My Biggest Financial Mistake
As someone who lives frugally and saves more than half his net income, invests monthly into high-quality dividend growth stocks, writes a blog about trying to reach financial independence before 40 years old and has a long-term financial focus it may be natural for you to think that I’ve always been this way. It’s easy to think I’ve always been conscientious about purchases and money matters; that I’ve always been frugal and knowledgeable about the stock market. But this is extremely far from the truth.
In May, 2003 I inherited just over $62,000. I had just turned 21 years old and had only found out about this money mere months earlier after a reconnection with my father. My father had left our family many years before the events I’m now recollecting for you, but suffice to say it’s unimportant to the overall story. My grandmother on my father’s side had left my three sisters and I equal parts of a fairly large sized estate. My portion turned out to be just over $62,000. At 21 years old, I was nowhere near the type of person I am today unfortunately.
When I started this 12-year journey to financial independence back in early 2010, I had none of the money from this earlier inheritance left over. I spent every last dime of it in a span of about two years. And I have only scant memories of exactly how it all wasted away, and certainly nothing to show for it. I bought a slightly used Corvette and sold it two months later after I realized the cost to insure a sports car for a 21 year old…not to mention the cost to gas it up and drive it. I promptly quit college and moved out of my home state of Michigan for a while to “find myself” and figure out what I really wanted out of life. Unfortunately, this journey to self-discovery came with no employment and plenty of expenses on food, rent and transportation as I was far away from any type of support system. It was a terribly confusing time for me as the reconnection with my long lost father ended, my mother died, I dropped out of college and moved out of state all within a six month span.
After the money ran out in 2004 and I found myself back in Michigan around family and friends, I truly realized the gravity of the situation. I was a college drop-out, broke and just as confused as ever. I had somehow wasted $62 thousand dollars and had absolutely nothing to show for it.
I worked odd jobs for a few years and struggled with money. I felt a little defeated, but remained optimistic and continued to grind away until I eventually got a lucky break in late 2005. It was at that time that I started an entry level position in the field that I’m currently employed in. That brings us to now. Seven years into my career and I already feel burnt out. It was a combination of feeling exhausted and also wanting to dramatically improve my financial skills that led me to where I am now. In early 2010 I started reading books about investing, stocks, how to reach financial independence and started researching the idea of frugality. The trap was sprung.
The point to this incredibly personal and revealing story is that my biggest financial mistake, wasting $62,000 in two years, led me to where I am now. It was the fear of finding myself broke again and the level of blindness and thoughtlessness I experienced with money that drove me to earn all that money back and I vowed to do a much better job the second time around.
This cautionary tale should make you cringe and wag your finger at me, because believe me…I’ve done the same exact thing. But it should also show you that overcoming your mistakes is possible and continuing to believe in yourself every single day is a priority. We’re all human and we all make mistakes. The important thing is to recognize that fact, realize where you went wrong and correct it going forward. I realized that I had no financial prowess and vowed to fix that. I did. I found my wasteful spending disturbing and promised myself that I would earn it all back. I did. I was determined to do a better job the second time around. I’m still working on that one, but so far so good.
What about you? Any big financial mistakes?
Thanks for reading.
Photo Credit: FreeDigitalPhotos.net
Thanks for sharing your experience. Mine is similar. Long story short: after college I get a job. Realize I hate the job and the whole career. Very depressed. Have a bunch of money saved up (I’ve always been a saver) and don’t work at all for 1.5 years. Blew through all the money. A little bit left in the ROTH.
I can understand where you’re coming from blowing through money. Sometimes I imagine where I’d be right now if I still had the money and continued to save during that time.
Life really sucks if you don’t enjoy going to work, I’ve figured this out. I have since found a career I like, but trust me there are days when I want to scream! Nothing is going to be perfect.
Hey Mantra,
Wow…very personal and I commend you just as much for coming through that difficult time as for sharing the story with us. I’m fortunate to have not had any huge mistakes in my life yet.
