6/3/2022
I’ve developed a love and respect for my financial mistakes. They got me to where I am now.
But, I’m getting ahead of myself.
If you are reading this, congrats and thank you for continuing on this journey with me! The most important step is taking action. By reading this blog you are taking action to make your financial (and personal) future brighter!
I promised from the beginning that I would start off by sharing the things that I have done right and that I have done wrong financially.
The list of what I have done right is relatively short and recent. The list of my financial mistakes though is loooooonnnnnngggg.
Honestly, there are probably not many people out there who have made more wrong financial moves than me. So take this whole list as encouragement even if you relate to some, many, or all of the mistakes that I’ve made. If I can begin to emerge out of the financial pit that I have dug for myself, so can you!
That’s why I’m updating this post (which was one of my very first)!
Quick aside
I just finished re-reading Rich Dad Poor Dad by Robert Kiyosaki. I bought this book for about $5 and I am sure that it has and will continue to make me many thousands more than that (file this in the “right” column).
In his book, Robert discusses failure a great deal. On its face it may seem odd that a book on creating great wealth spends so much time on failure. He goes on to share his philosophy, which I agree with, that losing inspires winners while it defeats losers.
It’s ok to hate losing, but not to be scared of losing…that leads to a fear of trying and a guarantee of not succeeding because you’re playing not to lose rather than to win. I’ve applied this concept to many areas of my life successfully without even realizing it. But when it came to finances, I was scared of losing, so I didn’t even try. And what happened…things got worse, my lack of trying was actually making me lose and guaranteeing that I didn’t win.
So now, when I go through these financial mistakes with you, I get even more inspired and focused on my goals of personal and financial well-being. Losing is now helping me to win. That has made all the difference for me and I encourage you to adopt that mindset with your finances as well.
Get angry and get motivated by your financial mistakes. The best day to fix them was yesterday, but the second best day is today!
And if you are new or need a refresher of where I started off before beginning this journey, check out my comeback story!
Top 11 financial mistakes that I have made
Mistake #1: Spending up to my paycheck
Unfortunately, I think this mistake is all too universally common.
I must admit that before I started my journey to financial well-being, I just sort of assumed that spending what you make is just what you did.
It’s a testament to the advertising and marketing machinery that I was conditioned to respond to each pay increase (yearly raise, tax refund, etc) by buying something. I did not save wisely, or pretty much at all, throughout my 11 years of post-undergraduate training.
I did not spend intentionally.
In fact, I always told myself that I would worry about saving when I started making more money, but as I came closer to this increase in pay, the price tag for an increase in lifestyle struck me – a house, cars, daycare, furniture, new toys, you name it.
I’ve had so many attendings or other high income professionals groan as they told me “the pay gets high as an attending physician/lawyer/etc. but the costs get even higher.” As physicians, we abide by the “suffer now, it will pay off later” philosophy for all of our training as our friends get paying jobs and we sink further into debt in medical school. By the time training is over, we are ready for it to pay off!
My advice – pump the brakes BIG TIME
No matter what your salary is, do not spend it all. Someone who makes a million dollars a year and spends a million dollars is not a millionaire. They are as wealthy as I was (a zero-aire?, a negative-aire?). Someone who makes $75,000 and spends $50,000, they are richer than us both.
As Paula Pant describes so well in her blog, you want to “mind the gap.” The gap is the room between what you earn and what you spend. You can grow this gap by increasing what you earn or decreasing what you spend. But the major point is to mind the gap and invest it.
Mistake #2: Paying myself last
This one dove-tails off of my #1 mistake. I paid myself last and as a result, I didn’t pay myself.
Each month I made $X and each month I spent $X – that’s a sure-fire way to have a savings rate of 0.00000%.
It seems like a no-brainer to say, “well just don’t do that, save money.” But if you are always paying the rent/mortgage, car payment, daycare, groceries, dinners, movies, concerts, etc. first, before you know it there is nothing left. This is what I always had done. I rationalized by saying that I was just spending what I needed to, but I knew deep down I was just equilibrating with what I was bringing in every 2 weeks.
The solution is twofold: learn to spend intentionally and embrace a budget!
