It's easy for me to sit back and brag about my biggest wins. There is no way they would have happened though without me experiences some tough financial losses first.
Looking back it's so easy to see where I wasted all that money – being convinced too easily, assuming what worked for others would work for me, trying to fit in with a crowd or assuming I could afford it.
Those were the losses. Thinking of the wins, some of my best financial decisions weren’t obvious at all until much later but made my life so much better.
Knowing which investments to make, or who not to give your money to, would be ideal but in reality we make decisions that have big and small repercussions.
I’m not exempt from making terrible money mistakes. In fact, most of the reason I’m so strong in personal finance today is because I learnt so many early in my adult life. I’ve continued to try for the best but failed miserably.
Let’s go down memory lane and unpack what I consider some worst. To me, the bad ones are those where I’ve rushed into spending money or gone in without the best information.
Going finance for a car
Going back now, I feel like it blinded me to what could have been. Instead, I got consumed by doing what most people seemed to do.
It was buying a near new car, and borrowing money to buy it.
I sold my semi decent car late in 2010 as it was having some issues. In reality, having no car was no problem. Work was only 4km away. I rode or walked in. Getting out and about was fine with taxis and public transport. I could walk to the shops.
In my mind though, a car was a necessity. Who doesn’t have a car?
I listened to voices in my head telling me to buy something that looked and drove well. It ended costing me twice what I sold the old car for.
I was lucky that finance only cost me ~8% a year.
The term was 4 years, and I ended up selling car in less that three.
What I learnt: You don’t need to assume what you needed then is what you need now
Finance on cars is a terrible idea, there was little flexibility in payment schedules and exit fees were costly when I sold the car
What I should have done: Go longer without a car and determine if it's a key part of the lifestyle I wanted.
Continue to save hard for the car if it was important to me, and buy something within my means
Buying a property with family
There are two types of people. Those who own property and those who don’t.
If you’ve never owned a property, it's something you aspire to. It's one of the ultimate forms of status. Owning property. Yeah.
In my mid-20s (not long after going through my car episodes) my Dad suggested me that my sister and I should go in with him to buy an apartment together.
Great, I thought. Lower costs, get to own something and probably get a nicer version of what I could afford on my own.
I said yes.
The problem with the structure of ownership was the decision making. I didn’t have control. In fact, I only had 30% of a say. Every consideration had to be made in unison with the three owners.
Whether or not to get a new air conditioning unit and which one. What carpet to install. Whether to repair the floorboard ourselves or professionally.
There were also fees. Body corporate, rates, maintenance and utilities that were constant.
Property ownership wasn’t all they cracked it up to be. It hampered my lifestyle as I was constantly saving and working to contribute to the property.
I lived in it for two years with my sister. After that I moved out and lived with my girlfriend (now wife). What I had now was an investment property.
This was worse. I held onto it for a few years as it was low cost, but eventually the costs added up. New windows, broken pipes, more upgrades.
I wanted out but couldn’t without sign-off from the others. I could force it by law but didn’t want to be that drastic. Eventually I got bought out by my sister.
I probably broke even in what I put in and got back. I was lucky.
What I learnt
For all the emotional and time spent managing, discussion and thinking about the property it was not worth it.
Property is no golden ticket
Working with family is hard work when money is involved.
What I should have done
Spent a lot more time considering the numbers and forecasting what the expenses would be
Having an exit strategy in place
Spending frivolously on a holiday I couldn't afford
Back in 2011 I spent most of the year planning for a holiday to the US. I expected it to be one of those ‘once in a lifetime’ holidays – and it was.
I went solo from Boston to Washington by train, plus a stop in New Orleans and Dallas.
It came at a perfect moment in my life and will always be fond of the trip.
What I don’t enjoy remembering happened after.
Before leaving, I had saved a good amount of money for flights and accommodation. I paid these off in the months leading up to it.
While I had a loose budget for the trip I didn’t want to be limited in opportunity because of price, so a took a 28 degrees card.
I used this to pay for $70 dinners (dining alone), clothes, shoes, day trips to random places, nights out and anything sports related.
At the time I felt in control, but when I got back, I realised there was a few thousand owing on the card.
No worries, I saved to pay for most of the trip I can now save to pay off that debt.
Except it wasn’t that easy.
Shortly after returning, I had to pay for a new air conditioner in my apartment, needed new brakes on the car and got to a stage where there was literally nothing left except to pay via credit.
So I racked up more in debt. I got to a place where I could stop the bleeding and worked out a system to get back on track. I’ll save this method for another post.
It took me around 18 months to get out of credit card debt. Throughout that period I became someone who could buy something if they wanted to not even considering it.
I remember feeling flat after seeing a nice new shirt at Country Road and knowing I couldn't buy it (when in the past it would have been a go). My girlfriend ended up buying me that shirt as a “you can do it” gift and I’ll never sell that shirt.
After 18 months of keeping my feet firmly on the ground (rather than floating in a dream state of denial), I could pay off the debt.
While it was a hard time, it left me with a significant experience of what not to do and strengthened me in finance and resilience.
What I learnt:
Debt can be crippling. It stops you living your life on your terms.
What I should have done:
While I said I didn't want cost to be a factor, I was probably to far into the “money is no object” mindset. A lot of the spending was only because I was in the moment so If I was to go a on a trip like this I would spend some consideration to what I truly value.
That and save a bit more before leaving. Sacrifice to save for a short period instead of sacrificing longer to pay back debt.
Stock picking (and reading an article I considered good advice)
Was reading motley fool and thought I’d found a stock that was a sure thing. It dropped 25% in the first month.
Here is what I know about picking stocks now.
My Money Wins
It’s much easier to pick out the bad calls than the good ones.
