My Biggest Money Mistakes

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As I approach the final year of my 40s, I am in a reflective mood.

And being immersed in this coronavirus pandemic with night curfews and carrying a work permit in case I am stopped by the police for travelling outside 5km of my home … well, let’s just say the present is bizarre. The future is uncertain. So let’s look at my past instead. My financial past, to be exact.

I have made many money mistakes in the past, the most obvious one being that I left proper money management to my late 40s. Duh!

Let me set the scene for you.

The Roaring Twenties

All through university, I longed to be working. I could not wait to earn money for myself and be independent, no longer dependent on my parents.

Unfortunately, I graduated from university in the early 90s where jobs in my field were scarce.  I remember dropping resumes to various establishments and not hearing anything back at all. Eventually, I landed a weekend job and worked as a locum during the weekdays. One of my locum jobs turned into a full time job.

More than twenty five years later, I am with the same employer.

I happily worked 12 to 15 hour days, weekends if necessary. It was an exciting time – and after the instability of working as a locum, never knowing if income was guaranteed for more than a few weeks ahead, it was fantastic.

I was living at home with my parents. I had little expenses. And a lot of disposable income to spend.

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Early Goal - Purchasing a Home

My first big money goal was to buy a property. This was really important to me – I wanted security and stability.

I wanted a place to call my own and I didn’t want to live with my parents forever.

I craved freedom and independence.

But I was also hugely influenced by my mother for whom home ownership signified financial security. Read more about it – My Money Story

And in Australia in the 1990s, buying property is seen to be a good investment – the prevailing wisdom then is that property prices will always rise.

I knew about saving for a deposit. Buying a house was a common topic of conversation among friends and colleagues. Banks then were happy to lend 90% of purchase price. I was brought up to view debt as BAD so I aimed for a 20% deposit.

It took me 9 years from university graduation to save up a deposit and purchase my home.

In those 9 years, I was often discouraged by the slow process of saving my deposit. And at times, I was disheartened, watching property prices increase rapidly.

In the meantime, to cheer myself up, I went on overseas holidays and alternated between being frugal (bringing lunch to work) and mindlessly buying books, clothes and shoes. A girl has to live – was my motto – she can’t just focus on saving endlessly for a house deposit and not have a life.

Some Good Money Decisions in My 20s

During this time, l bought shares as state owned companies such as Commonwealth Bank, Telstra and Qantas were privatised and floated on the share market. To be honest, I only bought them at the urging of my father.

My accountant explained about reinvesting the dividends as he observed that I hardly needed the cash from dividends. So I did that too.

A family friend was an agent for AMP and convinced me to start a superannuation fund (retirement account) which was separate to the one provided by my employer. At the time, I was working as a locum and did not qualify for any superannuation anyway. Once a year, I would deposit $2000 to $3000 after tax into this account.

In addition, I started salary sacrificing a very small amount from my full time job towards the superannuation fund associated with my employer.

So it seems that I made some good financial choices in my 20s … what happened next?

The biggest money mistakes started after I bought my house – in my 30s and most of my 40s.

Money Mistake 1 - I Sold the Majority of My Shares to Fund My Home Deposit

I was aiming to save 20% of home purchase price as a deposit but ended up having 30% in cash by the time I bid successfully for my home at the auction.

But because I was debt averse, I sold the majority of my shares to make up another 10% of the deposit. So in the end, I had 40% and borrowed the other 60%.

Would I be in a better position today had I held on to those shares? Most likely, yes. The number of shares would have increased simply due to dividends being re invested. However, they were individual company shares and besides CBA, the others may not have done as well.

Money Mistake 2 - Lifestyle Creep

I LOVE my house. Full stop.

Once I bought my house, I wanted to create a home that reflected who I was and a space that was comfortable and inviting. And so I bought home furnishings, kitchen appliances, and just … stuff.

I bought most of them on sale. Remember Boxing Day sales? I would be there at 7am, ready to shop till 9pm. But the irony is that now I am struggling with decluttering.

I love my comfort and not having to economise. I didn’t go over the top but I never really worried if I was spending too much. After all, I could afford it. And I needed to reward myself for working so hard.

Money Mistake 3 - I Got Used to Debt

Oops.

My loan was for 30 years and it was always my aim to pay if off well before the 30 years was up.

Everyone (except my parents) told me that I would get used to it, that everyone has debt and having a mortgage was the cheapest debt available. Don’t worry about it so much , they said – live a little, enjoy your house and of course, you must still go on holidays. You work too hard.

I deposited my weekly wage directly into my loan account. And as long as I was $2000 ahead of the loan repayment schedule, I could redraw as much as I liked. So every time I looked at my loan, I could see a massive amount (over time) that I could redraw whenever I wanted.

