Home Personal FinanceFinancial Planning As A Family 3 Common Financial Mistakes That Can Cost You Big

Last week we talked about the 3 biggest financial mistakes that Mike and I have made over the years. This week I want to focus on 3 financial pitfalls that a lot of people fall prey to.

If you read both posts and can manage to avoid all 6 mistakes, you’ll be way ahead of the game. But even if you’ve already made a few, hopefully you can avoid repeating them. Which will save you big in the long term.

1 – Weddings

I get it. Weddings are a big day. And they are certainly important to celebrate. I just don’t believe for a second that celebrating them in the way our society has defined as appropriate is anything more than a colossal waste of money. After all, let’s be clear, we are talking about ONE DAY. Just a single day in your whole life. There will be many much more important days by the time you are through.

In the US, the national average for the cost of a wedding in 2017 was just shy of $30,000. Wow.

The average cost of a home in the US over that same time frame? Right around $240,000. Ironically there are endless articles about the exorbitant cost of real estate today, and how millennials can’t possibly afford to save up enough money for a down payment in order to get into the housing market.

Yah no kidding, because they are spending an average of $30,000 on a wedding.

Where are all the articles suggesting people simply stop wasting their money on frivolous parties that will ultimately cause more stress than happiness?

Mike and I have each done the wedding thing twice. While neither of us went crazy on the first ones, we still learned that investing a bunch of money into a day that creates stress, conflict, and largely feels like a blur just wasn’t worth it. The second time around, we really got it right. We spent a grand total of $1500. That covered everything. Ceremony, photographs, attire, bands, dinner, all of it. Between us and our witnesses, attendance was a total of 5 people. Afterwards we sent out a nice letter with a photograph to our friends and family. It was perfect. No stress, no mess, and absolutely zero regrets.

I get that some people want a little more than that. But you can still have a beautiful wedding without spending a bundle. Most importantly, like any other expenditure, what you decide to spend on your wedding shouldn’t far exceed your financial means.

Unless you have money to burn, spending thousands upon thousands of dollars on what boils down to a party is truly an utter waste of money. At the end of the day, a wedding is supposed to be about the two of you. Not about putting on a show for everyone else and their +1.

Not to mention, weddings generally happen at a time in life when you can really use that kind of money elsewhere. Whether it’s to pay down student debt, save for a down payment on a home, or make contributions to your retirement savings, there are so many better places for that kind of money to be used. Places that will benefit you and your family throughout your entire life, not just for a single day.

2 – Overspending On Your House

I’d like to think this is a first time buyer mistake, but it’s not. Overspending on housing happens in the vast majority of home purchases. People are over-extending themselves constantly.

The problem is, there are just so many easy and wonderful ways to justify and rationalize this kind of overspending.

It’s our dream home, our forever home. It needs to fit our families needs. We’ll never have to move because we have room to grow. It’s a long term investment. We can make the payments work, we’ll just cut elsewhere. We’ll spend every day here, why not love it?

Yes, those can all be good considerations, but none of them, not a single one outweighs the fact that you are chaining yourself to that payment. Likely for a very long time. Which means if you’re stretching your budget at the onset, you are sentencing yourself to maintain that level of income for an equal amount of time.

Assessing your housing budget by looking at your available cash and pushing it to the max is not the path to a happy life. It’s how you get yourself locked into a life with little flexibility, and limited freedom of choice.

My suggestion. Pick a mortgage budget where you can afford to double up your monthly payment. Yes that likely means making a “sacrifice” in terms of property type, size, or location. But if you can afford to regularly double up your mortgage payment, you’ll be drastically reducing the amount of interest paid over the life of your mortgage, and if a crisis hits and your financial circumstances change, you can stop making the double up payment and have a much better chance of weathering the storm.

3 – Investing Too Much in Post-Secondary Education

Post secondary education is rapidly being de-valued. At one time obtaining an under-grad degree gave you an edge on the competition, but now unless you have a masters or better, it really means nothing in the job market. Everyone has one, and they are yesteryear’s news.

That devaluation has translated to people assuming they now need a minimum of a masters degree in order to be competitive. But unless you are pursuing a job that requires a specific education component (ie: doctor, lawyer, teacher, accountant), skipping post-secondary and going straight into the work force may just give you a bigger head start on your competition than staying in school for an extra 7 years or so.

Instead of sitting in a classroom and acquiring thousands of dollars in student debt, you’ll be gaining hands on experience, while earning (and saving) income. You might have to start from the bottom, but at least you’ll be getting paid rather than acquiring more debt.

Too many kids now enter into post secondary education just because that’s what they are “supposed to do”. They don’t necessarily have a plan of what they want to do, our even where their interests lie. It’s a horrible precedent to set. We are imposing an expectation on kids to essentially waste a good chunk of their most impactful income earning years on something that is not returning an equivalent value.

In terms of attaining financial freedom, those early years really matter. The sooner you can start making and saving money, the greater your chances of reaching Financial Freedom at an early age.

Post-secondary education can certainly be necessary depending on your desired career path, but if it’s not essential to your goals, avoid the trap of over-investing.

If you can avoid all of these mistakes, you are looking at saving yourself tens of thousands of dollars, or even hundreds of thousands.

More often than not these big life expenditures are financed as opposed to being paid outright. Which means even more money is being spent on the interest over the years. If you can avoid that debt from the get go, think of all the income that can go to savings and investments rather than paying back debt. Savings and investments that will have a lot more time to grow.

It all equates to a pretty massive swing, and a huge difference in the amount of time it will take you to reach Financial Freedom.

If you find yourself contemplating a major life expense, make sure you’re moving forward in a way that makes financial sense in your circumstance. Sometimes that means doing things a little differently than the social norm.

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Deb CARLSON February 26, 2018 - 6:48 am

I would be interested in hearing feedback on this one. I think it is your most controversial topic so far. Since I did all my education while working and worked my way into a dream job, I am happy with what I did. I did a financial analysis of getting a doctorate and it would have only been a vanity project. So I agree with 2.5 of your 3 items! Number 3 is an it depends for me.

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Phia@Freedom101 March 4, 2018 - 4:43 pm

I totally agree. Like most financial decisions it definitely falls into that “it depends” category. I think the financial analysis you mentioned is exactly what more people need to be doing BEFORE investing a lot of time, energy and money into any amount of education. I also agree with you that my position is a controversial one, so interested to hear the feedback as well!

RESP’s: The Ground Rules – FREEDOM 101 : The most valuable currency is time – choose how you spend yours January 28, 2019 - 6:12 am

[…] of my views on the current value of post-secondary education , or my firm belief that young adults should take on the financial responsibility of paying for at […]


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