieve them. I recommend setting your sights on financial independence.

All these mistakes will set you back and become bad financial habits if you’re not careful. We are naturally frugal so we avoided most of these pitfalls. It is amazing how one trait affects so many facets of personal finance. Anyway, here are my 5 worst financial mistakes in no particular order.

Taking a $10,000 interest free loan

A lot of families have credit card debt. This is one of the worst debts because the interest rate is so high and missing payments can screw up your credit history. I always pay off my credit card in full every month. That’s the only sensible way to use your credit card.

However, there was that one time… When I first started working, I kept hearing my coworkers talking about interest free purchases. One guy purchased all new furniture for his apartment with store credit and bragged about the 0% interest. Another guy told me about his new car purchase with 0% introduction interest rate for 12 months. I thought – wow, that’s great! Free money for months, what’s not to like?

So when I got a letter from my credit card company about a $10,000 cash advance for 6 months with 0% interest, I was sold. I took the $10,000 and invested it in the stock market. Stocks were doing great in the late 90s and there was no way I could lose. Anyway, I didn’t make much money, but the $10,000 balance weighed heavily on me. I found that I hated having a big balance on my statement even with 0%. I paid it off after the 0% intro rate was over and I was happy to clear the account balance.

It wasn’t worth the headache. Luckily, I did this before the dot com bubble burst. It would have been horrifying if I borrowed $10,000 and lost a big chunk of it in a stock market crash.

Lesson: Don’t borrow money to invest in the stock market. The gain is not worth the risk. It’s another story if you’re borrowing money to run a business; then you have more control.

Buying company stocks in my 401(k)

I made this mistake in the late 90s as well. When I first started investing in my 401(k), I didn’t know anything about investing. I picked the funds with the highest performance from the previous year and spread my contribution around. If a fund is good the previous year, it should be good this year, right? Who cares if they charge more fees as long the performance is better? Oh, boy! That was a rookie mistake.

It took me a couple of years, but I finally noticed that chasing performance doesn’t work. Funds that outperform the previous year couldn’t maintain the lead for long. Well, that didn’t work, so let’s put it all in the company stock instead. This is call doubling down on dumb ideas.

I moved all the money in my 401(k) to the company stock and it was great at first. Everything internet-related was booming. Everybody and their mother was making a ton of money on the stock market. I bet you all know how this story ends. The dot com bubble popped and I found out you should not put all your eggs in one basket.

It is an extremely bad idea to hold any employer stock in your 401(k). I was already depending on my employer for my paycheck, health insurance, life insurance, and other benefits. I also had employee stock options, stock grants, and stocks from the employee stock purchase plan. It was a terrible idea to invest any more money in the company. Luckily, I was young and didn’t have a lot of money in my 401(k). Nevertheless, it was very painful, and it was good that I learn that lesson early. It would have been devastating if I learned this lesson in my 40s.

Lesson: Minimize your employer stock holding because you’re already depending on them for far too much. No job is safe these days. Also, don’t chase performance because it doesn’t work. It is better to stick with low cost index funds and rebalance once per year.

Our beloved BMW Z3

bmw z3

In 2001, I purchased a used BMW Z3 when Mrs. RB40 went to visit her family in California. We had a hand-me-down van and I wanted to surprise her with a nicer car. Imagine the look on her face when I drove up to the airport with the top down in the winter. She was speechless and was quite mad at me for making this decision without her. It took a while for her, but we came to love our BMW Z3 eventually.

We drove the car for almost 10 years and it was awesome to put the top down when the weather was nice. I say there are two kinds of people in this world — convertible people and non convertible people. It feels great to drive around in a convertible, no matter what the inconveniences. Ahhh, got my shades on with the wind in my hair. What could be better?

The problem with the BMW was the expensive maintenance and repair cost. As the car got older, we had to fix various things and every repair was over $500. Eventually, it overheated and the engine header cracked. I sold it off for cheap because we needed a bigger vehicle with a baby on the way. We loved the Z3, but I will stick with a regular vehicle in the future. I will get a Mazda Miata someday, though.