I never felt I was struggling or that I needed to repay the debt as fast as possible. I forgot that the money wasn’t mine, that it belonged to the bank.

Frankly, I was comfortable and complacent. While my parents urged me to repay the loan as quickly as possible, I was happy cruising along, enjoying using the bank’s money, travelling overseas every two years or so.

In the end, I cleared the debt in 16 years but really, it could have been done a LOT earlier.

Money Mistake 4 - I Stopped Contributing Extra towards My Superannuation

I told myself that I wanted every dollar going towards my mortgage. Therefore I stopped contributing to the AMP superannuation fund and stopped salary sacrificing at work.

But in reality, I would have been able to manage both contributions had I just tightened my belt a little. And changed the AMP payment schedule to monthly instead of annually so it didn’t feel like I was facing a big bill.

Retirement was a long way away – apathy set in – I never reviewed my decision. Until I woke up in a cold sweat at 47, wondering if I could afford to retire at all.

Now, I am playing catch up – salary sacrificing the maximum amount and fingers crossed, it will be adequate by the time I turn 60 and able to withdraw the funds.

Sigh! Early retirement or Coast FI could have been so possible. If only I had understood the magic of compound interest.

Money Mistake 5 - I Did Not Buy an Investment Property or Two or Three

It was such a relief when I bought my house. The weekends of house hunting, rushing from one home inspection to the next, attending auctions, talking to real estate agents can finally end. I have my precious weekends back.

At that time, I was often working part of the weekend. So the thought of losing them again to search for an investment property was very unappealing. I enjoyed spending time in my comfy home (or hanging out at the local shopping centre), unwinding after a long week of stressful work.

Plus I was happy with my debt burden – I really didn’t want more debt and the worry of not being able to repay it should interest rates rise or I lose my job (although my job was quite secure). The idea of being a landlord was also very daunting.

Once again, I became complacent and quite apathetic – and relegated buying an investment property to the too hard basket. Time marched on and now property prices have increased way out of my reach. I did try after paying off my mortgage 2 years ago but by then, banks had tightened their lending criteria and nearing 50, I was not a good candidate.

Money Mistake 6 - I Stopped Buying Shares

Since the initial foray into shares purchasing in my 20s, I did not start again until my late 40s, when I read The Barefoot Investor (affiliate link) and stumbled onto FIRE blogs. This was when I learned about investing in LICs (listed investment company) and ETFs (exchange traded fund).

While I did enjoy receiving dividend cheques or seeing my shares grow ever so slowly in my 20s, I totally lost whatever small interest I had in shares investment the minute I sold the majority to fund my house deposit. 

I was under the impression that I could not invest in anything while I had a mortgage hanging over me. In hindsight, I should have continued to invest even a small amount every month in a LIC (ETF was not widely available then). But I had never heard of an LIC until 2 years ago.

Once again, I lost the chance for compound interest to work its magic.

Can You Spot the Pattern?

Once I bought my house, I was content. And settled.

I was happy with the status quo. I achieved my dream of owning a home. It was time to stop thinking about money stuff and just concentrate on paying back my debt. (What was I thinking???)

What I was really in was … a state of inertia.

Inertia is defined (by Google) as “the tendency to do nothing or remain unchanged” or in physics, “a property of matter by which it continues in its existing state of rest or uniform motion in a straight line, unless that state is changed by an external force.”

All my money mistakes can be attributed to me being in a state of inertia.

I was so busy working, I never had time to think about what I wanted for my future.

Even though my goal was to pay off my mortgage, I wasn’t very focused and did not have a plan or definitive strategy. I didn’t educate myself in personal finance and relegated investing to the too hard basket, be it in rental property or the share market. 

I was happy moving in one direction, not questioning, not striving for more.

Until I was experiencing burnout at work and woke up in a cold sweat, anxious about retiring at all, let alone early.

That was the wake up call – the ‘external force’ required to knock me off my existing state of rest.

Final Thoughts

I don’t regret buying my house.

But I do regret being in a state of inertia afterwards.

And that inertia was the root cause of all my biggest money mistakes, the chief among them was not investing consistently while paying off my debt.

But it is what it is so … time to move on.

I am thankful for my wake up call – I will focus on my plan to retire at 55 and live my best life now and tomorrow.

 

* Image by chenspec from Pixabay

What are your money mistakes? What is the root cause of your money mistakes?

2020 goals – with an eye on the decade ahead

Photo by cottonbro from Pexels

Much has been written everywhere about the decade that was and the decade  ahead. Ten years seem such a long time to wrap my head around, let alone plan for.

Maybe that is why I am having so much trouble deciding what to focus for this year 2020 only, when this whole decade seems to loom large ahead.

Thinking too far ahead causes me anxiety. I am paralysed instead of energised by all the possibilities. As a result, I tend to avoid thinking really long term as much as possible. I don’t want to set myself up to fail.

