Financial mistakes I’ve made

Financial mistakes I’ve made

Over the weekend we’ve had a huge influx of new readers due to my ‘Essentials’ I’ve never bought post being featured on a couple of weekend reading lists by other bloggers. A big welcome to all of our new readers and I hope a few of you will stick around and join in with the conversation in the comments sections. Don’t forget to subscribe using the form over to the right!

 

To follow up on this, I thought it would be worthwhile to list some of the financial mistakes I’ve made. Either through foolish purchases or missed opportunities; Here we have ERG’s financial mistakes and what sort of impact they may have had so far:

 Early Excess

PS2Games

Those familiar with My Story So Far will know that I worked part-time while still in secondary school. When I say part-time.. I actually mean most evenings and double shifts over the weekends, I was clocking in about 35 hours a week! All of this was netting me hundreds every week, at a time when my living expenses were completely 0.

Fortunately I did manage to save a large chunk of this free flowing cash, however being 16 and foolish.. I still spent far too much on video games and DVDs.

I was ploughing through these things at a rate of a new one every week. Averaging about £45 each (with inflation) resulted in a spending of almost £5000 over my years of working 16-18! Had that been invested over the past 10 years with compounding and it would now be worth almost double that without any additional contributions.

The worst part of this early excess is that all of those games now currently sit in my cupboard, neatly ordered and gathering dust for the past 10 years. Occasionally I look a couple of them up on ebay to see if they might be worth anything to collectors. I shall report back when the bids are above 99p…

 

2 Year Gap Year

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I had an amazing time on my gap year(s). I flew to Australia, traveled around the coast, lived in Sydney and then came back to work my dream job. I was incredibly fortunate to have had the opportunity and experiences from time away and there’s no doubt it made a big impact on my future life.

However, financially: It was a total disaster. Ignore the high costs of plane tickets, rail fare, bus passes, accommodation, food and activities. It was 2 years of potential working career which I’ll never get back. Assuming an average starting salary of £20k and my achieved savings rate of 50% means I’m potentially down £20,000 on where I could be now had I started working right from university. Additionally.. I may have progressed further in my career by now had I worked for 7 years instead of the 5.

 

Low Pension Contributions

How many times have you heard someone moan about the amount of tax they pay.. and yet they’ve never done anything about it? I was one of these for the first couple of years of my career.

I joined the company scheme at default contributions (4%) after my first year. However it wasn’t until a couple of years later that I tripled the contributions in order to avoid tax and increase pension pot.

It’s hard to put an accurate figure on the amount this has kindly given the government instead of my own pocket. At a guess I’d say it probably upped my tax and nation insurance liabilities by about £150 a month. That’s £3600 given to HMRC instead of my own pocket.

 

 Not Investing

Investing

For many years, the idea of investments was totally alien to me. Something done by exceedingly rich and/or clever people who sat infront of hundreds of computer screens watching moving graphs like something out of The Matrix.

In schools, they teach children about the concepts of interest and percentage gains. Potentially even compound interest if you’re lucky. However little to no mention is given to inflation despite it’s huge effect on everyone’s finances. Quite simply: Every year that your money remains in cash form, it will lose a small but noticeable percentage of it’s value. It’s why penny sweets no longer cost a penny, and everyone moaning about houses being so much cheaper at ‘just £40k’ back in 1960 sound like idiots.

I’ve read many other personal finance blogs and they nearly all mention a lightbulb moment as the author understands that saving cash isnt really saving. Instead money should be invested to gain above inflation returns. I only really started investing my excess cash each month just over a year ago. Before that I was saving in pure cash towards a house deposit and in doing so may have missed out on thousands of potential gains.

 

Fortunately none of the above have been totally fatal to my plans for Early Retirement, and indeed I wouldn’t have wanted to change a thing about my gap year(s) experience. It’s important to be able to identify past mistakes and adapt to avoid them in future if you so wish.

What financial mistakes have you made in the past? Were you afraid of investing or unaware of the effects of inflation, and should more be done in school to educate children about them? Please let us know in the comments

10 thoughts on “Financial mistakes I’ve made

  1. Do you think the 2 year gap year was a mistake? It sounds like a lot of fun. While I’m pretty serious about my money – saving and investing – I do plan on going on a ~ 6month bicycle trip in Europe in a few years. I’ve also gone on a 3 month bicycle trip across the US, which costed me about $8000, but I surely would not consider it a mistake.

    I suppose it’s more about finding your own sweet spot. To me, it sounds like you had a blast in Australia and have done well for yourself financially :)

    At any rate, thanks for the interesting post, and keep it up!