Lesson: Consider maintenance costs as well as the upfront cost when you purchase high ticket items like a car, a boat, or a house. Luxury vehicles cost more to maintain than regular cars.

Also, I learn that Mrs. RB40 hates surprises. This was a very good lesson to learn early in our marriage. 🙂

Sold our 4-plex

Newer readers probably aren’t familiar with our 4-plex adventure. We purchased a 4-plex in 2011 and sold it in 2014. We purchased it for $300,000 and sold it for $376,000. That’s not bad for 3 years. The profit was around $50,000 because we had to pay commission, repair, depreciation recapture, various fees, and taxes.

I think we did pretty well, but we could have done much better if we held on to the rental property. The real estate market was doing well in 2014, but the value of the multi-family properties were lagging behind the single family homes. If we held on for 2 more years and sold in 2016, the sale price would be closer to $500,000!

We didn’t maximize our profit, but that’s okay. That 4-plex was causing a lot of headache for us. It was in a cheap area and the tenants weren’t financially secure. The property backed up to a creek and we had major drainage issues every winter. One tenant built a tree house without telling anyone. It was one thing after another at this 4-plex. We had a property manager, but I still had to drive out there more often than I’d like. We were happy to get out with some profit and hand off the headache to the next owner. Hopefully, they knew how to deal with the tenants better.

Lesson: Avoid rental properties in sketchy areas. The tenants have more issues and there will be more problems.

Retired Early

Retiring early is definitely my worst financial decision. I was making good income and I could have earned a lot more if I continue to work. There is no question we would have been better off financially. We could have saved and invested all of my income and gave a big boost to our net worth. However, money isn’t the only consideration here.

Retiring early wasn’t a good financial decision, but it was the right decision for our family. My old job was taking a big toll on my physical and mental health. Who knows what would happen if I continued working and becoming more miserable? Life is much better now for our family after 4 years of early retirement. I’m making much less income as a SAHD/blogger, but we are much happier.

Lesson: Money isn’t everything. Money will help you achieve your goals, but money itself won’t make you happier. Sometime a financial mistake can mean a happier family life so don’t always prioritize money over family.

Also, I probably should have tried harder to negotiate for a severance instead of just quitting. My former employer started handing out voluntary separation packages soon after I left and they haven’t stopped since. Check out Financial Samurai’s book if need help with your severance – How to Engineer Your Layoff.

Make your financial mistakes when you’re young

Okay, this is running long so I’d better wrap it up. I have made a lot more financial mistakes, but I think these five were the worst. It’s good to get financial mistakes out of the way when you’re young. You don’t have a lot to lose, you can afford to learn from big mistakes, and you have time to get back on track. When you’re older, it’s much more difficult to recover from a big financial misstep. That’s why I’m glad I learn most of these lessons early.

What are some of your worst financial mistakes and what did you learn from them?

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{ 61 comments… add one }
  • Mr. Tako @ Mr. Tako Escapes September 15, 2016, 2:23 am

    Those are some doozies Joe!

    I’m completely shocked you put down ‘Retiring Early’ as a financial mistake!

    Yes, we could probably have made a bit more money in the end, but amassing the biggest number is hardly a good purpose in life.

    My worst financial mistakes:
    * Buying a car with a loan!
    * Bad mutual fund investments!
    * Buying too much house!

    • retirebyforty September 15, 2016, 9:50 am

      I’m really glad I got those 401(k) mistakes out of the way early when I didn’t have much money.
      If we look at it from the financial side, retiring early is a bad move for us. If we take a look at the big picture, that financial mistake means a better lifestyle. It’s a trade off, but I agree that amassing more money isn’t a good goal. Enough is good for us. 🙂
      Thanks for sharing your mistakes.