Except now that I have discovered FIRE (Financial Independence and Retire Early) concepts, I do think long term about my financial goals. My age has caught up with me anyway. In my late forties, retirement is only years away, not ages and ages away. I really have no choice but to think a bit long term financially.

I hope to transfer this financial long term planning to other areas of my life. And so I decide I should have goals for 2020, but with an eye on the decade ahead as well.

Goals for the decade

I am binge listening to Jillian Johnsrud on her new podcast Everyday Courage. In episode 4, she talks about how we don’t give ourselves enough time to achieve our goals, that we get disappointed and throw in the towel because we did not achieve them in a year. That is me!

She shares a quote attributed to Bill Gates – “People overestimate what they can accomplish in a year and underestimate what they can accomplish in 10 years.”

So for the first time ever, instead of having vague goals for the future, I will nail down three big dreams that excite me.

Drumroll please! My 3 goals for the decade are:

(1) Retire (end of 2026 or mid 2027 ie before I turn 56)

(2) Visit Antartica

(3) Run a marathon

Retire at 55

You will notice that only retiring has a timeline – that is because I already have a plan in place to retire at 55. It is so much easier to automate weekly deductions into retirement accounts than it is to automate daily exercise! 

Knowing that this next decade will signal retirement makes me feel excited and apprehensive at the same time.

Excited? Because I will have free time all the time when I retire, yay! All that sleeping in without any regard for alarm clocks. Staying up late just because I can – no need to get to bed earlyish so I can get up earlyish. Now that is heaven to me 🙂

Apprehensive? It is a HUGE change in lifestyle. What if I can’t get there in the time frame I want (ie within the next 7 years)? What if having all that free time is a drag?

Antartica

Visiting Antartica has been a dream for a long time. There is something about the starkness of the environment, the remoteness, the cold and the wildlife – penguins, in particular, that just ignite my imagination.

It cost A LOT though, so I need to budget for it within my retirement figures. Or visit within the next 7 years while I am still working. Saving up for this expense will give me time to research alternative methods of getting there, if there are any.

Run a marathon

Out of the above 3 goals, running a marathon will be the hardest. Why? Because I don’t like exercising.

But I need to exercise for my health – my cholesterol was the highest it had ever been last year. I have run 10km fun runs before. Running a marathon will be a massive personal challenge. I want a big goal to aim for and get excited about, when I am struggling to get out of bed to run in the mornings.

I also admire the grit and sheer mental strength it takes to complete a marathon.

This is definitely a stretch goal, haha.

So what about 2020?

In episode 9* of Everyday Courage, Jillian chats to David Cain from raptitude.com  They discuss David’s post ‘Go Deeper, Not Wider’ that he wrote in December 2017 (which received 58 000 shares!). It is about a ‘Depth’ year – a year where you don’t start anything new but explore more deeply the stuff you already have.

“No new hobbies, equipment, games, or books are allowed during this year. Instead, you have to find the value in what you already own or what you’ve already started. You improve skills rather than learning new ones. You consume media you’ve already stockpiled instead of acquiring more.”

This really speaks to me. I am someone for whom the thrills of something new always appeals. These days, it may not be new physical stuff but I am endlessly attracted to new ways of thinking, productivity hacks, how to be more efficient etc.  What can I say? I just have a short attention span and get bored easily.

So with Jillian’s and David’s combined wisdom, I want to do my own version of deeper, not wider in 2020.

How will I achieve my goals?

My favourite book of 2019 was James Clear’s Atomic Habits  (affiliate link) – I even wrote a review of it.

Habits is my word for 2020. And this is why – as articulated by James Clear on Twitter:

In 2020, I will build good habits in the areas I want to focus on, to take me through the decade ahead. I want to focus on consistency, not intensity. And I am done with motivation and will power (or lack thereof). I want to embrace the process, not focus on outcomes. In other words, I want to focus on the journey, not the destination.

So what are my 2020 goals?

(1) Exercise and stretch daily

Health is everything. And I would argue, perhaps more important than wealth. Without my health, I will not be able to enjoy my wealth to the fullest. I want to be able to use all that moolah!

My goal is to be consistent this year – run and/or walk everyday and stretch daily. I am notoriously bad at stretching. As a result, I see the osteopath for regular tune ups every 2-3 months. I can save this money if I make the effort to stretch my muscles daily.

I haven’t been motivated to run ever since I completed last year’s Run for the Kids fun run. There is just enough time to start training for this year’s event. The goal is to continue running after the event, through winter. Yuck!

This is where I need to create a new habit … or tell myself I am a runner, therefore I run.

(2) Journal daily

I started this well last year as I desperately needed to find clarity – writing helps me sort through my jumbled thoughts.

But I wasn’t very consistent.