The closest I have (not like this is a competition to be the worst!) is back when I started work and gave $800 to a “coworker/friend” who had this hot stock tip. I didn’t have a brokerage account yet and didn’t want to open one because…geez who knows, fear? Feeling like I didn’t have enough money? Anyway, this coworker had an account and was buying this stock, said it was a no-lose situation, and I said I wanted in because I trusted that nothing could go wrong. He had showed me his analysis of how the company was undervalued and how it would pop up in price once it went public. Confused? So was I. I didn’t have much understanding at the time. I later learned it was a company that had gone bankrupt and was coming out of bankruptcy and issuing new shares at a certain price. The coworker had read about all of its assets/liabilities and somehow determined that this starting share price was about 80% less than its true value; thus saying I could easily make 5x my money. And he said he could get in at the share price, so I handed him my $800.
He later told me that he couldn’t get the money at that share price, so didn’t buy the stock; and said luckily he didn’t because the stock price tanked below that value. I thought, great, I could have my $800 back, learned a small lesson and counted my blessings…..I never got all $800 back. He had kept that money in his account and I assumed used it for trading behind his wife’s back; he would often complain about how he had no control over his money and that his wife controls it all. He would pay me back in small amounts like a twenty dollar bill a month; I kept track and I never got all of it back. Each month he came to apologize and promised he would pay it back, but never did.
In a way I am thankful I lost that money because it may have saved me a lot in the long run.
Thanks for reading,
Mike
CI,
Thanks for sharing that. I think at the time I inherited this money I didn’t really know what I wanted out of life and the money bought me a little freedom from having to worry about that. I spent like I earned a solid middle-class income, even though I had no income at all.
I also wonder from time to time where I’d be if I still had that money. Surely I’d be almost, if not completely, financially independent right now. But, I don’t dwell on it.
I can understand where you’re coming from on the career aspect. I don’t completely hate my job. But, could I find better ways to spend 50+ hours a week? Absolutely. Some days are better than others, but why take the bad with the good when you could find a way to rid yourself of the whole thing?
Best wishes!
Mike,
Thanks for sharing that. Definitely a lesson to be learned there about people who pray on others. Kindness and generosity are wonderful qualities, but are also easy to take advantage of. It’s unfortunate that the world can be that way.
At least that mistake wasn’t terribly expensive and the lesson may have been worth the admission.
Take care!
Back in 2003, I inherited some stock that doesn’t trade on a major exchange (otcbb). Since it was such a pain in the butt to liquidate (aside from the huge tax bill I would have incurred) and it payed a dividend, I decided to hold on to it. 9 years later, the stock has more than doubled in value, and the dividend has increased over 3-fold. Had I inherited cash instead of the stock, I’m sure that like you, the money would be gone now, and almost more importantly, I wouldn’t have the appreciation that I have today for dividend stocks. I wasn’t making a ton of money in 2003, so I used the dividends for living expenses, but I always vowed that once I made a decent wage, I would use the dividends to purchase more dividend paying stocks instead of supplementing my income with them. I guess what I’m trying to say is that while you may no longer have the inheritance, you have the more important thing – the road map to financial independence. Keep up the good work!
Big J,
Interesting story! The inheritance that we received was actually from a liquidated stock portfolio of blue chips. It’s unfortunate that I didn’t receive stocks instead of cash, but I probably would have just liquidated the stocks anyway.
It sounds like your inheritance is working out much better than mine, and for that I’m happy for you! And you are right, the most important thing out of all this is the fact that I forced myself to become better with money and in the process became quite passionate about it.
Take care!
DM,
Great to read your story. You are an inspiration!
Getting money like that at a young age…Boy, that is rough. I almost view it as a death sentence for some. I only learned the value of money in my late twenties. It takes what it takes!
Keep up the great work, I’m right there with you. While I was fortunate to avoid some mistakes, my biggest mistake in life was missing out on opportunities to invest properly in the past decade, like you. But, like I said, it takes what it takes…And once I learned the secrets to what we do (knowledge is power), I have been more or less trudging along that path since.
Good to read your columns as usual.
