What if failures improved your chance of success? Everybody makes mistakes – this much is true. But are you failing forward after your mistakes? There’s a great book by John Maxwell called Failing Forward. Maxwell believes “the difference between average people and achieving people is their perception of and response to failure.” In the book, he talks about how successful people use their inevitable failures as stepping stones that help them reach the top.
Although my mistakes were costly, I’ve tried my best to fail forward over the years. And wouldn’t it be even better if we could also learn from the mistakes of others? That’s why I ultimately decided to share this list. It’s something I wish someone had shared with me back when I became interested in personal finance. Here we go…
So I’m 33 now… The list starts at age 14. To give you some quick background, I grew up in a big household. My parents had just enough money to get by. Nothing extra. Money was very tight, but we had lots of love. My mom instilled a belief in me that I would become someone special and that I could do anything I set my mind to.
Early on, I decided I didn’t want to have to worry about money like my parents. And making, saving and even spending money would be how I’d do it. I figured the best starting point would be to start making money, otherwise I wouldn’t have anything to work with. So that’s what I did!
As I began earning money around age 14, I’d hoard every penny in my chest of drawers (literally). I had accumulated several thousands of dollars cash in my chest during my high school years (good thing the house didn’t get robbed or burn down!). Keeping that much cash was a mistake in itself, but the real mistake was hoarding every penny I made. I didn’t carve out giving to church or causes I valued. I didn’t balance in modest spending. Instead my default was to hoard cash. Just like spending every penny is unhealthy, saving every penny is also unhealthy.
Buying Tech Stocks
By age 16, I’d gotten a summer job working horse shows that paid $125/day. That was big money for a 16 year old. After the first summer of work, I’d amassed a small fortune of around $4,000. I’d watched enough CNBC and decided I was ready to start investing. I invested all $4,000 into a handful of tech stocks. And then the tech bubble burst.
My natural instinct was to make adjustments and fix the problem so I began trading. I quickly realized how quickly transaction costs can eat up a small portfolio and how buying individual stocks is more like gambling than actually investing. Over the course of a few years my $4,000 dropped to basically nothing.
For fun, I ran a comparison.. if on Jan 1st, 2000 I’d instead invested $4,000 into the Vanguard Total Market Fund (VTSMX), according to Vanguard’s portfolio analysis tool, it would be worth $8,315 as of June 1st, 2016. Building wealth was going to be harder than I thought.
Not Investing Into A Roth IRA
Luckily, I still had my high paying summer job and slowly began building up cash again. By age 18 I was getting ready for college and had built up around $7,000 in cash. Grants, student loans and scholarships would cover most of my first year expenses at the University of Florida. Once again, I was considering investing. This time I was thinking of owning mutual funds in a Roth IRA.
I talked to someone I respected about my idea and they encouraged me to have fun in college. There was no need to invest all my cash right before the best time of my life. It was easy advice to take, especially after my poor experience investing in stocks, so I passed on the Roth and kept a healthy chunk of cash as I started college.
Although not utilizing the Roth was a big mistake, holding cash without a purpose may have been an even bigger mistake. Naturally, it was all spent by the time I’d finished my first year. I barely had enough gas money to get to my summer job. As my lifestyle crept up, I became reliant upon my high-paying manual labor summer job.
Not Maximizing FAFSA
FAFSA didn’t seem like a big deal at the time. As I filled out the forms each year, being strategic about it never crossed my mind. Although I received a good amount of aid, it definitely wasn’t maximized. For one, I always had a mass of cash around the time of application that decreased my aid. Investing in the Roth IRA would have helped.
Paying Out Of State Tuition
I paid UF out of state tuition my first year because I went to high school in Kentucky. However, my dad lived in Florida full-time. At some point in my first year, I began researching in-state requirements and realized it was easier than I thought to be considered in-state using my Dad’s residence. Although the first year was a loss, I was able to pay in-state tuition for years 2-4.
I was still driving my super reliable and paid-for truck as I entered college, but I had cash in the bank and could afford a much cooler car. I began looking and realized I could get a much nicer car if I financed it. And rates were so low. The payment would be no problem with all the cash I had! And I needed to start building credit.