  • Dividends Down Under September 15, 2016, 3:02 am

    There are a couple of bad ones in there Joe. But as I read, it got progressively better..and your last one, well that’s the best one of the lot by a long way!

    I don’t think there’s anything wrong with company stock as long as it doesn’t play a huge part in your portfolio, and that they have a long term future.

    Our worst financial decision so far has been an investment decision in a listed company, the largest law firm in Australia (law firms allowed to be listed in Australia). They decided to buy a UK law firm that was about the same size as them, it’s turned bad and we’re down like 90% with our investment. Hopefully they can get back, there’s a decent chance they will.

    Tristan

    • retirebyforty September 15, 2016, 9:52 am

      Thanks! Company stocks are bad news for anyone. You get too attached to them.
      Oh wow, 90%. That’s a big drop. If you think they’ll get back, then maybe double down? That’s scary, though.

  • Jon @ Be Net Worthy September 15, 2016, 3:32 am

    Ha, ha, I like how you slipped in early retirement at the end! Not all financial mistakes are bad, depends on your goals – very nice.

    I think your advice to get your financial mistakes out of the way while you are young and keeping them small is a good one. It’s tough to learn without making mistakes so it’s best to start early and the downside will be limited – hopefully.

    The biggest “mistake” I have made is buying too much house. I can totally afford it, but if I want to get out of the rat race early, it makes things more difficult. At this point, I am on track to get out in nine years at 55 with the house paid off. If we would have stayed in our prior house, a much smaller townhouse, it would have been paid off already!

    I put the word “mistake” in quotes, because I’m not necessarily looking to get out early, and we do love the house/neighborhood!

    This was a nice article RB40, thanks for sharing your mistakes!

    • retirebyforty September 15, 2016, 9:54 am

      Thanks for the feedback. I wasn’t sure if that last one would work out. Yes, getting started early makes a huge difference for us.
      A lot of people buy too much house. It’s an easy mistake to make because the banks encourage us.

  • Maria September 15, 2016, 3:38 am

    My worst financial mistake was leaving the state of Texas and taking $10,000 out of my pension plan. No one shared half the money would go to Uncle Sam for taxes come tax time! What a huge mistake! I kept about $5,000 and the government kept the rest! Ouch!!!

    • Alberto September 15, 2016, 3:50 am

      Understand. Remember, when you cross the street look both ways. This means you have to consider the entry and exit in anything.

      We used borrowing from our 401K successfully when transitioning from one job to another as a way to keep contributing to the old 401K. It worked great.

    • retirebyforty September 15, 2016, 9:55 am

      Yikes! 50% is a lot of tax.

  • Alberto September 15, 2016, 3:44 am

    Good article. We learned more from our failures than our successes. We purchased an Infinity G37 Sport Convertible since we live in California and driving up the coast with the top down has no equal.

    We also did kind of did early retirement at 60 (bride is 10 years younger) but after raising 3 children I was ready for the same reasons you mentioned. Started to get older and saw a lot friends died or with bad health problems. Can’t tell you how much that impressed on me.

    Not long ago it was fashionable to purchase a larger home for social and network reasons such as office parties and community fund raisers. This is part of corporate America if you want to move up in the tanks. We avoided that and bought below our means which in turn helped us turned it into a profitable rental. The only thing I would add to it is do not accumulate things you don’t need or use. We paid storage fees for four years holding on to things we gave to charity or threw away. So clean up early and often. At least once a year. It saves money in the long run.

    • retirebyforty September 15, 2016, 9:58 am

      Wow, that sounds like a nice cruiser. I love driving around in a convertible.
      It sounds like you did very well for yourself and your family. Great job avoiding the housing trap. Many people make that mistake because they think it is a good investment.
      Congratulations!

  • Physician on FIRE September 15, 2016, 3:53 am

    #5 is so true, Joe. The opportunity cost of not working is quite high when you’re in a position to make the big bucks! But if you’re burnt out and don’t need those bucks, the best decision is the one that doesn’t benefit you financially. Tough to say it hurts you since you’re already a multimillionaire, and money isn’t everything.