Joe
Wes,
Thanks so much for commenting for the first time. I’m glad my story inspired you to do so.
You’re in a wonderful position to be able to retire before 50. That’s pretty fantastic and certainly well ahead of the curve. Every time I read an article about the average balance of 401(K)’s I cringe. I absolutely hear you about your soul being crushed at work…that’s exactly how I feel, and I haven’t even been at it as long as you.
If you can’t last the full time, working part-time and delaying “full” retirement might not be bad either. I think of that from time to time myself, about just working part-time for an extended period of time. Hell, even being able to work part-time for the rest of my life at 35 years old is still a pretty great feat!
I’m really glad you enjoy the blog and I hope you stay in touch. Best of luck on your journey; it sounds like you’re getting pretty close to the end of it, and ready to start really enjoying life without the shackles of wage slavery.
Best wishes!
Joe,
Thanks for your continued support and I appreciate your comment here. It definitely takes what it takes, and for me it took a few years and quite a bit of money. Unfortunate, but I learned first-hand and that is necessary sometimes. I know what it feels like to get burned, so I know to stay away from fire now.
I know what you mean by missing out on investment opportunities over the last decade. One other thing that is different now is the opportunity to invest. Back in 2003, the internet was a lot different and there wasn’t nearly the same amount of information online. The resources were much sparser. I remember when I first got the money I looked into mutual funds and stocks and it all seemed like gibberish to me. Youth! Sigh.
Knowledge is definitely power. I’m glad that you and I decided to take advantage of that at a young age.
Thanks for the continued support.
Best wishes!
Thanks for sharing your story Mantra. I can’t say that I’ve ever gone through money like that but then I again I’ve never had the chance. I probably would’ve too at that age.
My story is that I didn’t earn much money in my early years but I didn’t spend very much either. No student loans (parents paid) and no credit cards until I was 27 helped keep me from getting into bad habits.
At 30 I found the career I’m currently in and after 13 long years I can say that I’m sick to death of it. I’ve found that the politics and increased workload are soul crushing to say the least.
The job pays fairly well but I’m still planning for my early exit in 4 to 5 years. By 50 at the latest. It’s funny that I used to think saving 20% of my salary was fantastic but that was when I was comparing myself to my co-workers. For the last two years I’ve ramped up to 60% of gross. Couple this with my 20% savings from the last decade and I’m at the point where my dividends are paying my mortgage. I figure another few years I’ll be able to retire completely. If I can’t hold out that long then I’ll just quit and find a lower paying position somewhere and stick to my plan albeit at a delayed rate obviously.
Anyway, I really enjoy reading your blog and I’m glad you’ve returned. I’ve been lurking for a while and this story on your past inspired me to post. You’re smart to not lose sleep over your lost windfall. Just be glad you’ve discovered this strategy at such a young age. You’re off to a wonderful start I’d say. Happy compounding!
I love reading stories like my fellow commenters here.
I’ve never come into a windfall, but 2 investments I wanted to make would have been very sweet for me. One was an apartment building in Long Beach before the run up. It was a 30 unit building and they were co ops. The guy wanted something like 24.5K per unit, and I went and offered 22.5K/unit. Another real estate agent in his office bought the units and during the run up each unit was selling for over 220K/unit.
The other one was to buy Nextel when it was at $2. My money was stuck in escrow so I didn’t get a chance to buy. Stock went up to over $20 relatively shortly after that. Sometimes stock tips do work out.
Thanks for sharing your story. Even though the inheritance was wasted, at least you learned some important financial lessons from the experience. You improved your financial skills, learned to live frugally, and eventually started down the road to financial independence through dividend growth investing. In the relatively short time you have been investing, you have made tremendous progress. While you no doubt would have preferred a different starting point (e.g., investing rather than spending the inheritance), at least you had the awareness and motivation to turn things around and get yourself on a solid path. Many other people would not have been able to accomplish that.
Michael,
Thanks for stopping by. I’m glad you enjoyed my story.