    1. Hi Clay,

      Don’t get me wrong; I think going on the gap year was a great decision personally. Financially however it was extremely costly, and that’s what I was trying to highlight. If i could go back now, I’d still have gone! 6 months cycling sounds awesome, if a little painful.. Have an awesome time.

      Thanks for following the journey and commenting!

  2. Hi early retirement guy – it’s the mistakes which can lead to the valuable lessons. Gap year …. I had a gap fifteen years (chasing sporting goals but not many $$). Now in my 50’s work is an optional extra (and has been for a while) after a decade and a bit in work following the principles you describe. The great financial lesson that came from the sporting (but very low $$) years was that I needed very little to get by on.
    Keep up the good work.

    1. Hello KeninNz,

      I hear what you’re saying. It’s because I survived on so little whilst traveling that i know i am able to continue doing so even now. To most people, a £50 weekly household shopping budget would be tiny.. however I still consider it far above my needs and could reduce even lower if ever required.

      Thanks for stopping by.

  3. I made the mistake of buying a number of DVD’s in my early days as well.

    I don’t think having a 2 year gap year is a mistake. That kind of experience is once-in-a-life-time and you shouldn’t just look at it financially. I spent 8 months working in Germany as a co-op student during university. Although I didn’t make a lot of money, the experience I gained from traveling all over Europe is something I’m never going to forget. I’m so glad I had that experience. If I were to go back to Europe and live there for 8 months today, the experience would be completely different than my university travel experience. If anything I think it’s really cool that the Brits do a gap year during high school and university. This is probably something I’d encourage my kids (only have 1 right now though) to do. I’m a true believer that you can gain a lot of life experience by traveling around the world. When you’re 18 or 19 you really don’t know what you want to do with your life yet. Traveling around the world will help you understand more about yourself and give you some sort of direction. Too many North American kids go directly from high school to university and no life experience. They end up getting a degree that they won’t use and need to spend years down the road figuring out what they want to do.

    1. Tawcan – Shame I wasnt the only one to waste so much on early electronic media!
      I went on my gap year after University, I couldnt imagine leaving highschool to travel and then having to go back to sitting in classrooms and doing exams afterwards. I was keen to get it all out of the way first and then go traveling knowing that I’d never have to take another exam in my life.

      Here in the UK, too many kids decide to take gap years just as a way of off-putting work by another year. Many just bum about at home or work normal 9-5 jobs when really a gap year should be about doing the traveling and gaining the experiences you’ll never have another opportunity to do so.

  4. My #1 biggest mistake was buying a house. In 1989 at a market peak while felt like housing now…
    Second was being an absolute muppet on the stock market in the dotcom boom/bust. I view the £10,000 in today’s terms as good value education that helped me recover far more when that Monevator bloke educated me ;)

    Records, CDs… BTDT too though music still gives me pleasure so I can’t really say that three decades of pleasure in some cases was money ill spent

    I also can’t clock your Australia trip as a mistake. Not everything that costs money and wasn’t necessary is a mistake/waste. The key question is did it give you value, and your narrative says yes to me!

    1. Hello Ermine,
      The house has ultimately recovered now though? Although I suppose at the cost of that money which could gave been invested instead.

      My inclusion of the Australia trip was purely taken from a financial perspective. It was a great experience although worth £20,000? Hard to judge. I suppose it could be consider invaluable in that I would be unable to do something like that again during my working career and might not have the stomach for such a far away adventure in retirement!

  5. I wish I’d taken a gap year to be honest but guess it didn’t really cross my mind at the time – my next opportunity for long-term travel will be in my retirement! You got great memories and experiences from your gap year that you can cherish for the rest of your life, so I’d say it was worth it, plus you’re still financially sound, despite spending all that money!

    As for my financial mistakes – carrying credit card debt for 15 years and thinking this was normal; the brand new car I bought in 2005 – should have gone for a cheaper car; buying DVDs (I loved boxed sets!) and CDs; collecting comics (I still have 100s boxed in the house somewhere), including rare signed copies, ie the expensive ones! Pre-internet hobbies were also quite expensive and I had many!

    Funnily enough (and contra to Ermine), my best financial decision was buying a house in the late 90s (with my ex). The profit after the house was sold enabled me to finally pay off my all my debts and gave me a substantial deposit for my BTL property.

    1. Looking back; i’m glad I did do it when I did, otherwise i’d be in a similar position as you.. unable to take the time off from the career.

      15 years of credit card debt must have really hurt! And i’m still surprised that even now after all the mainstream media warnings about debt people still happily pay off the bare minimums each month.

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