Someone posted a comment the other day asking about our biggest accomplishments and our most impressive failures. Rather than trying to respond in a brief comment, I thought it was worthy of a post.
Our biggest accomplishment is an obvious one. Definitely our two boys. Those two little monkeys are truly the best things in life. But if we are talking about our biggest financial accomplishment, which I suspect is what the comment was directed at, it’s an easy answer and also the basis of this blog. Retiring in our early thirties.
But in terms of failures, Mike and I spent some time giving that some thought and came up with a list of what we consider to be our three biggest financial mistakes.
1 – Choosing the Wrong Partner
Back in Step 2: How 1+1=3, I devoted an entire post to the importance of choosing a partner who shares both your life and financial values because I think it’s extremely important. The reason I think it’s so important is because Mike and I did NOT choose the right partners. Well, not the first time around anyway.
Thankfully, we eventually got it right, but it took some pretty hard experiences and some massive financial hits to recover from the first round.
On the upside, we both learned some of our most important lessons from the failure of our first marriages.
We learned what we each valued in a relationship, what things were deal breakers, and what things weren’t worth worrying about. We learned about our own shortcomings, and how we could be better partners.
In the absence of each our first marriages, I don’t think either of us would have had the maturity or experience to recognize how lucky we are to have found each other. Had we met earlier in our lives, it’s very likely we would have taken each other for granted, and failed to value our relationship the way we do now.
From a financial perspective, we both learned that we could tighten our belts heavily and still live a happy, meaningful life. Divorce is expensive. Anyone who has been through it knows that it can bleed you dry, if not destroy you financially (and emotionally). But if you keep your head up and things in perspective, you can walk out the other side a much stronger person.
With no kids in my previous marriage, my divorce was pretty simple in the grand scheme of things. But I decided to buy my ex-spouse out of two properties we owned together, one of which (the place I was living) was only partially renovated. It was a huge risk, and came with its fair share of stress. Oh, and it happened just before the markets crashed in 2008.
In the first couple years I struggled to finish the renovations and stay afloat. I worked endless amounts of overtime (agreeing to take shifts that had me working 36 hours straight on more than a few occasions). I buckled down and saved every penny. To cut the costs of renovations I taught myself how to finish a lot of the remaining work, paying for contractors only when the job far exceeded my knowledge.
It took about 3 years of feeling like it was never going to end, but I stayed focussed and came out the other side. I finished and paid off all the costs of the renovation, and paid off the debt I took on to buy my ex-spouse out of both properties. By that point I was no longer bleeding money, no longer living in a construction site, and I had a cash flowing rental property. (And thank goodness, the real estate market was recovering nicely.)
But what I had learned through those three years about what I actually needed to live a happy life was the real lesson. Even though I suddenly had additional money available, I didn’t change my spending habits or increase my lifestyle. All the extra income went directly into building an emergency fund. I never wanted to feel so close to the line again.
Mike experienced many of the same lessons, only magnified substantially. He did have a child with his ex-spouse, our oldest son. And that changes the divorce process big time, especially when the issue of custody is in dispute. Mike bought his ex-spouse out of their home, which was a huge risk to take at the time. And a big stressor. He literally bled money for several years, on one hand paying substantial amounts of child support, and on the other paying exorbitant amounts of money to a lawyer in order to fight for shared custody. We were well into our relationship and this battle was still going on and on. But, we built our life to fit the budget we had. We lived below our means and managed to not only stay afloat, but save. When it was over and we were no longer hemorrhaging money left, right and centre, we had learned how to shed the excess. We had minimized our expenses time and time again, and found a number of creative ways to increase our incomes.
So when the court battle came to an end, and all the lawyers fee’s and child support stopped, we changed nothing. We kept living our life, and all that extra money went directly into paying off our mortgage.
Lessons Learned: Both of our past marriages resulted in the biggest financial failures of our lives. They set us back hundreds of thousands of dollars, but from them we learned our hardest and best lessons (albeit most expensive). How to live below our means, how to cut expenses and still live a life that brings us value. It also taught us a lot about our resilience and plain old grit.
Without those lessons, we probably wouldn’t be retired today.
So as much as our prior marriages were by far our biggest financial mistakes, at this stage of life, neither of us would change them.