I wouldn’t be too worried about some of those investments that didn’t work out. For every ten-bagger (like your Nextel play), there are countless others that would quickly drain your wealth and your patience.
Speaking of Nextel, have you looked at Sprint Nextel (S)? It had quite a run lately, but there are a lot of people swooning over that one right now.
Thanks for commenting and I hope this provided you some inspiration!
Take care.
deedubs,
You make some great points there, thanks for your support. I’m definitely elated that I was able to overcome the lost wealth and rebuild it from scratch. I value it even more this time around because I actually earned every penny. I suppose you combine youth with a lack of perceived value from unearned money and that spells disaster.
I’m glad that there is a support network of young dividend growth investors like yourself and I, among others. Like I was commenting earlier, there really was no such thing back in 2003 when I had the money. I think the resources and mutual inspiration that we now find online is invaluable. Your journey inspires me, and visa versa.
Best wishes.
Mantra it takes a lot of guts to share such a story, though its not uncommon for young folks to screw up in one way or another.
I have a similar financial mistake with a silver lining. I had invested money in a company i was working for through a purchase plan. Too much. The stock eventually lost 75% of value.
I moved on to other jobs. I was presented with another opportunity to buy company stock at a discount. Given my previous experience i was hesitent and utimately decided that i didnt understand enough about the company. I decided instead to invest in tobacco (my best investment overall to date).
Guess what happened. It didnt lose 75%. The company was in the thick of the financial crisis and the stock lost about 95%.
Lesson learned and not repeated.
Thank you for sharing your story. It takes a lot of courage to write what you did. Hopefully it will inspire others not to make the same mistake. Lesson learned.
My biggest investing mistake was buy Nortel during the tech bubble. 🙁
DM always good to read and learn from your experiences. In the past I have had serious issues with spending money on real-estate, money I never actually had, hence my debt levels…
I have been managing my properties carefully to cover the payments and to help me pay off my student loan. My goal is to have this loan paid off by my birthday in March. This is my last nonrealestate-related debt so I will be celebrating on my blog most definitely.
Only one big one, DM? Clearly yer not trying hard enough. 🙂
let’s see…..
there was my Chicago condo disaster:
my penny gold stock that burned thru 50 Gs
the tech stocks I loaded up on in early 2000
to name a few that still haunt me. it’s remarkable that I’m not on the street somewhere.
here’s the story of the first one:
http://jlcollinsnh.wordpress.com/2012/03/15/how-i-lost-money-in-real-estate-before-it-was-fashionable-part-i/
maybe I’ll write about the others some time…..
SFI,
Wow, great stuff there. You learned your lesson the first time around and did not repeat the same mistake twice. Easier said than done!
Congrats on turning what could have been a disaster (a second company stock purchase) into a great opportunity (tobacco investments).
Best wishes!
Kanwal,
Thanks for stopping by and reading it. The only thing I hope to provide in sharing this story is inspiration. To know that one can overcome such a steep loss of money in an extremely short period of time is important.
Nortel was a famous one. I wasn’t investing back then, or I may have shared in your losses on that investment. The tech bubble was particularly nasty.
Take care!
Investing Early,
At least your issues with spending are on investments. Although that can also be financially damaging, over-consuming can be extremely horrendous as I recollected above. It sounds like you’re doing a great job managing your investments and getting yourself in a very sound financial state early in life and that’s wonderful! Keep up the great work.
Take care.
jlcollinsnh,
Ouch! That’s quite the list.
I read your series on the real estate losses. A very interesting and entertaining read, but certainly my heart goes out to you on the money you lost…not to mention the aggravation your experienced. I have still not dipped my toes into real estate as I rather enjoy being a renter.
To know that you went through all those cash sapping events and still came out very wealthy is inspiring! I know that the education I received with the lost inheritance was worth every penny. I learned the hard way about the value of money and how quickly it can disappear.
Thanks for sharing all of that! It’s great to know that if you have a high savings rate and stay out of debt, big bumps in the road, even large ones, won’t completely derail you.
Best wishes!