    I bought a convertible a few months before you did, using a HELOC. It was great to have for a year and a half, but the ragtop leaked, and I swapped it out for a more practical vehicle just before finishing residency.

    Cheers!
    -PoF

    • retirebyforty September 15, 2016, 10:01 am

      I just read that multimillionaire means $10 million or more. I don’t think we’ll ever get there.
      Our ragtop was good so we were happy for years. There were too many repairs, though. I bet the convertible was popular when you were in residency.

      • Physician on FIRE September 15, 2016, 1:10 pm

        Wha wha wha what!?! Earlier today, I was told it took $5 million to be considered a multimillionaire. 2 is a multiple. You have $2 million. You are a multimillionaire according to math.

  • I’m in the same boat with you on retiring early Joe – but you did it much earlier than me, and I’m still doing some part-time work. I have been an educator for 28 years and I got my doctorate too. I could be a building principal or even a superintendent – which are really only the jobs that will get you six figures. And I could have retired (in 5 years) with good medical coverage and other perks -but I walked away. Even though I’m in a temporary assignment now, I know I can walk away – and next fall we’ll be out west camping, when I could be sitting in meetings and dealing with angry parents and teachers. Nope – money isn’t everything.

    • retirebyforty September 15, 2016, 10:02 am

      Thank you for sharing. That’s a hard job. I’ll try to keep calm when I talk the school personnel. 🙂

  • Apathy Wnds September 15, 2016, 4:25 am

    Definitely the amount of student loans I took out, dug a huge hole before I even had my first job. The second one is selling our first home a little early, we made money but the property values in our area went up rapidly the next year

    • retirebyforty September 15, 2016, 10:03 am

      The student loans became such a huge problem after my generation. It’s tough to start off in a hole. Thanks for sharing.

  • The Green Swan September 15, 2016, 4:34 am

    Some good lessons in there, Joe, and some thought provoking ones as well. I would have loved to see the look on Mrs RB40’s face when you drove up with the Z3. Shock and awe, I’m sure. Glad it turned out to be an enjoyable ride for you both though!

    I can totally see how the early retirement choice was a tough one. Looking back I can see how you could potentially regret it, but like what PoF said above, if work was becoming a grind it can be hard to stick it out a few more years. That is one of those decisions that can be very prone to regret one way or the other. Glad that mistake hasn’t come back to haunt you though, you’ve done well with your early retirement.

    • retirebyforty September 15, 2016, 10:05 am

      Oh yeah, she was PO! At least I learn early that she doesn’t like surprises. I always check with her first after that incident. 🙂
      I don’t regret early retirement, but it’s not an optimal move financially. I’m thankful that we have been lucky so far.

  • Matt @ Optimize Your Life September 15, 2016, 4:57 am

    I like the outlook that something can be a financial mistake, but still be the right decision. Health and happiness > Money.

    Going by the numbers, my biggest financial mistake was going to law school. Six figure debt and I had no interest in going to the big firms that would pay enough to get rid of it quickly.

    • retirebyforty September 15, 2016, 10:06 am

      Thanks for the encouragement.
      Yes, that sounds like a tough position to be in. I guess you have to grind it out. Good luck!

  • Jay September 15, 2016, 5:03 am

    Great point about company stock Joe. A lot of companies also subsidize the purchase of their stock to make it even more appealing; but I think you’re right, you are already too dependent on your employer.

    I also appreciated that most of your mistake weren’t bad decisions, just things you weren’t comfortable with (like borrowing to invest in stocks and the headaches of holding on to the 4-plex). So even though these may be mistakes financially, it sounds like you made the right choice as far as your quality of life was concerned. Your decision to retire early certainly hammers home this point.

    Thanks again for candidly sharing your experience!
    Jay

    • retirebyforty September 15, 2016, 10:08 am

      Yes, some of those decisions weren’t optimal financially, but they improve our QOL. That’s what really matter.

