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Have You Made a Big Money Mistake? How Did You Fix It?

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Everyone has done stupid things with their money. Some people have the finances that allow them to absorb the mistake and move on fairly quickly. Others need more time to financially recover. Money mistakes range from the mostly harmless, such as buying an expensive item you don’t really need, to truly devastating, such as being overweighted in your company’s stock. Other money mistakes include items like not having adequate insurance, assuming your investment adviser will act in your best interest, and running up debts.

None of us is perfect, and there is likely a money mistake lurking in your past. I know I’ve made my fair share of money missteps. Here are two of my bigger money mistakes — and how I remedied the situations:

1. Too Much Debt as an Undergrad

When I went to college, I took student loans. I meant to use them only for the first year, since I wasn’t sure about having a job. My full-tuition scholarship covered my tuition, and my parents were paying for my housing. I got student loans to help pay for books and meals. The plan was to find a part-time job (and I did) to cover these expenses for the remaining three years. However, I decided I liked the extra “income” from the student loans. Instead of limiting myself to one year of student loans, I got them for all four years.

Then I got a credit card. I ended my undergrad experience with three credit cards — all of them almost maxed out. With all of that debt, I was concerned about my financial future. Sure I’d had fun, but how was I going to pay for it? And the interest. Oh, the interest!

Eventually, I began paying down the debt, and I vowed to avoid debt in the future. I’m still working on the student loans (I added to them in grad school), and I sometimes think about the $15,000 less I’d have in student loans if I hadn’t borrowed unnecessarily during my undergrad years.

2. Failure to Account for Taxes

When I began earning money working from home, I didn’t think much about paying taxes. In the back of my mind, I knew I would have to pay taxes, but I didn’t understand the self-employment tax that had to be paid on top of my income taxes. Not that I planned for income taxes, either. I didn’t set any money aside to help pay my taxes, and I certainly didn’t pay quarterly taxes. Needless to say, things got kind of ugly — especially when I used a newly-liberated credit card to pay my taxes, instead of looking into options like the IRS installment plan.

Now, of course, I pay my taxes quarterly. This helps me keep on track. I divide up my total tax liability for the year by 12, and then set aside money each month. When it’s time to pay quarterly taxes, it’s a fairly simple task. I’ve also started making sure to prepay my state taxes in order to avoid a big bill at tax time. This makes things easier for my cash flow, and prevents me from getting stuck at a time when I can ill afford it.

What about you? Do you have any big money mistakes?

{ 12 comments, please add your thoughts now! }

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12 Responses to “Have You Made a Big Money Mistake? How Did You Fix It?”

  1. Huskervolleybfan says:

    Sold a little Enron but should have sold it all. Also that Mississippi insurance company that was a bad deal (I have even blocked out the name). My losses although not life threatening were enough that I regret not paying more attention. Many people in Omaha had their lives changed by the charlatan at Enron.

    I don’t have stop loss tags but think I am going to put them on my “big” gainers.

  2. WR says:

    Garsh! I make money mistakes every day.

    Biggest ones

    1. Worldcom, Fannie Mae, Freddie Mac…Dollar Stocks.
    I bet that these 3 companies would recover handily from their woes. Did not lose a huge amount but they all sting pretty bad.

    The Fix: I am now 100% (o.k 90%) asset allocation, index fund investor. I read Malkiel, Buffet, Ben Graham/Zweig and keep roughly equal parts in Stocks, Bonds, Cash and Precious metals. I rebalance every 6 months or so. Done quite well.

    2. New Car. Several years ago my 1980 Mazda RX7 broke down. I walked to a Jeep dealership and drove away in a “Only $300 per Month” Offroad vehicle. I was a waiter/bartender and a full time student renting a group house with my friends. It was not too long that the $300.00 (plus insurance which was freakish even for a 20-something male driving a Jeep) plus gas, plus maintenance plus…. It was too much

    I ended up selling the jeep and owing a significant amount in cash.

    the Fix: I always pay cash for vehicles. Period. some of the early ones were monstrosities (but fully paid off monstrosities)
    It is something of a victory to keep a car going long after it should have been crushed.

    -WR

  3. Guy In San Antonio says:

    I am almost 50. I love cars. My biggest mistake, looking back, was buying new and financing to the point where i ended up with 2 car payments at $600 each!!!! It started slow and i inched my way up to it as I got older and made more money! NO MORE!!!! Now i make car payments to a special savings account. The value of my trade plus what is in that account is what i can buy!

  4. PlayVT says:

    There are many. Here is the most recent one:

    Believing in and attempting to be a contrarian investor, I bought financial stocks (index fund covering financials) early in the most recent financial crisis. I had no idea how bad it was, thinking that the media was sensationilizing it all. Come to find out, it was worse than most thought. I used “play” investment money but, I definitely regret that loss. It did make an impression and I think I will stick with real index investing and avoid sector indexing and trying to guess where the market is going. The majority of the financial “professionals” (term used loosely) can’t beat the market and I doubt that I can do it.

  5. DJ Wetzel says:

    You know I used to work in a FInancial Aid office, and I met way too many students who had racked up tens of thousands of dollars in student loan debt only to graduate with a meaningless degree, or often times, not even graduate at all.

    It does not surprise me at all that student loan debt has now surpassed credit card debt levels. This is an epidemic and I fear the bursting bubble is near.

  6. Scott says:

    Couple years after I started working I had some money sitting in savings and got contacted by a “precious gemstone investment company”. Sounded like a good deal so I invested a little. Then they called back with better deals. Invested a little more. All told I was in for $8000 when I said I wanted to cash out some of the stones and they had a really hard time returning my calls. After a month or two of strange behavior I got really suspicious and a little internet research led me to a forum of other investors that got swindled by the scam (some for much more than myself). Those bad news “investments” were my huge mistake.

    The good news is that it got fixed. The feds caught the one US guy helping to run the operation (the rest were supposedly Canadian) and after his trial, conviction, and subsequent liquidation of assets, because I had turned in my evidence to the prosecution thanks to contact information listed on that online forum, I and many others slowly got our money back (checks were spaced out as the liquidation took place). In the end I may have lost only a hundred bucks or so on the whole deal. So I consider myself very lucky and have more than learned my lesson.

    • Martha says:

      I’m so glad to hear you were able to get your money back! Most of the time when you hear about a scheme the end result is losing all of their “investment”.

    • Vic says:

      Wouldnt be by any chance CMKX? Buncha crooks those guys

  7. Rob from NYC says:

    One of my friends lived in Oregon and had bought some land. It went up quite rapidly (Eugene area). He decided to put up and building and I went in for half. The economy tanked and it was the proverbial money pit. I ended up losing low 6 figures, which was more than my net worth. I paid and paid from my current income. Finally, I just opted out and he and I reached a settlement. He put too much trust in a developer he knew and I put too much trust in him.

    Fortunately, I have very nicely recovered from this, but it did make me a much more conservative saver/investor. Live and learn.

    Check, check and re-check.

  8. Miranda says:

    Thanks for sharing, all! :)

  9. skylog says:

    i am going to have to go with number 01 on this one. i certainly took on more debt than i should have. too young. too dumb. that said, i did realize what was going on before i was done with school, so it was not as bad as could have been, but i was something that should have been avoided.


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