We make financial decisions everyday, some are good and some are…uh…not so good. But every now and then, we experience a breakthrough that is a turning point towards financial success or failure. In my previous post, I asked about your life changing financial decisions and noticed that most of you mentioned real estate in your worst financial decisions. Very interesting. My best and worst are as follows:
Paying Myself First: This is, by far, the BEST financial decision I’ve ever made. Prior to this breakthrough, I worked, paid bills, and lived on what little I had left – if any. It was a never ending cycle of chasing my tail. Once I learned the key to financial success was paying myself first, it changed the way I thought about money management. In order to pay myself first, that meant I had to make ME a priority before everything else – household bills, car payment, credit card payment, student loan payment, etc. I couldn’t change my past and definitely couldn’t stop paying the bills, so the only way to rearrange my priority list was to focus on the present and future. First order of business…get rid of everything that wasn’t a priority – debt
There is nothing I want that is worth accumulating more debt. Nothing. Without debt, I now have the freedom to make financial decisions based on my priorities and values. Without debt, I also have the freedom to say what I’m NOT going to do. And most important, without debt, I have the freedom to pay myself first before anything else. Every time I pay myself first, it’s a reminder that I live and work for ME, not to pay bills. As a result, it makes my life a whole lot easier.
Buying My House: This is, hands down, the WORST financial decision I’ve ever made. The largest financial transaction of my life was purely random and based solely on emotions. It was the peak of the housing bubble, builders were throwing up new homes on every block, and I decided to look at a model one random afternoon on my lunch break. Mistake #1. I toured the model home, spoke with a salesperson, received a GFE from the “builder’s” lender, and left with a few shiny brochures and floorplans. Mistakes #2, 3, 4, and 5. On the way back to work, my co-worker went on and on about how prices were going up and the builder’s prices were such a “great” deal. She also emphasized how much money we already made and how much my income would increase based on my planned career trajectory. I listened intently. Mistakes # 6 and #7. When I got off work, I went back, signed a contract, and wrote a $3k check for earnest. Mistakes #8, #9, and #10. Immediately, my stomach tightened and I knew it wasn’t a good decision.
Over the next few weeks, I was distracted by selecting my floor plan, paint colors, upgrades, etc. Then for 8 months, I watched them build my home from the ground up. During every visit to the construction site, something said “this is not for you.” I contemplated breaking the contract, but I couldn’t imagine losing $3k. As construction neared completion, I tried on that “first homeownership” excitement, but it wasn’t genuine. I went to closing, friends and family congratulated me at the front door with balloons, and I entered my brand spanking new home with a fake smile. But deep down, I felt…uh, I don’t know…weird. People told me my range of emotions were normal. Again, I ignored my gut and listened to others.
I lived in that house for over a year and never bought any furniture, decorated, or anything. My spirit wasn’t settled. Just shy of 2 years, my employer relocated me for a promotion and my relocation package included the sale of my home within 12 months. By then, the market was sinking and I feared selling at what I thought was a ”huge” loss so I decided to rent it. Now here we are, 7 years later…I look back and think – I bought the house against my better judgement because I feared losing $3k; I didn’t sell the house when I should have because I feared losing ~$20k; and today I’m stuck with a house I don’t want that’s worth ~$100k less than I paid for it. Just great.
The Bright Side: The bright side is that my best decision allows me to mitigate the risk of my worst decision. My house is currently under lease and the rent I collect pays the mortgage plus cash flow. If my tenant doesn’t pay, my best decision gives me the flexibility to pay the mortgage with no problem. If I wanted to sell the house at a loss and wash my hands of it completely, my best decision gives me the option to do that if I choose. Because my house creates cash flow, my best decision continues to increase and buys me more time. I’m sure I’ll make other financial mistakes in the future, but so far, my best decision has been insurance protection against the worst.
Share your best and worst financial decisions here.