My 6 Biggest Money Missteps and How You Can Avoid Them

Have you ever felt like you're wandering through a financial maze, armed with a map that seems to lead to more dead ends than solutions? Well, join the club—I've been there, tangled in the intricate threads of my own financial tapestry. Picture this: a sunny day, a crisp job offer in hand, and the thrill of stepping into the adult world. Little did I know, those early financial steps would soon turn into a maze filled with hidden traps and unexpected turns, like Harry Potter in the final maze at the Triwizard Tournament (yikes, okay maybe not that bad, RIP Cedric).

In the beginning, I, like many others, assumed that the path to financial wisdom was straightforward. Yet, beneath the surface, each decision held the potential for both triumphs and pitfalls. From the thrill of landing my first job to the ominous clouds that gathered during an unexpected medical emergency, the journey was fraught with twists and turns.

But why should you stay tuned? Picture this: an insider's view into the pitfalls that cost me time, money, and peace of mind, coupled with a promise—by the end of this journey, you'll not only be acquainted with my financial foibles but armed with insights to steer clear of similar pitfalls. From overlooking employer perks to misconceptions about investing, each misstep carries a unique lesson waiting to be uncovered.

As I share my financial story, I invite you to envision standing at the crossroads of your own financial decisions. Through the lens of my six most significant money missteps, we'll explore not just the stumbles but also the invaluable lessons that emerged. So, fasten your seatbelt as we delve into my financial past, unravel the missteps, and promise you a roadmap to avoid treading the same rocky paths. Ready to transform your financial future? Let's dive in.

1. Money Mistake number one: Missing out on my employer’s 401k Plan match. 

Missing out on my employer's 401k plan match was a costly oversight that reverberated throughout my financial journey for several years. Little did I realize, the employer match is essentially free money added to your retirement savings. To illustrate its impact, let's consider a hypothetical scenario: if my annual salary was $50,000 and my employer offered a 3% match, that's an additional $1,500 contributed to my 401k each year as long as I contribute at least 3% of my salary to my 401k (hence the match). Over the course of a decade, this seemingly modest match would amount to $15,000, not accounting for potential investment gains. Now if I contribute 0% of my salary, I don’t get any of the match. 

Now, imagine the compounding effect over several decades. Assuming the stock market yields an average annual return of 7% (which is pretty close to the average over time, btw), that $1,500 annual match could grow to over $70,000 in 20 years and surpass $220,000 in 30 years. These figures underscore the exponential growth potential of employer matches. 

In addition to its growth potential, it's crucial to recognize that a 401k match is not just a bonus but a fundamental component of your overall compensation package. When employers offer a 401k match, they are essentially contributing a portion of your earnings to your retirement savings. This match is a tangible part of your compensation that, when neglected, equates to leaving money on the table. By not taking advantage of the 401k match, you're effectively forfeiting a portion of the income that could be contributing to your long-term financial security. Honestly, sometimes I think I just contribute enough so that my employer doesn’t get to make money off of me - I’m nothing if not petty. Understanding the match as an integral part of your earnings reinforces the significance of utilizing this benefit to its fullest extent and optimizing your overall compensation package.

The missed opportunity to capitalize on this benefit early in my career serves as a valuable lesson in understanding the long-term impact of seemingly small financial decisions. It's a lesson I hope others can learn from to enhance their retirement savings strategy and financial well-being.

2. Money Mistake number two: Failing to plan for emergencies.

In the initial years of my debt repayment journey, I directed every spare dollar towards clearing my loans, leaving me with virtually no savings. Naively, I operated under the assumption that continuous income from work would suffice in any unexpected circumstances—I believed I was immune to financial emergencies. However, life had other plans, as I discovered during a challenging episode in the summer of 2019. A sudden medical emergency sidelined me from work for three grueling months, plunging me into a financial quagmire of mounting bills and zero income. The stress was palpable, and grappling with medical expenses became an unwelcome priority amidst my recovery.

This ordeal served as a wake-up call, prompting a fundamental shift in my financial strategy. Recognizing the vulnerability of being solely dependent on employment income, I resolved never to find myself in a similar predicament again. Instead of solely focusing on debt repayment, I redirected all surplus earnings towards establishing an emergency fund capable of covering six months' worth of expenses. This financial safety net became my primary priority, positioned even ahead of investing and debt clearance. I quickly learned the critical importance of having a robust emergency fund—a buffer against life's unexpected twists and turns, offering peace of mind and financial stability during turbulent times.

Everyone’s emergency fund amount will be different as everyone’s required expenses are different. To calculate your emergency fund, make a list of all of your monthly expenses that you'd HAVE TO pay in an emergency. I.e. things you have to pay for NO MATTER WHAT. This typically includes rent, bills/utilities, debt minimums, groceries, transportation, health insurance, etc. Then multiply that number by 3-6 depending on how many months you want it to cover (mine covers 6 months). If you’re interested in additional help with this, check out my simple budget calculator to help calculate yours. 

