Just because you made money mistakes doesn’t mean that you can’t still become a debt-free millionaire. Here are three big ones, and how you can recover from them.
Buying A Home That Becomes A Money Pit
According to the National Association of Realtors, the average first-time home buyer pays about 6% of the price for their down payment.
My husband bought his first home in 2009 and it turned out to be a major financial burden. He hadn’t considered that he might move after only a few years and because he bought the home with little money down, his mortgage payments were going mostly toward interest and private mortgage insurance during the first few years.
He barely had any equity and the value went down during the recession. We ended up paying $10,000 to sell the house, not including all the money lost on interest and PMI. We decided not to make that same mistake twice.
In 2013, we moved from New York City to Charlotte, North Carolina with lower home prices being the main reason why. Instead of buying the larger, dreamier 4-bedroom house the bank said we could afford, we first bought a smaller 2-bedroom townhouse for half as much money.
This allowed us to put a 20% down payment on a 10-year mortgage. It wasn’t our forever home, but it was good enough for what we needed and allowed us to focus on saving for other goals like retirement.
With the memory of that first bad home buying decision, we’ve since paid off three homes, each time accumulating more equity from the last home. By selling our last debt-free home, we were able to reinvest more than $400,000 into our retirement investments.
Taking Unintentional Pay Cuts From Job Hopping
A recent Monster survey showed that 96% of workers are looking for a new job, largely for increases in pay. Changing jobs strategically can significantly grow your income, but I was haphazard with my job hopping.
In my twenties, I never had a job longer than three years, and some were as short as six months. I was always looking for a better opportunity, and moved around so much that my messy job history forced me to take a pay cut that was 50% of what I used to make.
In even more irony, my career was in human resources and recruiting. So, I knew better than to expect employers to hire a job hopper. I was really unclear on my career goals, and my financial goals suffered as a result.
Job hopping isn’t the career death sentence it used to be, as employers are less likely to care about gaps in work history than they might have been before the Covid-19 pandemic. But leaving jobs purely for pay can stunt your growth in the long-term if you’re not honing in on your career interests and learning new valuable skills along the way.
The silver lining to job hopping was I learned to match my self-worth to my money goals, and I found problems that I was truly interested in solving as a career. I started my financial education company in 2020 that helps to close the wealth gap for women and communities of color by training students to crush their money goals, improve their career skills and grow their net worth.
I also learned how to budget more strategically when my income was inconsistent, which has helped me carry even better money habits now that I make more money as an entrepreneur than I did in a corporate career.
Withdrawing Too Early With Bad Investing Choices
We invested in companies we didn’t understand at all and we even withdrew from our 401(k) — with a penalty — when we didn’t have to. I still cringe on how we took tens of thousands of dollars out of retirement savings to buy an investment property. In hindsight, we weren’t financially or emotionally mature enough to make good investment choices.
Back then, we thought of our 401(k) as a black hole where money went. Even when it came with a tax bill and a 10% early withdrawal, we cared more about short-term gratification than long-term patience, and decided to withdraw the money anyway.
Now that I know and understand how retirement plans work, I wouldn’t recommend doing that again for a discretionary purchase that you could save up for instead. Since then, we’ve committed to learning and understanding the tenents of financial independence and calculating how much we need to retire at all, let alone early.
We realized that a modest lifestyle of $4,000 per month would require at FIRE (financial independence, retire early) number of at least $1.2 million in investments. That’s when we looked at the purpose of tax-advantaged accounts to fund our goals.
You Can Still Make Up For Lost Time — It’s Not Too Late
We’ve now maxed out our401(k) and individual retirement accounts for three years in a row, investing more than $50,000 each year, not including company matches we also receive.
Even if your retirement numbers feel overwhelming, knowing them can help motivate you to become a long-term investor, and keep your funds steady to let them grow.
Beating yourself up for past financial failures isn’t going to fuel your future. If you’ve made big money mistakes, it’s never too late to recover from them. You can still reach your retirement goals, and even surpass them early, by not making those mistakes again.
Read the full article here