As a couple, we (Bob and Linda) do our best to make wise financial decisions. After all, we write and speak about this stuff for a living. So, even though it’s hard to admit it, we’ve definitely done some dumb things with our money!
One caveat though: What’s dumb for one person may be smart for someone else. So much depends on your circumstances.
A car’s value drops considerably during the first couple of years. Those who always buy new, trading up every few years, will lose money.
However, we once bought a new car with the plan to hold onto it for at least a decade. We got a lot of value out of that car. In the end, it was a great decision.
Along those same lines, most experts would say a home is a good investment. This isn’t always true.
Consider this: selling your current house is costly. If you’re selling your home and buying a new one every couple of years, you won’t benefit from building equity over time.
With that out of the way, here are five of the most ridiculous financial decisions we ever made.
Mistake #1: Our Fireplace
Ah, our beloved fireplace!
When we got married, we dreamed one day we would have a wood-burning fireplace, and it seemed like that dream would never come true. Our first apartment had a ventless gas one that, when we lit it, smelled like gas. It was really scary — like sitting in a running car with the garage door closed.
Later, when we bought our first house, we decided to augment it with an electric fireplace. Looking back, it was pretty corny — barely a step above a free fireplace app for our TV. But it was what we could afford, and we loved it. We even put stockings on it at Christmas!
Our second house had a big, beautiful fireplace, but it was gas. Remembering our last experience with gas, we decided to convert it into the wood-burning fireplace of our dreams. We did some research (not enough!), hired some contractors, and began the process. In our minds, we thought, “This will be easy. They just need to put a flue up there, right?”
Wrong. This thing became a total money pit. I (Bob) used to work for a contractor, and I should have known. When you remodel an old house, you never know how it might go sideways. When we were finally done with the painful and expensive process of converting it, we had spent somewhere between 200% and 300% more than planned.
What’s worse was this: We didn’t check our Homeowners Association (HOA) guidelines thoroughly. We received a letter stating the new chimney didn’t meet their standards, and we’d have to make changes. We thought we were making an investment in our home, but in the end, we lost big time.
Key Takeaway: Home improvement projects usually cost more than you expect. Before embarking on one, you should budget for double the projected cost.
Mistake #2: Foolish Stock Purchase
Once, I (Bob) heard about this really obscure company that had a lot of promise. I invested in it, thinking, “What’s the worst that could happen? I can afford to lose a little money.”
Maybe I was naïve. Or ignorant. Or a little bit of both.
But what didn’t cross my mind (and should have) was that I could lose every cent I put into that particular investment. When you buy a stock, you’re a part-owner in the company. If the company goes under, they sell their assets to cover their debts. If there’s anything left over, the investors might get something.
In my case, the stock fell all the way down to zero. They lost everything, and I got nothing! (I also lost quite a bit on another stock I believed in — Krispy Kreme, which is down 90% from my initial investment.)
On the flip side, we’re glad we diversified early on. We’ve had some investments that have done really, really well. We bought Amazon about a decade ago and check out the results:
However, we learned quite a bit from our failed investments, and those lessons were valuable — even if the companies are not!
Key Takeaway: Any investment, no matter how good it sounds, is a risk. Don’t put more money in a single investment vehicle than you can afford to lose.
Mistake #3: Buying the Wrong House
We’re from St. Louis. We wanted to move to Franklin, Tennessee, so we tried to approach the decision thoughtfully. We rented an Airbnb, scouted out the area, and tried to figure out if Franklin was a good fit for us.
We fell in love with the town. Hard. Within three weeks of deciding to move here, we picked out and purchased a home. We had money to spend, and the house looked like a dream come true.
At the time, we had one eighteen-month-old son. A family of two adults and one kid who could barely walk, we didn’t notice that the house was on a busy street. We didn’t see the semi-trucks that regularly barreled past. And, who needs a sidewalk?
But by the time our son turned three, and he was mobile, we had a problem. Every moment we spent in our beautiful back yard, we had to be on high alert the whole time. Then we added a second child. And a third.
When we made the decision to buy the house, we didn’t really give ourselves enough time to consider what life would look like over the next five to ten years. We purchased a home totally inappropriate for our phase of life.
Maybe everybody does this — maybe we’re the only ones. Either way, we learned a big lesson. We finally divested ourselves of that house and bought something that makes a lot more sense, and we’re glad we took a little extra time to think through the decision.
Key Takeaway: When you buy a house, ask yourself: “Will this still make sense for our life five to ten years from now?”
Mistake #4: Not Having a Budget
Before I (Linda) met Bob, I didn’t manage my money at all. I had no clue what was going on, and my finances were super chaotic. If I noticed a problem, I’d put my fingers in my ears and say, “La la la la la —I can’t hear you!”
Growing up, the only thing I learned about money was this: “Debt is bad.” Unfortunately, I got myself into some significant credit card debt and felt ashamed. I was twenty and still living at home with my parents. Maybe they could have helped, but I kept my problems to myself.
One day, I paid a bill with a check and realized I didn’t have enough in my bank account to cover it. So, I just stopped paying bills altogether. Before I knew it, I had bill collectors calling me.
I didn’t know how to fix it or who to ask for help. I thought if I ignored the problem, it would go away. Or that the dust would settle, and I’d be able to figure things out. But I had to face my problem and come up with a plan to fix it, and I’m glad I finally did.
If you’re struggling with budgeting like Linda was, check out our budgeting course – I think it could be exactly what you’re looking for!
Key Takeaway: Don’t bury your head in the sand. Always have a budget. If you get into trouble, don’t let shame stop you from asking for help.
Mistake #5: Going Back into Debt
Several years ago, we paid off our first house. It was the most amazing thing in the world. With zero debt for the first time in our adult lives, we felt like we were flying!
When we moved from St. Louis to Franklin, real estate prices were considerably higher. We took out a mortgage, but we weren’t worried about going back into debt. Our business was doing well. Based on our income at the time, we thought we could pay the house off in just a few years.
But when we moved, the business took an unexpected nosedive, and we were stuck with a pretty decent-sized mortgage.
As the primary provider, Bob felt a considerable weight on his shoulders. As a couple, we remembered how great it felt to be debt-free. Now, here we were, back under the same financial burden.
In hindsight, we wish we would have bought our second house with equity from the first.
We finally sold that second house — the “wrong house” from Mistake #3 — and bought our new home with cash. We realized we needed a taste of how bad it felt to go back into debt. Though everything turned out fine, we had to endure years of that terrible, terrible feeling of losing our freedom.