So once again, I will use the lessons learnt in Atomic Habits to be consistent and incorporate it into my morning and night routines.

This is still a goal as living an intentional life is a perpetual goal and I need to be in touch with me to do that. For too many years, I lived a stress filled life and just survived day to day. I never want to go back to that way of life.

(3) Read more

This is not a new hobby.

I’d forgotten how much I enjoyed reading fiction. Since discovering FIRE, I have read mainly personal finance blogs and books.

During my time off after my extended family had gone home on New Year’s Day, I read (and listened) to 6 books, 2 of which were related to personal finance. I was astounded. I have got my reading mojo back!

My goal is to read 20 books this year.

(4) Be more sustainable

I installed solar panels at the end of 2018 and as a consequence, reduced my electricity bill significantly. I paid less than $150 in total in 2019. Some of my colleagues who installed their panels (albeit with slightly larger systems than mine) managed to pay nothing at all ie they produced more electricity than they needed.  So I can still improve in this area.

What I desperately need now is to reduce my water and gas consumption. While this will be good for the planet, it will have financial benefits too. Gas prices have doubled in the last 5 years.

And I will look at reducing my use of plastic, just starting small. For example, not buying any fresh fruit and vegetables wrapped in plastic and use a shampoo bar instead of shampoo and conditioner in plastic bottles.

(5) Declutter

This has defeated me every year. For many years.

Marie Kondo, Joshua Becker (Becoming Minimalist) etc – I just read, agree and then not take any action!

I considered not putting this as my goal this year but I decided that in this year of diving deeper, I will tackle it again. It ties in well with reducing plastic, having less stuff generally. I am pretty good about not introducing new stuff into my house but I can’t seem to part with the stuff I do have which I don’t use.

I will start small just by keeping my kitchen bench clutter free – this will be a huge effort as it is my ‘dumping ground’, haha.

This may be the year to learn how to sell stuff online. Or just donate them.

(6) Financial goals

My main goal is to retire at 55 – I have a 7 year timeline.

In order to achieve this goal, I need to:

(a) Invest $25000 annually into my shares portfolio 

This is a challenge this year as my salary is now reduced due to transitioning to a lower stress role since July 2019.

My focus is to find every bit of extra cash and throw at it. This is important because the majority of my net worth is tied up in my house and superannuation, neither of which I can use to sustain me from 55 to 60.

(b) Maintain salary sacrificing into superannuation (retirement account) until end of financial year in June then reduce the amount

My rationale is that based on existing fund balance, it will grow to the desired amount by the time I can access it at 60 years old, if the fund can maintain a growth rate of 7%. 2019 was an amazing year – not sure 2020 will come anywhere close. So I will review the balance at at the end of June and decide. I do need every spare cent to increase my shares portfolio.

(c) Aim for a savings rate of 50%

My overall savings rate was 40% (based on after tax pay) in 2019. I did not feel deprived in any way so I think I can still do better. And that was with 2 overseas trips.

This year, I will have one trip only –  to visit family in  London and attend a wedding Toronto. My challenge is to find less expensive accommodation especially in London. House sitting is not a good fit personally as I am not great with animals. I use my Qantas points for airfares so airfares will not blow the budget.

I am also hoping my utility bills should reduce as a result of reducing my water and gas consumption. This is part of my overall plan to reduce recurring costs such as home insurance and private health insurance.

I started a vegetable garden last year. The benefits were more than financial – the well being and relaxation from pottering around and watching plants grow then eating the fruits of your labour cannot be overstated. I will attempt to reduce costs this year by learning how to plant with seeds instead of buying seedlings.

And I have started to compost this year – this is an attempt to reduce my waste going to landfill plus I should save some money from not buying as much proprietary potting mixes, organic compost and the like.

And if I am successful in decluttering and learn how to sell stuff online, I just may be able to reach my aim of 50% savings rate. We’ll see.

Final thoughts

Phew! We come to the end, at last.

I will not be tackling the above goals with the same intensity all at once. Instead this year, I will ‘lean in’ to 3 goals every 3 months and as I develop the habits I need to succeed, I will move on to the next 3 goals. Thanks, Jillian – episode 10* of Everyday Courage.

So until the end of March, I will focus on exercising and stretching daily, journaling daily and becoming more sustainable. I will keep you up to date with my progress – it will give me an incentive to track my progress which I wasn’t so good at last year. So you can keep me accountable.

Deciding what to focus on in 2020 has taken most of my January! I am really looking forward to diving deeper into my 2020 with no new hobbies or philosophy.

How about you? Have you set goals for the decade ahead in addition to 2020? 

 

*A note on Everyday Courage podcast – a new episode is released every Monday and at the time of publishing this post, episodes 9 and 10 have not been released. I signed up to get the whole season plus a workbook so I could work through them  over 10 days or so.

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