3. Money Mistake number four: Delaying investing

For too many years, I clung to the misconception that investing was an exclusive realm reserved for those born into wealth. This erroneous belief led to a significant delay in venturing into the stock market and real estate. Looking back, I deeply regret not commencing my investment journey earlier—perhaps even during high school or grad school. The unwarranted notion that I wasn't meant to navigate these financial waters kept me from harnessing the power of compounding over an extended period.

In hindsight, the turning point came during a crucial conversation with my mom while setting up my first job's 401k. I thought it was too early for me to invest but her advice to contribute and select the "aggressive" setting not only dispelled my unfounded fears but also sparked my belief in the critical importance of investing. This initiated my foray into the world of financial research. Consequently, I started recognizing the missed opportunities and potential growth that awaited those who embraced investments early on.

Consider this scenario: if I had started investing $1,000 per year from the age of 25, assuming an average annual return of 7%, by the time I reached 65, I would have invested $40,000 that would have grown to over $450,000. However, delaying the start of my investments until 35 would have resulted in a substantially lower amount, with an invested amount of $30,000 growing to only around $220,000. That’s only a $10,000 difference invested between the two scenarios, but over $200,000 in growth difference. These figures underscore the profound impact of early investing and time spent in the market, emphasizing the compounding benefits that can significantly enhance one's financial well-being over time. If you're contemplating whether to dive into investing and haven't received the memo yet—yes, you should definitely be investing, and yes, you should start today. The degree of aggressiveness should align with your unique situation. 

If you're interested in diving deeper into the world of investing, I've got a little something for you – check out my free investing cheat sheet here. If you're eager to explore further, consider scheduling a call with me for a personalized discussion about the nuances of investing.

4. Money Mistake number four: Stashing cash in the wrong places

For the longest time, I believed that stashing my money in a checking or regular savings account was the epitome of financial security. The thought process was simple—I could easily access my funds, and it felt like a safe haven for my hard-earned dollars. However, this belief turned out to be a costly misconception. By parking my money in accounts with minimal interest rates, I was essentially letting it languish without the opportunity for growth. A checking and regular savings account, offering paltry interest rates like 0.01%, provide little to no return on investment, leaving my money vulnerable to the erosive effects of inflation. In essence, the value of my funds was slowly diminishing over time.

This mistake became clear when I realized the potential for my money to work harder for me through alternative avenues like high-yield savings accounts (HYSA), investments, CD’s, or other wealth building accounts. Consider the HYSA: Imagine, with an initial balance of $1,000, a checking account might yield a meager $0.10 in annual interest, whereas a High-Yield Savings Account with an interest rate of 4.75% could generate a significantly higher return of $47.50. The difference in interest earned between the two accounts in just one year is substantial, showcasing the power of compound interest and the importance of choosing financial instruments that optimize the growth potential of your hard-earned money. By succumbing to the illusion of safety in traditional accounts, I missed out on the chance to harness the power of compound interest and maximize the growth potential of my financial resources. Don't let the illusion of safety in traditional accounts hinder your financial growth; explore avenues that make your money work smarter and earn more.

In hindsight, I've learned that true financial security involves a strategic approach to managing money, where it's not just about accessibility but also about making every dollar work toward achieving long-term goals. This realization prompted a shift in my financial strategy, as I explored avenues that could provide both liquidity and the potential for substantial returns. It's a lesson that has reshaped my perspective on where to store my money, emphasizing the importance of balancing accessibility with growth for a more robust financial future.

5. Money Mistake number five: Aggressively repaying student loans

Okay, here's the controversial one—I used to aggressively pay down all my student loans. While it felt good, there can be smarter approaches to managing different types of debt. Now, let's dive a bit deeper into this controversial choice and explore the nuances behind it. 

Not all debt is created equal, and understanding the intricacies of student loans was a pivotal lesson in my financial journey. With interest rates ranging from 5-7.5%, these loans demanded careful consideration. While I'm grateful for paying off loans with higher interest, I've come to realize that federal student loans offer a variety of payment plans, introducing an element of flexibility. Here's where it gets interesting – during my time working as a travel physical therapist, my student loan payments were remarkably low. The key? My taxable income was substantially reduced, thanks to the unique tax advantages associated with being a traveler.

In hindsight, this presented an opportunity to reassess my strategy. Instead of aggressively paying down my student loans, it might have been wiser to explore alternative avenues. Running the numbers now, I recognize that investing aggressively in the stock market or real estate could have potentially yielded more significant returns. 

Let's dive into the financial details and explore the potential outcomes if I had redirected the $70,000 initially used to pay off my student loans into the stock market or real estate. Here's a breakdown:

>>Option 1: Investing in the Stock Market

If I had chosen to invest the $70,000 in the stock market, assuming a conservative average return of 7% per year, my investment would have grown to an estimated $98,218 today. Now based on actual returns of the S&P500, the true balance today would be $146,157.48 today. This calculation is based on investing the amount on January 1, 2019, and reinvesting all dividends.