  • Jim @ Route To Retire September 15, 2016, 5:52 am

    Wow, like probably most of your readers, I’m pretty shocked to hear retiring early as a mistake, but I do get it. If you look at the numbers, retiring early does prevent you from bringing in more income from a good-paying job. Still stings as one of your readers wanting to retire early though! 🙂

    I think buying too much house was a financial mistake we made. We have a beautiful 4-bedroom house in a good neighborhood for just me, my wife, and daughter. We’ve talked about it even last week that we could be much further ahead if we downsized. It’s a tough pill to swallow though because we really love the neighbors and the house. We’ll see if we end up doing that in the near future.

    — Jim

    • retirebyforty September 15, 2016, 10:09 am

      Financial mistakes could still mean a net win. That’s the underlying message. 🙂 You can afford to make some financial mistakes if you’re prepared. Good luck with the relocation. We hate moving too.

  • Mr. PIE September 15, 2016, 6:08 am

    Not done any of those but we have been guilty of plenty others. For example:

    1. Pulling some money out of the market at the bottom of the crash in 08-09. Ouch.
    2. Not researching certain investments enough before committing funds. E.g. Non traded REITs. They are doing ok for us but it could have been much worse.
    3. Not uncoupling from a financial advisor soon enough. We eventually did pull the plug but it took longer than it should have.
    4. Being very “spendy” in our early years and not putting enough money into taxable accounts as we could have done.

    • retirebyforty September 15, 2016, 10:12 am

      Those are some doozies too. I had #3 as well. Luckily, I did that very early in my career. It turned me completely off from financial advisors, though.
      #1 sounds like it hurt. Luckily, we learned from the dot com burst and doubled down during the financial crisis. That’s the time to buy. 🙂

  • Sam @ Financial Samurai September 15, 2016, 6:51 am

    It’s cool you listed retiring early as one of the worst mistakes. It’s honest regarding lost wages. I’d have to include this mistake as well for me. Took about 2-2.5 years after leaving Corporate America to replicate my old day job income.

    It would be nice to replicate the day job income AND still make the day job income. Then I’d be RICH! 🙂

    S

    • retirebyforty September 15, 2016, 10:13 am

      I don’t think you can count retiring early as a mistake. You’ve done so well since then.

  • Dave in Sunny FL September 15, 2016, 7:08 am

    I gave up a one-and-a-half percent pension plan for a defined contribution plan at 9% of salary. That wasn’t too bad, but a few years later my public employer cut their contribution by 60%! I got mad, but doing well is the best revenge, right? I read lots of books, consulted with a financial planner, and got our finances more organized. We just closed on a 4-unit building. (And since it has tenants in place, we got cash at closing from partial-months’ rent.)

    • retirebyforty September 15, 2016, 10:15 am

      Sorry, that’s a bit too complicated for me. I’m not familiar with pension math. It sounds like you lost 60% of the promised money. That has got to hurt. You can’t count on your employer these days. Good luck with the 4 plex!

    • Mike H. September 15, 2016, 1:11 pm

      Dave, you shouldn’t feel bad. I’m assuming you work/worked in FL. Florida’s government put a TON of money into a marketing campaign to convince people to elect the DC plan. Were/are you a teacher?

      Joe, what Dave means by a 1.5% pension plan is that his annual pension amount would have been calculated at 1.5% * years of service * some kind of salary average (or some formula like that). 1.5% is middle of the road for general government employees, but lower than average for teachers (if Dave is/was a teacher).

      The real kick in the pants is if Dave’s pension included built-in cost of living adjustments. Giving those up for a crappy DC plan hurts…

  • freebird September 15, 2016, 8:37 am

    I’ve made very few large purchases in my lifetime so not much to regret there. I don’t think about it often but the highest-dollar-value mistake I made was being late in starting on my 401k. We could sign up after one year’s service and after my third year a colleague from a sister department found out I still hadn’t enrolled, so he brought me the forms and wouldn’t leave my office until I filled them out and sent them in. He probably rescued me from what would have been a lot more damage. We lost touch over the years, so I guess the only way I can say thanks is to pay it forward– if you or someone you know hasn’t enrolled in an available 401k plan, DO IT NOW!