Mine is a little different, met a man at a vulnerable point in my life and long story short, in 18 months he had burned through $250000. of my money, convincing me it was safe in his business and I would make a great return. Had never met a conman before, OUCH!!! So now, have dumped the man, and working hard with reinvesting dividends to slowly rebuild. I’m learning from my mistakes, have licked my wounds and now on the new path to success and believing in me again. Such a life lesson.
Hi DM,
Thank you for sharing the story (and for getting back to blogging). Your experience is inspirational in that you turned the difficult situation into a truly learning experience. It is said that we should learn from other people’s mistakes, but there is no real substitute for your own. Perhaps you had to go through the rough period to get to where you are now…
I don’t have too many bad money management stories. The last one was a loss of $15,000 when I did not trust my own analysis and went with the “gut feeling”. The guts are sometimes right, but my analysis was based on math and the rest should have been irrelevant. A few setbacks like that showed me that my own internal conflict between brain and emotions is not yet over. I’m getting there, just not fast enough 🙂
Nice to have you back.
Paul
Anonymous,
Tragic story there. I’m sorry to hear of not only the financial loss, but also the emotional roller-coaster that I’m sure you were on in such a relationship. That’s too bad.
As you said, such is a life lesson. Unfortunately, the only way to know that fire is hot is to get burned.
I’m glad to hear that you’re rebuilding and that you’re optimistic about the future. That’s what is most important. The past is the past, and cannot be changed. You can only learn from your mistakes and make the future much brighter! Reinvesting dividends and being financially responsible is a great start.
Stay in touch. Take care.
Paul,
Thanks for the support. It’s very nice to be back. You readers make it all worth it!
I hear you on being emotional. It’s so difficult to separate emotions from rationality and simple math when investing. So difficult in fact, that hundreds and hundreds of books have been written on it. It’s simply human nature, so I wouldn’t feel so bad about that. So far, I’ve been able to keep my emotions in check and approach my investments very business-like, but I also haven’t experienced a MAJOR downturn like we had back in 2008 yet. We’ll see how I react if we do (I hope we don’t).
Thanks again for stopping by and supporting. I appreciate the insight.
Best wishes!
It would be interesting to go back in time, to May of 2003 and set up a hypothetical dividend portfolio as if you had invested that 62K in dividend stocks and see where it would be today……just throwing that out there?
Ray,
I should put something together to see how far I’d be ahead right now. Of course, I may have to hold back the tears. 🙂
I honestly wish my younger self would have just had the foresight to pay off the student loans. Forget the investments, because I honestly can’t blame my 21 year-old self for not throwing everything into a brokerage account with everything that was going on back then…but the student loans? Come on, man.
Ah, well. At least I can say even with this massive mistake it’s still possible to do what I’m doing. I just hope my experience helps others by either encouraging them to be more responsible with their money, or allowing them to realize that it’s never too late to overcome past mistakes.
Cheers!
If you put $62,000 into MO in FEB 2003 and reinvested dividends it would be worth about $736,565 today!
If you sold all the MO spinoffs and reinvested them back into MO you would own about 13400 shares of MO today kicking off about $28,000 are year in dividends! That would be returning 45% of your initial $62,000 principle investment a year in dividends alone!
frankz,
Well, I would have never put all my money in MO or any one stock back then (just like I wouldn’t do that now). And who’s really to say I would have invested it anyway, as I wasn’t interested in investing back then. But I do wish I would have at least paid off my student loans. It’s a shame that I didn’t do that, because I’d be sitting in a much better position today. If I would have just paid off the loans and stuffed the rest of the cash in the bank until I had a better idea as to what to do, I’d be a lot closer to FI today. But hindsight is 20/20 and wasting that money led me to become the man I am today, and being on pace to reach FI by 40 (and working from home at 32) isn’t a bad spot to be in. 🙂
Cheers!
During the real estate boom I took $60k equity out of my apartment and blew it, had a business windfall of $35k and blew it, had 45k in credit card debt and had no plans to pay it off. Then 2008-2009 happened.
