My Worst Financial Mistake Ever: Saving Money

Now, I’m a minimalist, and a nomad. But in my 20s, I spent my money a bit foolishly.

Hundreds of dollars worth of jewelry from now-defunct Lia Sophia. Last season’s designer clothing from TJMaxx. Footwear for every outfit from Nine West. A salon and spa monthly membership. FADS GALORE.

In my 20s, I knew, on a deeper level, some of my purchases were pretty illogical. A paycheck spent on Pampered Chef was no longer an opportunity, it was a bunch of decorative bakeware stacked deep in a cabinet, almost never to see the light of day. Sure, driving a luxury convertible to work made me feel like a million bucks, even if I was completely faking it and wanted to cry whenever I needed maintenance or to pay my insurance bill.

At the time, I knew, logically, that money spent on frivolities meant lesser availability for worthwhile things, for emergencies, or for my future. But I pushed the guilty thoughts aside, especially since I knew I wasn’t a total failure with money.

After all, I had a savings account.

I mean, I KNEW what I was doing when I was spending. I wasn’t blind. But I realize now what was so much worse: thinking I knew what I was doing when I was saving.

I thought I was doing something good for my future. That I was following good advice. That I was responsible. In reality, I was wasting a huge opportunity that time in the stock market would have on my money. 

My BIGGEST mistake… was putting YEARS and YEARS of savings into
… a savings account. 

Since my first job at 15, I’ve been squirreling away portions of my paychecks. I’d put money — from cashiering, serving, bartending, and later, “real jobs” — into that savings account. I’d take money out as needed — for college tuition, a car downpayment, a house downpayment, a kitchen remodel, and in between, an emergency fund I sometimes dipped into for other various needs — and I’d replenish it later. In those 20 years, my “high-yield” interest rates have ranged from 4.5% at their height to 0.5% now.

Sure, I spent a good amount of my paychecks, rather frivolously. But each year, I would collect a few hundred in interest in my savings account. I didn’t know any better. I didn’t know what my money could do.

Had I known in adulthood that — even without an employer-sponsored account — I could invest by myself — that it would invariably go up every year (the S&P has averaged 10% growth over the last century) — and not only that, that the compounding would make my money literally multiply? I would not have saved; I would’ve invested. If I had known about it, if I had learned how to do it, I would’ve done it. Because I am smart and accomplished and responsible.

Like many young adults, I was never taught about investing. My parents taught me (as they themselves did) to save some of my money, to pay off borrowed money as quickly as possible, to not let my checks bounce. The advice was fine. But if a flood were coming, I’d liken this popular advice to “tread water, and swim to safety”… instead of “start at higher ground, and miss the flood completely.”

If my dad had put $10,000 into the S&P 500 at age 25 (he was 25 in 1967) and never looked at it or added any more to it, there would be $2.1 million today. Not a true story, unfortunately. (Sadly, I think my parents invested at some point in individual stocks, pushed on them by some peddler full of promises, and never tried again after it all folded.)

Or let’s say me, for sake of comparison. If in 2010, when I was 25, had I put $10,000 in the S&P 500, I’d have over $40,000 today. Again, unfortunately, not a true story. 4.5% to 0.5% interest, remember? Instead of $42K… I’m looking at a sad, pathetic balance somewhere between $10,500 and $17K. A quarter to a third of what could’ve been.

You might argue that it was a small victory I didn’t spend it all, but that’s not the point of this story. Whatever the number, I failed to maximize my hard-earned cash by investing it. 

And before you say, “Investing is hard, I don’t know how to buy and sell and trade and time the market,” you don’t have to. That +10% average growth? Those average gains don’t require timing or watching the market for dips and peaks. (Don’t believe me? Read these books by people much smarter than me. And if you buy from my link, I get a little incentive for getting you there!)

More mistakes I made:

• At 21, my first “real job” paid me $33K a year. I went out and financed a $22,000 car and rented a $750/month 1-bedroom apartment. With my $400-and-some car payment, auto insurance, and rent, I could barely afford to eat. (I consumed a lot of baked potatoes that year.) I had to get a second job part-time to make ends meet.
• Between age 21-27, I struggled with contributing to my tax-deferred retirement fund, even up to the company match. I threw away free money.
• At 27, I spent 3.5 years in another job where there was no employer-sponsored retirement account or company match… so I didn’t invest at all, missing out on prime compounding years.
• I bought a “new” car every couple years on financing. In 20 years, I’ve owned 7 new or almost-new vehicles. (The last was the only one I didn’t finance.) Per depreciation, I lost money each time I drove off the lot.
• With every raise (except my last), I let my lifestyle creep. Higher salary = higher spending.
• At 30, I started contributing to my retirement again, but not to the level allowable under tax law. Better late than never?!
• I didn’t discover (or start contributing in) a Roth IRA until age 33. (Success: Now 36, I’ve been contributing to the tune of about $6,000 a year!).
• I didn’t max out my 401K to the level allowable under law until age 33. (Success: And I’ve been doing it ever since at $19,500 a year!)
• From 32-36 I gave 1% of my investments to a financial adviser, reducing my earnings by thousands. He invested my money in actively-managed funds with high expense ratios, further reducing my gains and increasing my tax liability through frequent trades. At first, it was helpful, because I was overwhelmed and didn’t know what I was doing — but it cost me and it didn’t have to, had I read the books above. (Success: I now manage for myself 6-figures in Roth, rollover IRA, and brokerage!)

If you’re new to personal finance, Roths, expense ratios, and everything else may sound like a lot of gobbledygook. It certainly did to me 4+ years ago, when I was newly laid off and looking at my nearly-drained savings. That was when I vowed never to be in a place of financial insecurity again.

Personal finance is just that — personal. You are the one prioritizing, deciding, and spending (or not). It’s up to you, and I’m not casting judgment: my point is IT’S POSSIBLE. To enjoy your life but still prepare for the future. It’s about knowledge, choices, and smart investments.

Under threat of a flood, #saving is: “tread water, and swim to safety,” while #investing is: “Start at higher ground, and miss the flood completely.” #personalfinance

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Have you read these investing books? Any additional advice or other books you’d recommend for my readers? Leave a comment!

Some of my favorite (FREE) tools I use to track my spending and net worth and recommend to you:

• Mint: budgeting and categorization, trends, spending tracker (If you join with my referral link, I get $10!)
• Personal Capital: net worth tracker, investment checkup (If you join with my referral link, we both get $20!)