Everyone makes money management mistakes at some point in his or her life—even those of us who write about personal finance for a living. If you learn from those mistakes, though, you’re less likely to repeat the behavior and negatively impact your credit score down the road.
Fortunately, on the Richter Scale of Financial Mistakes, my blunders have been annoying tremors rather than full-scale earthquakes. Even so, I’m continuing to pay to get them fixed now, many years later.
In the spirit of sharing, here are my dumbest mistakes and what I’ve learned from them. How do yours compare?
Mistake 1: Buying a car that was too expensive.
Note that I didn’t say, “Buying a car I couldn’t afford.” I had the money for said car, and I never got behind on payments. However, the $7,500 cost of my silver Honda Prelude—which I bought during my junior year in college—hobbled me financially for many years.
How it happened: In college, I made very good money during the summers working at a popular restaurant, and I was quite responsible with money. Even though my parents knew the car was too expensive, they discussed it with me a few times and then let me make my own decision to purchase the car.
What I didn’t understand was that buying the car was only the beginning. I also had to keep up with ongoing costs like gas, insurance, and repairs (and I had a few doozies on the repair side).
What I learned: Dave Ramsey, author of “The Total Money Makeover,” advises that the value of your car(s) shouldn’t be more than half of your annual income. That’s a great guideline that I wish I’d heard earlier. As a college student, I certainly wasn’t making $15,000 annually, or enough to justify a $7,500 car.
Also, I wish my parents had advised me to save money every month in a car repair savings fund. My husband and I do that now.
Mistake 2: Underpaying my taxes.
One year, I took on a new client and my self-employment income increased pretty substantially. I was so happy to have the extra money that I didn’t take time to check in mid-year with my tax advisor.
How it happened: If I was employed by a company and got a regular paycheck, more taxes would have been automatically withheld from my check if my salary increased. But because I’m self-employed, I estimate and pay my own taxes quarterly so it’s up to me to make adjustments.
I continued to save the same percentage of taxes from my checks as usual. However, my extra income had bumped us into a higher tax bracket, and I hadn’t saved enough in taxes to cover what the higher bracket required. I paid the owed taxes, but it took me a good part of the following year to catch up again.
What I learned: Whenever you face a big change in your income or family situation, check in with a tax pro. I could have easily set aside the tax money if I’d done so, and I could have also saved myself a huge amount of guilt.
Mistake 3: Not maxing out my retirement savings early on.
I will give myself some points for starting my retirement savings early (age 22). However, I thought putting aside 6 percent of my salary—which was the max I could save and get a full company match—was plenty.
How it happened: I was overly optimistic, despite professional advice. Early in our marriage, my husband and I sought the help of a financial planner who suggested that we should be saving roughly 20 percent of our income. That sounded like a lot of money, and we wanted to travel and save for a house. Plus, because we had started saving so young, we thought we were ahead of the game.
Later, we had kids and faced child-related expenses, I cut back to part-time work for a few years, and my husband went through a layoff. At that point, we had to suspend retirement contributions for a while. It was necessary to do so, but I would have felt better about it if we’d already socked away more for retirement.
What I learned: Unless there’s a really good reason, take the professionals’ advice when it comes to money. If possible, save something for retirement even when money is tight. When your finances are back on track, increase your contributions one percent at a time until you’re saving the same amount of money you were setting aside before you encountered a setback.