If we extend the investment horizon to 30 years, that $70,000 invested in 2019 could have grown to an impressive $533,519.

Now, it's worth noting that the average yearly return of the S&P 500 over the last 30 years is 10.04%, making 7% a conservative estimate. While past returns don't guarantee future performance, this benchmark provides a reasonable projection. I prefer a conservative estimate in my calculations.

>>Option 2: Student Loan Repayment Comparison

In contrast, let's consider the alternative scenario of keeping the $70,000 as a student loan balance for 30 years, with an average interest rate of 6.0%. My balance today would be $93,715 ($5,000 less than if I had invested after only 5 years). The projected student loan balance after three decades would be $402,597.

Here's the kicker: By choosing to invest that $70,000 in the stock market, I would have had a net gain of over $100,000 in 30 years compared to aggressive loan repayment.

This comparison doesn't even factor in the temporary suspension of student loan interest for three years due to COVID, an unlikely circumstance to be replicated. Even without considering this suspension, opting for investment over aggressive loan repayment would have resulted in a higher net worth today and in the future.

It's important to acknowledge that the student loan balance will continue to accrue, and after 20 years on REPAYE, the balance becomes eligible for forgiveness, albeit with a tax bill. However, the anticipated growth in investments should ideally outpace the potential tax liability, underscoring the long-term benefits of strategic financial decisions.

This realization underscores the importance of a nuanced approach to debt repayment, considering not just interest rates but also the broader financial landscape. It's a lesson in optimizing resources, understanding tax implications, and aligning financial strategies with long-term wealth creation. So, the next time you're faced with student loan decisions, think beyond the conventional wisdom and explore the possibilities that align with your unique financial goals. When it comes to student loans, it's not just about the interest rates. It's about figuring out the best financial strategy for your unique journey. Which ties right into my next mistake, not asking for help earlier in the game. 

6. Money Mistake number six: Not seeking early financial advice. 

One of the most significant oversights in my financial journey was the reluctance to seek guidance from knowledgeable individuals who could have provided valuable insights and direction. Early on, I operated under the misconception that managing finances was a solitary endeavor, and seeking help was a sign of inadequacy or lack of control.

This reluctance to ask for assistance had repercussions on various aspects of my financial decision-making. Whether it was navigating investment options, understanding tax implications, or devising a comprehensive financial plan, I often found myself grappling with uncertainty and making choices without the benefit of experienced perspectives. Pretty much all of my previous mistakes could have been avoided had I simply asked for help from someone just a few steps ahead of me on their financial journey. 

As the saying goes, hindsight is 20/20. Looking back, I realize that this reluctance hindered my financial growth and delayed the implementation of sound strategies. Seeking advice early in the game could have provided me with a roadmap, helping me avoid common pitfalls and capitalize on opportunities that I might not have recognized on my own.

In the spirit of financial growth, I've learned that asking for help is not a sign of weakness but a proactive step toward building a solid foundation for success. Whether through consultations with financial advisors, mentors, or engaging with a supportive community, seeking guidance has become an integral part of my financial approach. It's a lesson that underscores the importance of leveraging collective wisdom to make informed decisions and accelerate the journey toward financial well-being. So If you're itching to sidestep some of my missteps, hit up this link to book a free strategy session with me. We can navigate your financial maze together because we are in this together. 

As we wrap up this journey through my money adventures, picture us standing at the crossroads together, like Glinda and Elphaba, armed with some serious insights and a trusty roadmap to navigate the wild twists of the financial maze. We've uncovered tales of missed employer matches, unexpected medical dramas, delayed investments, and a few other missteps I've affectionately dubbed my "oops" moments. And now it’s up to youuu (cue “Wicked” soundtrack playing on repeat). 

But here's the deal – each of those missteps isn't just a story; it's a nugget of wisdom waiting to be uncovered. We've learned about the magic of employer matches, the superhero status of emergency funds, and the game-changing power of early investing (reminder: get your free investing cheat sheet here). We also got real about debt repayment strategies and the importance of not going at it alone when it comes to your finances.

With these newfound insights, you're not just avoiding potholes; you're cruising on the highway of financial smarts. Whether you're thinking about investments, sorting out debt, or building up that emergency fund, let these lessons be your friendly companion. This financial journey is a team sport, and soaking up the wisdom of others can fast-track your way to financial awesomeness.

Strap in for the ride ahead on your financial adventure. Explore, learn, and don't shy away from asking for advice. If you want really good financial tips and stories delivered directly to you weekly, sign up for my newsletter here. I promise you, that’s where the gold is - it’s where I deliver my net worth updates, personal money fails and wins, and hilarious stories and tips to help you on your journey to financial independence.  If you're looking for some 1:1 help in your financial journey, hit up this link to book a free strategy session with me. We can navigate your financial maze together because we are in this together. Here's to your financial empowerment and a future filled with smart money moves. Cheers to money magic.