    • retirebyforty September 15, 2016, 10:16 am

      That is a big mistake, but at least you only lost a couple of years. That’s a good friend you had. Contributing to your 401(k) is a great habit that will stick around for a lifetime.

  • SF Bo September 15, 2016, 9:11 am

    1. I tried to follow Buffet’s advice (be greedy when others are fearful and be fearful when others are greedy) during the recent financial crisis. I bought Apple several times on the way down. After six months of waiting for things to get better, I got spooked and sold my newly purchased Apple shares. If I had held onto the shares, I would be looking at a gain of over $430k. Ouch.

    2. My first investing experience as a teen was buying penny stocks. I lost all the money I invested. Shame I didn’t invest in a blue chip or a good index fund / mutual fund.

    3. Selling my first home. I bought a house in New Orleans and held onto it even after I moved out of New Orleans. I then sold the house. Pity. It is worth a couple of hundred thousand dollars more than I bought it for and I would have had ongoing rental income, too.

    I’m sure there are plenty of others but those come to mind.

    • retirebyforty September 15, 2016, 10:18 am

      It is tough to buy on the downside. I don’t think I have the gut to do that either. I prefer to buy index when the market crashes so the position isn’t so concentrated.
      I lost some money in penny stocks too. At least I stop doing that pretty early on.
      Thanks for sharing!

  • Fred L. September 15, 2016, 9:20 am

    One of your best financial decisions was making your worst decisions when you were young. I experimented a lot as a recent college grad. Day trading, selling covered (and sometimes uncovered) calls, credit card churning, etc…

    I made some money but probably lost quite a bit more than I made. But I learned a tremendous amount. And “big losses” when I was 25 meant $1000. As an affluent young person, that’s a great time to make mistakes that teach lessons. You can only learn so much by reading books and blogs. Nothing sticks with you like a concrete loss. Now in my 40s with what I’d consider “real money” at my disposal, I’m grateful to have had those lessons.

    A friend took a retirement package a couple years ago. He’d never dabbled in individual stocks before and decided he should start. He made some quick money on options which gave him dangerous confidence. Then he lost big, at a point in his life where he really can’t afford to be losing big…

    • retirebyforty September 15, 2016, 10:20 am

      Excellent! That’s exactly my point. Everyone need to start investing early to get those mistakes out of the way. You don’t want to make those mistakes when you’re in your 40s.
      Yikes, sorry to hear about your friend. That’s rough.

  • Mike H. September 15, 2016, 9:56 am

    You haven’t done too bad for yourself, Joe; certainly better than the average American. None of your mistakes were really that bad.

    For me:
    1. Used a bad credit card with a lot of fees when I was 20.
    2. Not investing early. When I was 21, I had saved thousands of dollars…and spent it all on musical instruments.
    3. Paying off my debt too quickly. Yep, that’s right. During the 2009-2014 market runup, I made extra payments on my low-interest student and car loans. I did the math: the value of those extra payments, invested into an S&P 500 index fund at the times I made them, would have had me completely debt-free by now, with a LOT of extra to spare.

  • Fiscally Free September 15, 2016, 10:32 am

    I think you have done pretty well. None of your mistakes seem that serious.
    I also fully support buying a Miata. They are super cheap to buy and maintain. I have a ’94 that has been completely trouble free, despite being over 20 years old.

    I was lucky to have a very financially savvy father who educated me on personal finance. That allowed me to avoid any big money mistakes.

    • retirebyforty September 15, 2016, 2:17 pm

      That company stock in the 401k could have turned out really bad if I did it in my 30s. The other ones aren’t that bad. 🙂
      What a great thing to say about your father. I hope my kid will say the same thing of me someday.