I’ll repeat what I said above – do not spend everything that you make. Save! Mind that gap. The easiest way to do this is to pay yourself first. Choose a percentage of your earnings and take that amount out of your slush fund AKA checking account when each pay check hits. Put it in a savings account or investment account and then spend the rest of your earnings guilt free.
What percentages should you save?
Some people advocate for a huge savings rate on the order of >50% of your yearly income with a goal of retiring very early. This can be done, very successfully, but requires a great deal of sacrifice and discipline. I recommend at least trying to save about 20% of your yearly earnings, investing it in low-cost broadly diversified index funds.
My wife and I had a 0% savings rate when we started. Our savings rate is now 40-50% each month (including paying off student debt which I believe counts towards the savings rate).
Mistake #3: Not paying off any debt
Since I mentioned debt, let’s hit that topic.
I had a lot, like A LOT, of debt. I went to a private undergraduate and medical school. And I paid for every cent of it in loans in my name. Private loans, federal loans, subsidized, unsubsidized, you name it, I had them all. They stressed me out terribly. But I knew nothing about finance and was intimidated to learn anything, so I ignored them. I deferred them through medical school and all the way through my training in plastic surgery which was another 7 years.
Each year, I would have to fill out more paperwork to defer my loans and cringe at the huge numbers I saw.
How in the world could I pay off the huge number I saw? I was making little money, paying New York City rent, with two kids?
I’ll tell you how I could have started doing it, by paying myself first – which includes the loans! My interest on the loans went way up, because most of the private loans were variable interest rates – not that I even knew what that really meant until I picked up a book.
As of this writing, I owe close to $350,000 in student loans. Yikes. Wish I had started chipping away at that sooner. But, I have made a huge dent by:
- Paying off all commercial debt
- Refinancing my private loans to a lower rate
- Paying off student debt aggressively to the tune of >$100,000 in 1.5 years
- Creating a (not-so) secret plan to be debt free within 5 years
The lesson to learn from my ignorance is…
Attack debt aggressively, especially consumer and high interest (>8%) debt. This is a guaranteed 8% return on investment, and there are few better guarantees in finance. This is a form of paying yourself first and should count towards your savings rate. Celebrate each milestone and before you know it, you will be debt free. We now have a plan in place to pay off all of our commercial and student debt in 5-7 years without sacrificing our retirement savings plan.
Mistake #4: Dipping into savings
Ok, to recap…I was:
- Spending all the money I was making
- Not paying myself first or saving
- Not paying off my $500,000 debt
I did have a savings account, so not all is lost. This was basically an account of all the checks that family had given me for my kindergarten graduation and things like that. It was about $30,000, not too bad, right?
Q: What is the worst thing that I could do with this, other than invest it poorly (more on that later)?
A: Yup, you got it – spend that money. More financial mistakes…
To my credit, I didn’t spend all of it. But, when I would come across a big expense that I felt I needed, this was the fund that I would dip into.
Looking back, could I have found an alternative way to deal with these expenses? I’m sure that I could have but this was the path of least resistance. As has been said before, the easy road often gets hard and the hard road gets easy.
At the very least, I should have looked into low interest rate options for unavoidable expenses like licensure and boards fees…
Mistake #5: Buying on credit
I know, I know. At this point you’re screaming at the screen trying to stop my former self from doing anymore damage. Too late.
On top of dipping into my savings, I used our credit cards way too liberally.
We had one bank card with a decent cash back bonus and no yearly fee. And we also had another card that I had used to pay for my travels interviewing for residency as a medical student. We used this card to cover bigger expenses like the fees for my plastic surgery written board exam.
The other card we at first used reasonably, paying for large purchases that we had cash for and then immediately paying off the card to get the points. But then we got loose and started using it for things we didn’t have cash on hand for. We didn’t get out of control but we stopped paying it off in full each month.
A word about credit card points
I learned the hard way that the bonus cash back pales in comparison to the interest rates charged by the credit company. Any cash back is totally negated if you aren’t paying the card off in full each month and are accruing interest.
Don’t use your credit card for large purchases until you have the cash to pay it off in the same month. Follow that simple rule and you will not accrue credit card debt.
