The ChooseFI podcast is my morning commute jam. One of their questions at the end is always: what’s your worst financial mistake?
It made me think. I’ve made a few cock-ups in my time. Luckily nothing huge. Most of my mistakes are just big, useless purchases. I’ve put down what I think my mistakes are, and it would be great to hear what people in the community have also done.
Not investing in the stock market until my mid-twenties
I saved from a young age, encouraged by my parents. Up until the age of 16 I had just a normal savings account, and once I was older I got cash ISAs. This was in 2006-2008 and so the bonus rates weren’t great but they aren’t as rubbish as they are now. I held my savings in cash ISAs until I was 23 years old. Sensible you say, but not, when I let the bonus rate lapse and didn’t transfer into a new ISA for the next year: shame on old me. This meant that for at least 3 or 4 years I had 0-1% interest on my savings.
My experience of Icesave (see below) made me scared to lose my money again, and so I avoided the stock market and didn’t want to think about my savings going up and down.
When Mr YFG and I started a relationship he quickly introduced me to the world of stocks and shares. He helped me set up a TD Direct account, and I put a bit of money in to see how it went. Sure enough, it returned nigh on 10% for a year. Seeing my money increase in value for zero work made me want to put in more. When I was 25 I tipped the rest of my cash ISAs into a Vanguard fund and watched it grow.
Had I realised the benefits of investing in an S&S ISA early on I would have had those extra 5-6 years of growth. There are so many of my friends who have their life savings in shitty Cash ISAs and have done for the best part of a decade, and I try to convince them to dip their toe in the market. But, understandably, they are cautious and I’m not about to force them into something they don’t want to do. I realise that Mr YFG and I are in a place where we can afford to lose money, and that isn’t the case for others if they are dependent on having a certain amount of cash to buy a home.
Investing in IceSave
When I was about 16, I found a good savings account with 5% interest at Icesave. It was online and this was relatively novel at the time.
MoneySavingExpert had it done as a top account. But I think most people were oblivious to how fragile Icelandic banking was (in retrospect that should be a giveaway statement for problems ahead: a bit like Soviet automobiles or British politicians).
Come the global financial crisis Iceland blew up (financially, not physically). A lot of people “lost” their money for a while [edit by Mr YFG: all retail savers eventually got “their money back”]. It was pretty bad in the end. It was my first (and hopefully last) experience of losing my life savings in one go.
I applied to the Financial Services Compensation Scheme (FSCS) and received all of my money back (I think….), but it hit my confidence. As mentioned before, it made me incredibly risk averse (as it would!) and meant that I didn’t touch the stock market.
Buying NS&I premium bonds
NS&I premium bonds are essentially government savings bonds. You buy them in set amounts (£100, £200) and you don’t receive interest on them. Instead what you get is the chance to win a large sum of money (up to £1m I think). The more bonds you have, the bigger your chances. The draw runs every month for as long as you hold the bonds.
I was bought these when I was quite young (about 20 years ago). I never had enough to have any realistic chance of winning a bonus. Indeed I never won anything over the entirety of my holding the bond.
So they just sat there.
I was sorting out my paperwork and realised I had these bonds, applied to log in and check them out, and realised I could cash them out. Instead of investing the money and getting compound returns, a few hundred quid sat locked away for 20 years without interest. I almost lost access to them as I forgot they existed. Great if you win, but the money devalues over time if you don’t (which is much more likely).
Mind you, it was nothing to sniff at: I cashed the bonds out and chucked them into my S&S ISA.
Spending more than I earned
When Mr YFG and I first got together, my spending outstripped my income. At that point, I was a student. But by 2013 I was pulling in a £40,000 income as a lawyer and spending the lot.
I had an overdraft on my account which I could dip into without charges. I ran a credit card facility (i.e. spend on your credit card and pay it off with your income, but then you have no cash left so you rack up spending on your card again).
I shopped at Hobbs, The Fold, Karen Millen, LK Bennett and all those fancy work clothes places. Ate £10 lunches. I once spent £700 in one shopping spree in Covent Garden, regularly spending £300 on a dress. I got manicured within an inch of my life. All because I thought that’s what being a professional was about.
I am infinite more accomplished and professional today in my fabulous eBay purchases and Matalan’s finest.
But ultimately it meant I didn’t save for about 5 years, and even if I did sometimes I had to dip in and withdraw it to pay off my credit card. I dread to think how much I’ve spent in the last 6 years of my working life, and would love to have it back. Don’t get me wrong I still spend money now and treat myself, but I have tripled my income in the meantime and saved the excess.
Poorly thought out purchases
Elliptical machine: a few hundred quid wasted on a poor quality machine stuffed into our tiny one bedroom flat in Lambeth. My dad took it away and sold it on eBay.
Patio heater: bought an electric heater to keep my guinea pigs warm outside. Forgetting that their hutches are made of wood…
Photobooth for iPhone photography: in an effort to take better pictures of aforementioned guinea pigs and eBay second-hand items, I bought what can only be described as a white tent. Shite.
Juicer: made nice juice (with a boat-ton of fruit and veg a time). It was horrible to clean and sounded like a wood chipper going off at 6AM. Ended up in the bin.
Coffee bean grinder: Nice idea in theory, but does a loud, shit job. Might as well just buy the coffee already ground.
Could be worse
Luckily, my best financial decision was letting Mr YFG be my boyfriend and then permitting him to marry me. Had I been on my own I would have burned through my income, and I wouldn’t have anywhere near the financial security we have today.
In the last 3 years our joint net worth has doubled, and I save 60% of my income. In a few short years, we should never have to worry about money again.
I’d like to hear about your financial mistakes and what you learnt from them.
[Edited for the pedants out there r.e. Icesave – see above]
[Edited to make clear we’re talking NS&I premium bonds – not the super-dooper index-linked bonds that are sadly no longer available]