So I found a jeep for $10,000 and financed all of it. The payments were always made, but toward the end of every summer, I was in danger of not being able to make the payment. I became more reliant on my summer job. And it was my first step in the direction of becoming comfortable with debt. Later in college, I wrecked my Jeep and used it as a reason to upgrade. I’d finance my next truck and the next car after that before I realized it was causing me to spend more than I could afford.
Doing My Own Tax Returns
Over the summers, I was an independent contractor (1099 income). This made for not-so-simple tax forms. But I didn’t feel I had the money to pay someone. And, after all, I was a finance major and could figure it out. At the time I was more worried about underpaying and keeping good records. Looking back, I was actually overpaying. At my income level, I should not have had to pay much or any taxes.
I never deducted tuition and education expenses, which I paid myself. I was always a dependent on my parents return but should have been claiming myself. I missed out on many of the easy credits for low income earners. I’m sure there were many more errors, mostly not in my favor. Unfortunately, you can only correct tax returns up to three years after they were filed.
Opening A Credit Card Without A Plan
I opened my first credit card during my junior year. At that point, I didn’t really have an informed opinion on using credit. At first, I didn’t really look at it like a debt. I viewed it more like an easier form of paying for things. Plus it offered 0% interest for a year. And I was pretty responsible with money – I always thought I’d pay it off. So I took out a Capital One visa with a $500 max.
Things didn’t go as well as expected and after 12 months I found myself rolling the balance into a new card with 0% interest and a $5,000 limit. And I started to rack up a balance on that one as well. Using credit cards allowed my lifestyle to creep up even further to the point that it was greater than my income. I finished up college with several thousands in credit debt at double digit interest rates. I learned credit cards were designed to make it super easy to spend more. And using credit cards responsibly took discipline and planning.
Buying A Boat With Friends
In my fourth year of college, my friends & I thought It would be a good idea to buy a $4,000 bass boat. It was a fun boat and terrible financial decision. The bills never got split evenly and, naturally, it was far more expensive than we’d planned. I learned boats are expensive to own and owning things jointly is complicated.
I had a great time in college! But my finances were pretty chaotic. There was never a plan for my cash flow and all of it was eventually spent. It was feast during the school year and famine during the summers. What I was missing was a plan that included systematically saving (and giving) first and then spending the remainder. Instead, I was flying by the seat of my pants. If you’d asked me then, I would have told you, “I’ll have plenty of time to invest when I’m actually working for a living.”
What I didn’t realize was that I was already working for a living and getting into a dangerous habit of spending first and letting everything else work itself out. If I had begun systematically investing $200/mo into VTSMX starting Jan 1st, 2000, as of June 30th, 2016 it would be worth $74,733. And if I stopped contributing and the $74,733 continued to grow at an 8% annual return for 40 more years (my age 73), it would be worth $1,623,539. Not bad for investing $37,200. But once you get used to spending what you make, it’s difficult to undo the habit.
So I’m finishing up college with a finance degree, no cash, and around $20,000 in debt. I wasn’t worried at all. I figured as a finance grad I’d make plenty to pay off my debt in no time. Like many guys in their early 20’s, I had a dangerous combination of confidence and ignorance. Naturally, I decided I wanted to help other people with money. After interviewing with several firms, I decided on going to work for a big insurance company. I’d be a financial representative (aka selling insurance).
The career track allowed me to become a financial advisor much quicker than the other alternatives. The catch was there would be no pay – not a penny – unless I sold stuff. So I had to hustle to make it work. I remember in sales training, they had everybody say their first year income goal. Mine was $50,000 (I had no clue). I ended up making closer to $20,000. And I was the only guy that made it in our training class.
It was a rough first few years. When I had slow months, I found myself going into more credit card debt. In the good months, I was catching up. After two years, my debt had increased to $37,000. My income had grown to around $42,000 but it was still very volatile. I had no business going into a 100% commission job with that much debt and no cash. But I did learn how to live lean. And the professional experience was fantastic. Well, that’s plenty of failures for today. I’ll share the rest another day. Do you have any failures you’re trying to turn into learning experiences to share?