Mistake #6: Not paying attention to my investments
I mentioned that I had savings despite spending some of it unwisely.
About 7 years ago while in training, Selenid and I decided to take what was left of those savings out of a high-yield savings account and invest it in the stock market.
We got a recommendation for a financial advisor from my parents (I’ll cover this in Mistake #7), spoke with him on the phone for about 15 minutes trying not to sound as clueless as we actually were, and gave him permission to invest our money.
That was the extent of my involvement. Each month, I got a statement that I had no clue how to read and largely ignored because I was too embarrassed to admit that I didn’t know what it all meant. This embarrassment led to ignorance and not paying attention to my investments.
Luckily, our financial advisor was actually a good one and invested in low cost index funds. But this is usually not the case…
Another quick story…
As I was cleaning out files before moving at the end of my training, I found a paper for a retirement account from the public hospital that I had trained in. It had a website and a log in.
So I went on the site and realized that I had been contributing money from every pay check into a tax free retirement account – and I had no idea that it existed and would have probably never realized if it wasn’t for that sheet of paper. It was a nice surprise but then I did some digging and realized it was invested in a high turnover, high fee fund. I was paying more than I should have and had less money for it.
Bottom line: it’s your money, you should pay attention to it – you worked very hard for it after all!
Mistake #7: Using a “money person”
I actually have no problem with paying a reasonable fee for good advice from a financial advisor. The issue is that when I was not knowledgeable, it was impossible for me to tell if I was getting good advice.
And to be honest, I had no idea what we were paying him. If you are not sure if you are paying for your advisor, you definitely are. And usually it’s a percentage of money invested or worse, your advisor is actually a sales person and is making money off of commissions from selling you terrible mutual funds (broadly diversified index funds don’t generally have commissions because they don’t need to be sold – they sell themselves!).
We were lucky in the sense that our advisor was charging us 1% of our money managed and was not selling on commission. He is an honest guy and helped us a lot as we became financially literate. As mentioned above, this unfortunately is not the situation for many others.
So why did I list this as a mistake? Well, I really don’t think that anyone needs to have a financial advisor.
But, if you do use one, you need to go in educated and ask the right questions. This is something that we did not do!
Mistake #8: Not having a written financial plan
A written financial plan is like a compass.
When you aren’t sure what you should do in a certain situation, look at your plan and it will tell you. Just do that. This way, you are acting out of logic and reason (the state of mind when you wrote the plan) rather than emotions (what you are feeling in the moment).
You won’t be surprised from what I’ve shared so far that my wife and I did not have a financial plan, let alone a financial clue, until recently. Not having one led to more confusion and uncertainty and stress.
Once you start on the road to financial well being, make a commitment to put a plan together in a month (with your significant other if you are in a relationship – being on the same page cannot be overstated in terms of importance). For all of my family, friends, and colleagues that I talk to, this is one of the things I harp on the most.
If you come up with a reasonable strategy based on financial knowledge and research, formulate that strategy into a written plan, and follow that written plan, you are better off than most investors. It doesn’t need to and likely won’t be perfect, but a start is better than nothing!
You can read my full and actual financial plan right here!
Mistake #9: Not developing a side hustle
Time = money.
This is the timeless equation. And that is what most of us, including me are doing. I give my time and someone pays me. Seems reasonable, but what if you could get paid without giving up your most precious and finite commodity, time? Too good to be true? It’s not!
There are plenty of ways to develop passive income (simple definition of passive income is it’s money while you sleep). Dividends from investments in index funds is one example. If you are invested in the stock market, you have passive income. Consulting, expert witness, coaching, podcasting, blogging, cash-flowing real estate rentals. These are all other examples of earning money while you sleep and money making money. There are plenty more.
I was totally blind to this idea and wish that I had been aware sooner. Trading a finite (time) item for an infinite (money) item is a losing battle. If you can have passive income to supplement your time-paid income, you will begin to break the cycle of time = money. This money can be saved and invested and financial freedom is that much closer. Many people are doing it and there’s nothing special about them (or me) so why can’t you?
So check out this extensive list of Physician Side Gigs to Make You Passive Money!
Mistake #10: Holding onto a scarcity mindset with money
I made this one of my last mistakes here because I think it was a really big one. It represents a huge limiting belief and philosophy that holds me, and a lot of people like me, back.