  • Laura September 15, 2016, 10:55 am

    Live and learn. One we barely got away with is DH got in on a “great” tech IPO right around 2000. He (and some coworkers) bought a lot of that stock. He talked about how he had to hold onto it and not sell right away because if he did, he wouldn’t be invited to more IPOs.

    Well, the stock absolutely surged the first week. I really wanted him to dump the shares and get out while we were nicely ahead. After a few months as the value went down, he reluctantly sold enough to make up the investment + a tad more. Before a year was up, the stock was worthless. Some of his coworkers never did sell and lost the whole investment.

    • retirebyforty September 15, 2016, 2:18 pm

      Wow, that’s pretty crazy. I probably would have held on. My track record was bad on that front. That’s why I like investing in index funds now. I know I can hold on until the market recovers.

  • Mike Drak September 15, 2016, 12:45 pm

    Sorry but I had to put in a couple extra mistakes to tell the full story. Here goes from most recent to oldest.
    1) Buying a boat when I retired. The boat was a good idea but i didn’t realize it until too late that it wouldn’t fit in my garage.
    2) Buying a hot tub when I retired. The concept seemed good at the time but I’ve only been in it once since buying it.
    I blame mistakes 1 & 2 on retirement shock after suddenly leaving my job after 36 years.
    3) Getting divorced. It cost me a lot financially but it was the right thing to do. Money can’t compensate for being unhappy for the rest of your life. Wait maybe it was my best move because I eventually met and married the Contessa and life is pretty good these days.
    4) Buying whole life insurance in the hopes of using it as a tax shelter. I thought it was a good idea to help save money but just shortly after I bought it the Canadian government introduced the TFSA.
    5) Early in my career investing all my money in one high quality stock which took me on quite the ride and resulted in many sleepless nights.
    6) Investing in penny stocks that ended up being worth less than pennies.
    7) Loaning money to a friend. Still waiting for payback.
    8) Loaning money to a family member. Odds of payback are lower than #7
    Let’s just say I’ve become well educated about money over the years!

    • retirebyforty September 15, 2016, 2:21 pm

      Thanks for sharing! My father in law did the same with a hot tub…
      Getting a divorce is tough, but it’s better for everyone to move on. If both people are happier, then that’s good.

  • Rock the Casbah September 16, 2016, 7:56 am

    Hey Joe,

    Thanks for sharing. Last one is interesting because it illustrates the trade-off between finances and other aspects of your life (health, family, etc.). Sure, you could have keep stashing away more bucks but, at what point does the detriment to these other things become just NOT worth it. That’s the situation I’m facing soon as I am getting close to reducing my hours, stress (and, of course, earned income) as I plan to transition soon to an hourly, reduced hour job (instead of the high hour, high stress salary position I have now).

    Anyhow, I think my worst mistake was NOT saving any money outside my Roth IRA until I was in my early-mid 30’s. I did max or near max out my IRA contribution but other than that, nada. Well, a big stock market correction came along in 01-02. I recognized that it would have been a good opportunity to invest in equities yet I had NO capital to take advantage. Immediately afterwards I began to increase my savings rate. That, combined with some profit I got selling my first house in 06’ and an inheritance I was fortunate to receive, gave me a healthy amount of capital to aggressively invest in stocks during the YUGE (as The Donald would say) stock market correction of 08-09. But, prior to that, outside of my IRA and a small emergency fund, I had NO additional savings and NO dry powder to take advantage of investment opportunities.

    Thanks again for blog and insights.

    • retirebyforty September 18, 2016, 7:14 am

      Having no dry powder in the keg was a problem for me too. I kept investing, but we could have done much better if we had some extra cash. It sounds like you did great during the last dip. This time I’m saving some cash so we’ll be ready to buy some stocks when they are on sale.

