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

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 [3]. 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 [4].

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?