If we believe that money is scarce, we hold onto it for dear life. We become stingy. We are hesitant to donate or give money to others. And we feel the stress of making ends meet seemingly all the time.
But money is not scarce or finite, money is abundant.
Money is not a zero sum game where if you make a dollar, someone else lost a dollar. In most everyday scenarios, money represents a win-win exchange. You want coffee, you give someone a few dollars and they give you coffee. You, the buyer, and the seller are happy because you both got what you wanted. This can be expanded to much larger scales obviously.
How can you “invent money”?
When reading Rich Dad Poor Dad, I had a hard time understanding Robert Kiyosaki’s concept of “inventing money.”
How the heck could money be invented? The problem was that I viewed money as scarce, not abundant. I was already working so hard and for so long, how could I trade any more of my time for money. I was blind to any other way of increasing my money through saving strategies, side hustles, and investing. Once I began to learn, I quickly placed $1750 into a Roth IRA. In a few months, it had increased by $500 – I had invented money. Change your mindset and you can change your reality.
A quick side note on this subject
I’m not sure that everybody will agree that this is a form of inventing money but I do. If I asked most people, including my past self, to save $1000 each year to invest, I bet they would say that they can’t, they don’t have/make enough money. They need that money to live. But if I asked the same people to save $3 a day, I bet they would find it possible. Do that for a year and BOOM, you have $1095 without changing your lifestyle in any noticeable way. Invest that amount yearly in a broadly diversified index fund with a return of 7% and in twenty years, you’ll have nearly $50,000. What would happen if you save $5 or $10 a day? I’ll say it again, change your mindset and you can change your reality.
And now, the biggest of my financial mistakes!
Mistake #11: Not learning (see below face-palm emoji)
This is hand down the biggest mistake financially that I have ever made. And I made it over and over again throughout my life.
I did not learn.
It’s not that I didn’t know that resources were out there, I did. I just thought that it was unimportant. Or, more honestly put, I thought it was confusing so I made excuses like, “I don’t care about money” or “I’ll worry about my finances later.” Many of you can relate to this I’m sure. Again, there is a fear and a bit of embarrassment about admitting that you have no idea what you are doing financially, I felt it very strongly. It makes you blustery or dismissive when people do bring up the topic. You don’t want to think about it for fear of realizing you are in a bad spot.
Luckily, there are a few easy steps to take to overcome this
Just buy a book on the topic. Even if you’re still feeling scared and don’t really want to read it and open the finance can of worms, just buy a book. Then, whatever day you get the book, carve out 10 minutes before you go to sleep to read the first chapter. I promise no chapter in any of those books that I recommended takes longer than 10 minutes to read.
No matter how busy you are or what you are doing the next day, just read the first chapter, telling yourself that you will stop reading and throw it away if its not for you. I would be shocked if it didn’t grab your attention and pull you in. And once that happens, it won’t seem like work to read these books and you’ll be excited to learn as much as you can to get where you want to be!
There are many “first books” to choose from. Like I mentioned earlier, Rich Dad Poor Dad costs just about $5 on Amazon and is a great book introducing important financial philosophies. This is about a cup of coffee these days and certainly at least equal to the savings you will make if you bring lunch to work instead of buying for a single day. The Millionaire Next Door is another good one to start with.
Where do we go from here?
Again, I list these financial mistakes (and trust me there are more) to demonstrate that most, if not all, of you are likely in a better situation than the one that I put myself in.
So you’re already at a healthier starting point!
But most importantly, by acknowledging our financial mistakes and lack of knowledge, we free ourselves from the cycle of being scared to lose (which only leads to more losing) and can finally start playing to win, using past financial mistakes and past losing as motivators.
Congratulations for continuing to take these important steps with me!
I know from firsthand experience that they are the toughest steps to take. Open yourself up to accepting and acknowledging your past financial mistakes and you will open yourself to a world of opportunity, a world of making the right decisions leading to personal and financial well-being.
And I continue to use this learning process today. Just recently, I rehashed some of the big financial mistakes that Selenid and I made in buying our third rental property and everything we learning from them!