  • Millennial Moola September 16, 2016, 8:18 am

    The returns can be fantastic in sketchy areas, but you really need to think twice. My buddy worked in foreclosures until he almost got jumped by a bunch of angry guys from the neighborhood who didnt like their friend getting put out on the street

    • retirebyforty September 18, 2016, 7:15 am

      The cash flow is typically better in sketchy area, but I think the appreciation is better in nicer area. It’s a trade off.

  • Mr. All Thinks Money September 16, 2016, 1:26 pm

    I keep a diary of my own investment or money mistakes and regularly review the list to make sure I don’t repeat them. Also it helps to make these mistakes and learn from them while still getting a regular paycheck.

    BTW, just yesterday someone asked Paris Hilton on CNBC what was her worst investment or money mistake. Her answer blew me away. I wonder if she is going to retire by 35 and we will be all following her blog. Here is the video of her interview http://www.msn.com/en-us/money/markets/paris-hilton-from-socialite-to-entrepreneur/vi-BBwas4w

    • retirebyforty September 18, 2016, 7:15 am

      Thanks for the link. That’s a great answer from Paris. I guess some people are perfect. Heh heh…

  • Smart Money MD September 16, 2016, 1:31 pm

    Good point on the company stocks on the 401k. My employer offers a deal to purchase shares of their stock (using post-tax income) at a 52-week low. I can’t really say that it sounds like a great deal, but I know plenty of employees going for it.

    Rule of thumb is to spread your eggs around. Congrats on your status! I’m still in the sub-$1 million net worth. Maybe one day I’ll truly become a “multi-millionaire”!

    • retirebyforty September 18, 2016, 7:16 am

      A lot of people at my old company take that deal and sell the stock as soon as they could. It’s a good deal most of the time. Good luck!

  • SavvyFinancialLatina September 16, 2016, 4:28 pm

    It seems like car purchases seem to be a financial mistake for many. I bought a a 2007 Honda Civic in 2012. It was my first car. Looking back, I paid too much for it. I should have bought a little Toyota Yaris! But everyone kept saying don’t buy a tiny car. I love tiny cars! I don’t drive much since I live within walking distance to work. It’s amazing by the way. I walk every day!
    Obviously, it would be better to not have car and maintenance but I haven’t lived in a city where public transportation is good. Even now, I live in the city and public transportation is meh.

    • retirebyforty September 18, 2016, 7:17 am

      I think most young people want a nice car. When I got older, I didn’t care much about what I drive. It just has to get me around and be safe.

  • James September 16, 2016, 6:58 pm

    I would consider retiring early a financial mistake only if you don’t do something else productive with your life. It’s still sort of early to tell if you called in quits in 2012. If you learn other skills or start a new career that pays way more than engineering(there are plenty), then retiring early can be a great decision since it allowed more time to pursue your other goals. Good luck.

    • retirebyforty September 18, 2016, 7:18 am

      Thank you for your comment. I don’t plan to start another career, but who knows. Money isn’t a consideration anymore so I don’t feel pressure to do so. I’d rather do something to help people.

  • Martin Stone September 18, 2016, 8:16 am

    Hi Joe, I think other than investing in your company stock for 401k your mistakes have been minor. For me it would have to be: Buying a car with a loan; Not buying our second home/investment property in 2009 (bought in 2013).

    As for retiring early, it is certainly not a mistake when you have a good plan for getting through your non working career. And it seems to me that you are completely on top of that.

  • Centsai September 26, 2016, 6:29 pm

    A lot of people can relate to these financial mistakes! Gambling is such a bad and EXPENSIVE habit to get into and you should definitely try to avoid gambling at all times. Divorce on the other hand, is hard because sometimes as much as you want it to work out, it just can’t be avoided! Divorce is also very expensive between lawyers and so on.

  • Yoshiko Ikeda September 30, 2016, 6:45 am

    Hello, Joe.

    You don’t learn to walk by following rules.
    You learn by doing, and by falling over!!!

    God bless you and your family!!!

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