Today, the MagnifyMoney team reveals our biggest financial mistakes for your amusement and hopefully to serve as a warning of what not to do in the future.
Mild Money Mistake: The Cost of Emotional Attachment to “Stuff”
I loved my first (and only) car. She was a beautiful Toyata I affectionately named Stella – yes, after A Street Car Named Desire.
I owned Stella during my college years. I went to school in Western New York, a full hour-and-a-half away from the closest major city of Buffalo. There were no reasonable public transit options, so I viewed Stella as a necessity for off-campus jobs, internships and adventures (including road trips to Michigan, to New York City, to Charlotte and Atlanta). I saw my car as my ticket to freedom and developed quite an emotional attachment to her.
We had a few expensive issues over the years. Two accidents (one my fault, one not), both of which required a new rear bumper. New tires after a few years of driving around in Western New York snow and sludge.? But overall, my insurance was relatively cheap at $1,000 a year, I didn’t have to pay too much for gas each month and I owned my car out right with no monthly payment or interest on a loan.
After college graduation, I loaded all my belongings into Stella and drove down to Charlotte – where my parents lived. Like many college kids I didn’t have a job lined up and planned to set up shop at my parents' house while I hunted for a job.
Only a week later, I flew up to New York City for a job interview. Three weeks later I packed my bags to move.
For a delusional 24-hours I considered bringing Stella with me to the Big Apple. Then I realized she would cost me far more than I could afford on my meager salary. Insurance costs would go up, I’d need to pay for parking, gas would be more expensive, I didn’t really need a car to get around and Stella was simply bound to get hit at some point.
But I just couldn’t bring myself to sell Stella. I didn’t know how long I’d live in New York and wanted to have the car in case I threw in the towel after a year. So, I discontinued the insurance and let Stella sit in my parents’ driveway to collect rust.
You don’t even need to know much about money to understand cars do one thing well: depreciate in value.
In the year Stella sat in my parents’ driveway – I lost money – even though she didn’t cost me anything.
Had I sold Stella in the summer of 2011 (a car in great condition with under 50,000 miles) I probably could have gotten $2,000 - $3,000 more than when I sold the car in the summer of 2012. By then, I realized I’d be living in New York City for at least a few more years and didn’t need a car.
For a 23-year-old, the loss of $3,000 just for letting a car sit in a driveway is a lot of money.
I’m fortunate this is my biggest money mistake thus far in my young life, but it still stings a bit to have a few thousand dollars less just because I couldn’t bear the thought of selling my car.
The Painful: The Cost of Missed Bills and Bungled Change of Address Forms
My biggest money failure happened right after I graduated college.
It was a busy summer.
A trip to Italy.
A few weeks at home.
A boot camp at another college across the country.
Back home for a week.
A move to a first job 1,500 miles away.
And one month in a company paid hotel while I found a ‘permanent’ apartment.
That’s five addresses in the span of a few months.
And I handled it as poorly as possible, bungling the addresses of two bills.
I lived on campus, and the University handled the phone services. So when I changed my address with the University for alumni notices and student loans, I thought the phone bill would go along with it.
Of course, it didn’t. Even the finest universities are as well organized as the biggest companies, with departments that don’t talk to each other.
So the bill for my last month of phone service went to my now empty and unchecked P.O. Box on campus. While I had set up forwarding to my parents’ house, our campus post office, like many, is notorious for unreliable service. And that bill was no exception. It was never forwarded. Nor were any of the past due notices.
So I never saw it until checking my credit report about a year later, where it was listed in collections. There was nothing I could do about it then, it stayed on my report for years.
And while checking that credit report I noticed a more serious issue.
One of my credit card accounts had a balance of several thousand dollars run up on it and was charged off by the bank as past due.
I had two card accounts, never actually used this one, and forgot to change the address on it.
Perhaps someone intercepted a statement, figured out the account number (I think back then full account numbers were on statements), charged it up, then filled out the change of address form, and had future bills sent to a mysterious address in Bainbridge Island, Washington.
So I never saw the late payment notices. It took months of back and forth to get that fraud taken care of.
The lesson here is:
Before you move, save every single bill you have over the last month. Put it in a pile. And make sure you call or login to change the address of every single one of them. Then bring that pile with you so you never forget again. Or put them in a spreadsheet and follow up every month for 3 months to make sure they all get forwarded.
If you’ll have several addresses in a few months, send them all to your parents.
All of this was easily preventable. It’s easier to avoid now thanks to full online accounts, but it can still happen if you’re sloppy.
The Expensive: A Homebuyer’s Woes – a Rotting Roof and Busted Boiler
Buying a house is a huge financial decision. It is the biggest purchase most people will ever make. When done properly, owning a home can be a wonderful experience. But, as the mortgage crisis of 2008 shows, there are a lot of ways it can go wrong.
I was very excited to buy a home with my wife in 2008. As someone who had worked in banking my entire career, I felt prepared to make the decision. I had a 20 percent down payment. I signed up for a 30-year fixed-rate mortgage, because I did not want to gamble on interest rates. I could safely afford a monthly payment that included principal, interest, insurance and property taxes. And, I had enough money for the planned critical fixes as well as an emergency fund.
But, two things happened.
- Every budgeted critical fix ended up costing at least 25 percent more than originally planned, and
- Unexpected things started happening
When the workers replaced the roof, they found rotting that required fixing.
And then, just as winter started, we heard a loud noise in the basement. The boiler had died rather dramatically. If we wanted to stay warm in the winter, we would have to find thousands of dollars right away.
Very early in my life as a homeowner, I started to feel that all-consuming stress. It felt like the home owned me, and not the other way around.
As I spoke with neighbors and friends, I realized that I had made that rookie mistake. I assumed everything would go according to plan. Ironically, I would never make that mistake at work.
I had been advised to set aside one percent of the purchase price of your home every year. But that makes it sound like a smooth monthly expense. And it isn’t. It can come as a big surprise, like a broken boiler three months after you buy the home.
In retrospect, I wish I would have taken every quote for work and increased it by 25 to 30 percent. I should have more aggressively budgeted for maintenance and other accidents. We probably still would have bought the home. But, instead of doing all of the work at once, we would have waited to start some of the home improvement work. And, I would have made sure I had access to low-interest borrowing (a credit union credit card, like PenFed at 9.99%). As much as you plan, really big things can happen. And, having low-cost borrowing options readily available is very important. If you wait until you need to borrow the money, it is always too late and too expensive.
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