We do however hope you can just take our word for it, save yourself the money, and choose your partner wisely! And if you’re lucky enough to have already found the right person, don’t screw it up!
2 – Saving Too Little Early in Life
I think most people are guilty of this, and we all wish in hindsight that we had saved more. But Mike and I definitely failed to take advantage of our low costs of living in our late teens/early twenties. We could have saved a lot more, specifically maximizing contributions to tax sheltered savings accounts.
Our parents had talked to both of us at length about the benefits of saving early, we just didn’t really fully appreciate what they were trying to teach us. We put it off, and thought we would have lots of time to save later. Which is true, but what we understand now is how we wasted those early years, and how much growth we would have seen if we had just buckled down and saved a little bit more.
While we can’t change it now, we are definitely trying to build some engrained savings habits into our boys. Habits that will allow them to start investing in their tax free accounts from an early age. That means getting jobs and learning how to work hard and save hard early in their teens. Building room in those accounts, and maximizing their contributions. By instilling strong work ethic and savings habits early, hopefully it will be second nature when they are young adults.
Lessons Learned: Whether you’re starting this journey to Financial Freedom in your teens, twenties, thirties or later, push yourself to save more, and if you have kids, challenge them to follow suit. Not at the cost of sacrificing everything in your life, but push the boundaries and prioritize saving. Your future self will thank you.
3 – Paying High MER’s
Along the same thread of saving too little early on, we also failed to pay attention to what exactly we were paying in management expense ratio’s (MER’s) on the products those savings were invested in. Let’s be honest, in our teens and early twenties we didn’t even know what MER’s were, let alone what a reasonable rate was.
I distinctly remember going into the major bank I dealt with. Talking about setting up a weekly contribution, having them walk me through a risk comfort assessment, and then showing me this wonderful graph of all the money I would have if I just kept making that same small contribution over the next 30 years into their “high-performing” mutual fund. I would be a multi-millionaire. Yay!
I left the bank feeling like a responsible young adult who was on top of their future. Wrong. I didn’t understand it at all.
Had I understood that I had just signed up for a mutual fund that charged exorbitant fee’s for “management”, that would ultimately reduce my investment over the next 40 years by HUNDRED’S OF THOUSANDS OF DOLLARS, I would have felt substantially less confident in my financial acumen.
But needless to say, there was zero discussion about the rates I would be paying for this product. I have no doubt it was in the fine print, but I didn’t read it. I signed where my banks “financial advisor” (read product sales person) told me to sign. What did I care, I was a teenager, and I had just learned I would be a multi-millionaire with almost no effort?! By the time I started educating myself on that area of my finances, nearly ten years had gone by. Ten wasted years of paying ridiculous fee’s that got me a product that performed no better than if I had just invested it myself in a typical index fund (but with way lower fee’s!).
Mike’s experience was similar. Epic fail on both our parts.
Sure, we were young. We had wanted something easy. Something we didn’t have to pay attention to or think about. Something we could just make automated contributions to. Someone else would worry about it, and in 40 years or so we would have loads of money at our disposal. Easy!
Well, like all things in life, convenience comes at a cost, and so does not doing your homework. Failing to educate ourselves earlier on even the basics of investing in mutual funds within a tax sheltered account cost us tens of thousands of dollars over just that ten years. Hundred’s of thousands when calculated over the entirety of time that money would have remained invested due to the loss in growth from those ten years.
That’s a lot of money, just thrown out the window. Actually, donated to the bank. Yuck…..my second least favourite place to give money, right after the tax man.
Lesson Learned: Just because it doesn’t seem relevant for decades to come, doesn’t mean you shouldn’t invest the time to understand it now.
So that sums up our three biggest financial failures to date. Hindsight is 20/20 and there is, no doubt, many more mistakes that will be made, but hopefully none quite so impactful as those three.
If there’s anything we’ve learned at this stage of life, it’s that the best weapon to protect against those really big mistakes is to stop and assess. Don’t just go with the flow of life, or do things because “that’s how life is supposed to go” or “that’s just what you do”. Stop and ask if you are on the right path for you, or if you really understand the financial decisions you’re making. If the answer is no, it’s always a good indicator that it’s time to slow things down and gather more information.