Financial mistakes: learning the hard way
Seven steps to help you safeguard your economic well-being in future
When it comes to money, to borrow from folksinger Jim Croce, “I’ve learned the hard way every time.” Space precludes listing the dozens of financial mistakes I’ve made in my time, but here are seven that come to mind.
1. Carrying an outstanding balance on my credit cards
The first time I was a freelancer was in my early 30s, half a lifetime ago. I “wrote for rent” from a downtown apartment, ate out and bought compact discs with a credit card. The balances ran around $500, which meant I was wasting $40 a month on interest. Once I realized that money could have been used to buy two new CDs, I was cured of a bad financial habit that could have grown into a monster problem had it not been nipped in the bud. Today I ignore “minimum monthly payments” and pay off balances in full. You should too. 2. Late start on RRSPs My first media job after graduating in 1979 didn’t offer a pension plan but, like most young people, I spent what I earned and paid no attention to RRSPs. In 1981, I joined the Globe & Mail and enrolled in its defined-benefit pension. When I quit in 1984, the pension payout became my first RRSP contribution. I’ve maxed out ever since, but regret not having started the RRSP five years earlier. Or a TFSA, if it had existed back then!
3. Switching from a DB to a DC pension
When I joined the FP in 1993, I enrolled in its DB plan (good move) but was later persuaded to switch to a newfangled defined-contribution plan called TRRIP (not so good). It “targeted,” but didn’t promise, a certain pension payout. When the FP folded into the National Post in 1998, I joined its new DB plan but lost those extra years of DB plan participation. I had only a small RRSP lump sum to show for my years in TRIPP. Bottom line: DB plans are a bird in the hand. Don’t leave without good reason.
4. Waiting too long to buy first home
While I now preach “the foundation of Financial Independence is a paid-for home” I was late to buy my first house. I rented through most of the 1980s, all while Toronto real estate was soaring. Only when I got married in 1988, at age 35, did we finally buy our starter home, right at the top of the market.
5. Buying high-fee DSC mutual funds
Like many who don’t know better, I found my first financial adviser at a “free” investing seminar (oh, the shame!) This was my introduction to equity mutual funds, but I was locked into the deferred sales charge (DSC) schedule and funds with high management expense ratios (MERs). Today, I buy stocks and ETFs at a discount brokerage and “validate” my decisions with a fee-for-service adviser.
6. Selling a car that was a collector’s item
In 1972, my parents bought a brand-new AMC Javelin right off the showroom floor: A snazzy white car with racing stripes, bucket seats and a Pierre Cardin interior. I took it over but later decided to buy my first “new car.” Without researching, I impatiently took the first offer of $500 just to get it off my hands. Too late, a would-be buyer informed me they’d made only four of that particular model that year. I wouldn’t be surprised if that car is now worth more than $100,000, while the “new” 1989 Dodge Shadow I bought is now probably worth the $500 I received for the Javelin, if that. Regrets, I’ve had a few! 7. Selling Apple way too early I made a similar mistake investing, one that cost at least half a million dollars. Call me brilliant for buying $5,000 worth of Apple Inc. shares just before the iPod took off in 2001. But call me stupid for selling those same shares a year later because the stock hadn’t yet moved. Yep, a 100-bagger cut down in its prime because of impatience.