With the bad you can remember back to when times were tough, or you just felt like an idiot after doing something.
For the good money decisions I made though, it took me longer to list them.
I haven’t been in a position where I’ve ‘struck gold’. Haven’t won the lottery, picked a stock that’s gone up 1000% or bought a property that tripled in price in three months.
When I think of the best investments I’ve made, I’m actually thinking of times I’ve spent money and enjoyed it. Not necessarily a pure financial gain, but a complete win in terms of satisfaction. The first two here are gains from me spending money based on lifestyle rather than figures.
Spending money on services that make things easier
Rather than a one time call on spending money, this area is more of a principle that has paid off.
I like to use my money as a tool. My money is good money, and I want that tool to provide benefits for the way I live.
As a family, we often think about ways that we can spend to make things easier and buy our time back to focus on the high value of things rather than the chores.
Some areas that we spend money on are
- Eating plans – saves us time thinking of what to cook and shop for each week
- Investment portfolio manager – Keeps track of all my shares and stocks in one view
- Bookkeeping – Keeps track of cash flow in one Dashboard connecting all our accounts
- Spotify – Keeps the entire family entertained and relaxed with music, stories, books for any mood
While some experts say to cut back on subscriptions, these here are all easily worth their money. They are all time savers, which we value.
This one needs some explaining.
I’ve been balding since I was in my early 20s. It was a bother at first but over time I’ve learnt to shave my head and continue to to do. I never spent much in a way of hair treatments or products to reverse hair loss.
That was until I found SMP – scalp micro pigmentation. In brief, this is a treatment were you have tiny little dots tattooed on your scalp to create the illusion of a shaved head or stubble. It wasn’t until I found out and saw the results first hand that I knew it was something I wanted.
Going through four sessions of this wasn’t cheap, but the results are amazing. I feel totally upgraded. I look back of photos without before I had it done and can only feel like I looked so much older. I get some great comments on people after seeing them realise. It’s not obvious but subtle and blends in like its supposed to.
This is one example of me spending money to improve my life. I feel great, have no regrets on the decision and it was one of the few times I felt like – what else would I do with my money but spend it on this?
Renting gets a bad rap.
It seems it's a poor man's option or for those who can’t afford to buy their own home.
Going back generations, those who owned land owned wealth and we still seem to align ourselves with this even though renting has considerable benefits.
The best financial decision I’ve made as a dad to date is to not pressure ourselves to buy a house.
Yes, its a dream of ours to buy a house one day, but we want to buy the right house.
We don’t want price to dictate where or how we live.
We want to walk in with half a million dollars in cash, find our dream home and go for it. No compromises.
On the flip side, we love the flexibility and cost savings that renting provides us.
We can try out new areas or cities, and if we don’t like it we can leave. We can rent for about 60% of what the costs of owning and supporting a house would be. With that extra 40% we save and put it towards and eventual mortgage. A good trick to help with this is pretend you own the house, estimate how much repayments would be and save the difference between that and rent.
One thing I've realised in the rent v buy debate is that renting is all-inclusive. The weekly rent is the most you ever pay. Burst pipe? Landlord will fix. Fence falls down? Landlord. Unexpected holes in the roof and entire thing needs replacing? Landlord.
As an owner, your mortgage is the minimum you pay. There are also rates, maintenance, taxes that all creep up when you might not have planned for them.
While one day we’d ultimately like to buy, we see renting as our choice. The numbers stack up and it's a great financial and lifestyle option for us at the moment.
The honorable mentions of money wins and losses
Avoiding lifestyle creep
At first this can be difficult to control, but it's worth understanding that your expenses do not have to increase at the same rate as your salary.
You need to separate the two and not regard income a spending money. We have a system in place that allows us to spend well on what we love and cut back hard on what we don’t irrespective of how much our income fluctuates.
Saving and investing regularly
Automation is a fantastic benefit of online banking and finances. It is completely set and forget. My best example of this is when I opened a Vanguard index fund for he first time.
I plonked $5k into it and setup $100 to go into it each month. 5 years later it was at over $17k.
It’s important to realise that its’s not only the rate of return from your investment that you gain, but the rate at which you put it. I was putting in 24% of my original investment into the fund each year. If I’d only put the deposit in and left it for the 5 years, i’d probably have only half that amount.
The hundred dollars didn’t matter much each month, especially now seeing how much it can rapidly grow after a bit of patience.
Stopping spending to fill gaps in life
This is one I’ve realised more since being a parent.
You can make do.
Our iMac broke down last year, and I was worried about the cost of replacing it. What I did was pull out my 5-year-old travel laptop and started using that combined with an iPad. 10 months later and I still haven’t got around to replacing the iMac. Don’t even need to.
It’s amazing what you think you need.
I need that new phone. My cars getting old. I need a new coat for winter.
These are all flavours that you want, but once you do you move onto the next thing and forget it. New shiny things wear.
Beating this desperation to have things has allowed us to focus on what's important to us – experiences, relationships and time.
How to avoid the bad decision
In the most simple sense, learning to understand money and experience many scenarios through it should all contribute to helping you make less poor decisions.
It’s hard in a way when there is so much noise going around us in the media and others that puts a lot of pressure on us to decide. Whether they be purchases, we think will make us happy or things we can’t afford.
Remember that our lives are just that – our lives. We know better than anyone else what suits us and what makes us feel happy. We justify or defend what we do with our money.
Setting goals and targeting them relentlessly with good spending and savings habits will allow you to find a way through the dodgy options and win at life.
Some little tips take away that I definitely use now to help me create better decisions is this:
- Write things down
- Talk it over with people (although people may disagree with your dreams, it helps to talk it out of
- Sleep on it
- Spend more time on the big decisions