When I moved to Atlanta from New York to be with my husband six years ago, I needed a car.
I scoured Craigslist and eschewed the advice of my father: Hondas, Toyotas and Nissans last forever. Why, you ask? I had owned practical cars since I could drive. I wanted something cool. On a whim, I test drove a used Volkswagen. Blinded by its leather seats and visions of me cruising down the freeway with the sunroof down, I bought it. I didn’t have a mechanic look at it nor did I ask for the Carfax. In fact, I didn’t do anything remotely intelligent before purchasing it.
Five months later, after it broke down for the eighth time, I sold it for scrap, losing $6,000—and adding to the pile of debt that my husband and I had been accumulating like stamp collectors.
I would take that purchase back in a heartbeat. But since I can’t, maybe I can prevent someone out there from making the same colossal bad decision.
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“When we realize that other people have made some of the same kind of financial mistakes that we have made—or might yet make—it helps us realize that we really aren’t alone in our financial struggles,” says Kevin Hansen, author of Secret Regrets. “That fact alone can help give us the strength to either do something now to fix the situation if it’s fixable, or help us to learn from it, so we never make that mistake ourselves.”
With that in mind, I asked three near-retirees to share the wisdom they’ve gained from looking back on their biggest financial faux pas to keep up us all from following in their footsteps.
“I was a financial consultant for 40 years, but I didn’t practice what I preached. I know how long it takes to build up a retirement nest egg—I even had software to figure it out to the penny each year. But I never did it for myself.
“Instead, I rationalized a “high lifestyle” to my then-wife by saying that fancy cars and big houses looked good to my rich client base. So I had two Mercedes, four BMWs, a Corvette and three Porsches. Oh, and don’t forget the top-of-the-line gold Rolex. How the heck did I ignore the retirement planning advice that I gave to other people?
“Because I was an idiot.
“Now I don’t have enough money to properly retire. And I’m living on paltry savings and a $400 monthly pension, while job-hunting. If I did have a chance to do it all over, I’d live more frugally—saving big when I had a big year, and saving something every year, regardless.”
— Paul, 66
An Expert Weighs In: ”This is a really good illustration of the fact that the money or the job won’t always be there,” says Sophia Bera, a CFP® with LearnVest Planning Services. “Time is your biggest resource—not money. As your lifestyle increases, you’ll have to put away even more money to keep up that lifestyle in retirement.” She points out that high earners often fall into this trap: If you’re making $300,000 annually, but only maxing out your 401(k) with $17,500 each year, that isn’t even 10% of your income—and it probably won’t come close to replacing the recommended 70% of your income in retirement. Bottom line: As you make more, you need to save more.
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My Big … Debt Mistake
“I was deep in debt and dreading the concept of bankruptcy, so I took out a mortgage on the condo that I owned free and clear to pay off thousands of dollars of credit card debt.
“Several years down the road, I’d let my credit card balances climb way up there again—and I wound up having to declare bankruptcy after all. If I had a chance at a do-over, I’d go bankrupt earlier, instead of tapping the equity in my home. Due to my bad move, I couldn’t afford to discharge my mortgage when I filed for bankruptcy because I still needed a place to live and I didn’t have money for moving costs. As a result, I’m now paying horrific monthly mortgage payments on a $90,000 mortgage that’s worth less than $60,000.”
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An Expert Weighs In: ”Using the equity in your home to pay off higher-interest debt is usually a good move,” says Ellen Derrick, a CFP® with LearnVest Planning Services. “But that’s only if you close the accounts after you pay them off! It’s the same advice that I would give someone who wants to do a balance transfer to a 0% credit card: It only works if you don’t use the freed-up credit as an excuse to spend more.”
My Big … Planning Mistake
“As I approach retirement, I have very few regrets in life. However, since I started working with a financial planner, I’ve realized that I made some poor financial decisions when I was a young, working mom.
“Of course, when we’re young, we often don’t think about retirement—it seems so far off in the future when we have bills to pay and children to take care of. Looking back, I wish I had started saving for retirement in my 20s. I didn’t start saving until I got a a 401(k) through my job at age 40, and I never maxed it out.
“I should have put aside a small amount with each paycheck, even if only a few dollars per week. With interest accrued over the course of 40 years, I would have accumulated enough of a nest egg to do all of the fun things that I want to do in retirement—like visit my grandkids and own my home. Instead, I have to rely on Social Security and my modest 401(k), making me feel like I have to pinch pennies to get by.”
— Robyn, 62
An Expert Weighs In: “One of the biggest mistakes that I see is people failing to take advantage of a 401(k) when they qualify for a company match,” says Sophia Bera, a CFP® with LearnVest Planning Services. She adds that many people think that they need a company-sponsored retirement account to start saving, but anyone is allowed to open an IRA or Roth IRA unaffiliated with an employer—and the earlier they do, the better. “It’s good to get into the habit of putting money away. Most people can manage $25 a week, which comes out to $100 a month and $1,200 a year.”
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