Highs and Lows of a So Called Financial Expert

My Best and Worst Financial Moves

Everyone has made some money mistakes in the past, whether it was ruining their credit, overspending, bad investments, etc. I have made some missteps as well.  I think one of the best characteristics of great financial bloggers is that they share more than their perspective; they also share specific experiences (both good and bad).  I have decided to share some of my financial highs and lows to try and achieve that same level of disclosure about my personal situation.

Cars, houses, student loans, and credit cards are probably the four categories you would expect horror stories to come from and my experience has been no different. It’s also interesting that my best moves have come more recently.  I guess that means semi-old dogs can learn new tricks.

My Worst Financial Move

Not surprisingly, my first and perhaps worst financial move was as a recent college graduate. I am surely not alone in that regard.  I decided that my convertible Ford Mustang 5.0 was no longer good enough.  Somehow I convinced myself that since I was a college graduate with two degrees that needed to up my game.  I bought a brand new Mitsubishi Montero Sport.  Did I mention I have both a finance and an economics degree?  It turns out, when I was younger, that I only applied my knowledge to work related tasks and problems, not personal ones.

The actual purchase wasn’t really the problem. It was all the mistakes I made around it.  I did very little research around what I wanted.  I did not compare multiple dealerships.  I had no money saved for a down payment and refused to trade in my precious Mustang because they only offered $2,000 for it.  I had no financing set up beforehand.  You name it, I did it wrong.  The cherry on top was my credit.

I was pretty sure I had a good credit score. I somehow got a gold card at age 16 and never had late payment.  My father also had me co-sign the loan from the credit union for the Mustang, so I had a credit mix established as well.  It turns out that when I moved home from college, the cable bill in my name was not turned off by my roommates and eventually was turned off for lack of payment.  The amount that had been turned over to collections was like $130, but that was recent enough that it turned my good credit into okay credit.  That mistake cost me a lot of interest.  The worst part is I found that out after I was already in the process of buying the car and picking from the dealership financing options!

Just writing about that car purchase still gets me fired up even though it was about 15 years ago. The silver lining of that situation is it was what got me on the path of educating others around money and credit.  That specific experience got me interested in credit scores and seeing the big picture of personal finance outside of my forte of the stock market and investing , which later turned in to talking to others and then helping others.  I was able to make some much better moves after that boondoggle.

Here is a summary in table form of that financial disaster:

Bad News Good News
Lots of interest paid I drove it for 13 years
Bad gas mileage Very little repair expenses over time
Who needs two cars? Was able to re-finance later on to low rate
Unprepared for a large purchase Found a good home for the Mustang later on
Didn’t check credit beforehand
No down payment
No real budget plan for car payment and additional costs

 

My Best Financial Move

One move I am most proud of is my purchase of a house when I moved to California. Since I was moving at the request of my company, I had an apartment and time to find the right house for me.  Even better, the company would pay for all of the closing costs and the actual move from Kansas to California.  In early 2010, the housing market in central California was still pretty close to the bottom.  I limited my search to only foreclosures in search of the best deal out there knowing I could do some repairs and upgrades over time (single and in a new town, what else would I do?).  I also found a real estate broker that refunded part of the real estate commission to me.

Since my company was paying for all moving costs including closing costs (effectively subsidizing the purchase), this was more like a non-taxable bonus than a rebate. I think I ended up getting a $1,500 check about a month after moving in!  My company also ended up buying my old house due to a clause around getting an offer that was rescinded after the inspection.  The potential buyer backed out when the inspector recommended new windows.  It didn’t matter to me at that point; the sale was locked in for me.

Bad News Good News
Overpaid by about $10k (bank was dropping price as I submitted bid) Bought at near the bottom
Took a risk with an ARM Great location (park across street)
Foreclosures require work Energy efficient, fairly new build
Backyard was dirt Not any major repairs needed
Instantly had equity due to price
Commission rebate from realtor
All closing costs paid by my company

 

I do wonder if my best financial move was actually dumb luck related to fortuitous timing of the housing crash and subsequent recovery, but I will consider that location and selection had at least some impact on the good deal. I now have over $100k in home equity, of which $22k was the down payment.  I think $45k appreciation (about a 21% increase) in 4 years is pretty solid for a smaller market (about 130,000 people in my city).  Some of that was instant equity from buying at slightly below market rate for the foreclosure.  I have also managed to pay down almost $30k in principal in 4+ years.  Only the last 16 months have been at the 15 year mortgage rate, so the principal balance has been falling faster in that time.

Honorable Mentions

An honorable mention for worst move was cashing out a 401k to buy my first house in Kansas City. At least I bought a foreclosure and was able to turn a profit after putting on a new roof, new carpet, and redoing the kitchen with granite counter tops (and also a lot of yard work over a year or two to clean it up).  However, I would have been better off to save up more of a down payment instead of taking money out of a tax advantaged retirement account.

An honorable mention for best move was the next part of the California home purchase story. As mortgage rates continued to be low I decided to refinance from a 5 year ARM at 3.375% to a 15 year fixed rate at 2.625% once I realized I would probably stay in California longer than the 2-3 years I had originally anticipated.  I just missed locking at 2.50% because I thought the rates might go a tad bit lower, but when they floated up to 2.625% I decided that was good enough.  I would not recommend variable rate mortgages to most people, but the lower rate was justifiable when I expected to be moving again on the company dime in a few years’ time.  Once it became clear that I would probably settle down here, the timing just worked out to have available low rates on 15 year mortgages.

I was able to only increase my payment slightly due to the lower rate and elimination of private mortgage insurance (PMI). Now a much larger percentage of my payments go to principal and I can see the impact on my net worth every month.  Not to mention eliminating the mortgage 15 years sooner really lowers my capital needed to retire early!

Ebates Coupons and Cash Back

Finally, I bought a new Ford Explorer in early 2014. It was not a smart move in terms of trying to reach financial independence.  I regret that purchase in terms of the total cost, but if I can make it last 12 years like my previous Mitsubishi Montero Sport I think I will be okay with it.  The extra row really helps so we can take grandma with us wherever we go!  I guess that shows that no one is perfect when it comes to finances, even the ones given the financial advice!

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4 Responses

  1. Bill Granfors says:

    Hey Chad! Great blog. I have seen you post a few times but didn’t realize that it was actually you’re blog. Glad you are doing well and I’ll keep reading. I am very much into the early retirement concept and doing the same thing. My house should be paid off next year if all goes well. Take care, and congratulations on your blog

  2. Peter Nichols says:

    I’ve made lots of sketchy financial decisions in the past but the best decision was inspired by my dad, who ironically is terrible with his money. From my first job, I saved 50% of my income. The other 50% was mine to spend. Because I’d never had a job before, it always seemed like I had loads of money despite only “paying myself” 50%. At age 30 my wife and I have about $400k to our name (modest, but not bad!) It’s a basic tactic but worth considering if anyone’s kids are just starting out in the world.

    • vawt says:

      $400k at age 30 is well ahead of most people (from my experience). A 50% savings rate would put you well on your way to early retirement as you would be saving up a year of expenses every year! That is a pretty good life lesson to learn at an early age.

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