I’ve made such huge financial mistakes it’s hilarious. I’ve managed to clear all my debt and am just about to pay myself back the $60k I blew.
I love and own my mistakes as they are valuable lessons.
Cheers
DE,
“and am just about to pay myself back the $60k I blew.”
That’s so funny. One of my first goals was to make back the $60k I blew at 21 years old after collecting an inheritance without having any clue what to do with it. I made that back three times over now.
Don’t worry. Mistakes make us who we are. They make us stronger. And, with that, we’ll overcome them. 🙂
Cheers!
That was very interesting Jason, thank you for sharing it!
I have a very similar story, except mine encompasses much more time. I woke up one day at 45 years old deeply in debt. My wife and I had a mortgage of 250K, a second mortgage of 50K, credit card debt of over 100K, and two car loans of 25K. It hit me like a ton of bricks when I literally had no money to take on a trip I was leaving for, and our credit cards were entirely maxed out. It was a rude awakening, realize what a horrible way I had lived life, not understanding that debt can be the compounding principle in reverse, snowballing into an unpayable number.
Our family sat around the table and talked about how we were going to change. We made real changes that day, determining to make whatever changes were necessary to get out of debt. It took large shifts in our understanding of how to live. We sold everything we could, cut our expenses back to food, water and air, and refused to buy anything on credit (we cut up all our cards). Here we are 8 years later. We have no debt and our networth is over a million dollars. This is not bragging at all, just identifying with your story is all, and trying to give hope to anyone else that no matter how low you start you can make huge changes if needed.
By the way, here is a similar story, not identical, and you probably know it well:
Luke 15:11-20 (NIV)
“There was a man who had two sons. The younger one said to his father, ‘Father, give me my share of the estate.’ So he divided his property between them.
“Not long after that, the younger son got together all he had, set off for a distant country and there squandered his wealth in wild living. After he had spent everything, there was a severe famine in that whole country, and he began to be in need. So he went and hired himself out to a citizen of that country, who sent him to his fields to feed pigs.
He longed to fill his stomach with the pods that the pigs were eating, but no one gave him anything.
“When he came to his senses, he said, ‘How many of my father’s hired men have food to spare, and here I am starving to death! I will set out and go back to my father and say to him: Father, I have sinned against heaven and against you. I am no longer worthy to be called your son; make me like one of your hired men.’
So he got up and went to his father.
“But while he was still a long way off, his father saw him and was filled with compassion for him; he ran to his son, threw his arms around him and kissed him.
“The son said to him, ‘Father, I have sinned against heaven and against you. I am no longer worthy to be called your son.’
“But the father said to his servants, ‘Quick! Bring the best robe and put it on him. Put a ring on his finger and sandals on his feet. Bring the fattened calf and kill it. Let’s have a feast and celebrate. For this son of mine was dead and is alive again; he was lost and is found.’ So they began to celebrate.”
Mike,
Thanks so much for sharing that!
Your situation is obviously a bit more amplified there in terms of the relative and absolute numbers we’re talking about, which I think just goes to further show the power of making changes and staying persistent with a certain lifestyle. The opportunities available to all of us living in a first world country are enormous. And you’re absolutely right in that debt can compound the other way on you, spiraling into something that becomes out of control.
What’s really great is that you know what that prior life was like. And you’ve since built the skills necessary to put yourself in this wonderful situation. That means the odds of failing and ending up in a situation like what you guys had before are pretty low. You have the resolve, resilience, and determination to be the you that you really want to be.
Congrats!
Best regards.
Thanks for your encouragement Jason. And thanks for the coaching on the phone today. I learned more in an hour than I have in the past year of reading. I can’t believe you charge so little! Well worth it.
Mike,
Thanks so much for working with me. Appreciate the opportunity. And I’m so glad you found a lot of value there.
I’m honestly not after charging the most possible money for my services (which is also why I’m only charging $4.99 for the book), but rather I’m interested in providing the most possible value. I never want anyone to walk away from anything I offer feeling like they spent too much. I’m after “under-promising and over-delivering”, as you put it. 🙂
Best wishes.