greatest financial mistakes i made

I’ve made a lot of mistakes in my life and in this post, I will be talking about my greatest financial mistakes. I’m not proud of it, but I’ve learned from them and I’m doing my best to make sure I don’t make those same mistakes again. Looking back, these mistakes could have been easily avoided.

I realize that many of you reading this may be starting your financial journey and knowing my mistakes can help you avoid them. 

Financial Mistake 1 – I saved too much cash

While it sounds counter-intuitive, one of the biggest financial mistakes I made was saving too much cash. Yes, it is good to have an emergency fund but cash in the bank is not earning much interest. To make matters worse, cash is losing its value to inflation. 

However, if you are saving up to buy an apartment/house in the near future, then perhaps it would make sense to keep it in cash. In Geneva, the average price of an apartment costs at least CHF1 million. Since you need 25% in downpayment and notary fees, you would be holding CHF250,000 in cash.

Lessons learned: Instead of hoarding cash, just save enough for an emergency fund e.g. 6 months or more if you are buying a property but no more than that. If you are an international civil servant working in the UN in Geneva, then you have access to high yield savings account at La Mutuelle that usually gives >1% interest per year.

Financial Mistake 2 – I spent more as my salary increased

Lifestyle creep is the idea that when you start making more money, you spend more. This happened to me. As I got promoted, I ended up buying more expensive things that I did not need and spent on lavish holidays and meals.

When good fortune came, I splurged rather than thinking about my future. Over the long run, I ended up with worthless clutter and items that would impede my journey to financial freedom.

Lessons learned: Keep track of spending and make sure you do not exceed your budget each month. Even if your income increases, maintain your lifestyle and monthly budget.

Financial Mistake 3 – I bought a new BMW

If you are a P-staff from P1 to P4 in the UN system, you can get a tax free car within the first 5 years of your arrival in Switzerland. And of course, I bought a brand new BMW for CHF40,000 tax-free and directly imported from Germany!

financial mistake - buying a bmw

Despite the interesting price tag, any new car would devalue steeply during the first few years of purchase. While it was awesome to drive a brand new car, the novelty wore off after a while.

In addition, it stressed me out when I had to park it on the street or had to travel outside of Switzerland. I also spent more money to maintain the car in its pristine state such as an underground car park, clearing, polishing etc. And additionally, I paid for full coverage (full casco) car insurance for many years.

Lessons learned: Get a 5-year old second-hand Japanese car (e.g. Honda or Toyota) which you can leave on the street. It is economical, fuel-efficient, low-maintenance and stress-free.

Financial Mistake 4 – I invested in expensive products recommended by my financial advisors

I always thought that financial advisors were professionals and had your best interest in mind. When I first met a financial advisor from a local bank years ago, he explained why it was important to invest and grow your money for retirement. He also gauged my level of tolerance to risk. In the end, I bought some mutual funds. 

After that, I found out that these mutual funds had very high annual fees which ate up the profits. Annual fees (also known as Total Expense Ratio, TER) from 2% is considered high. If the fund gained 7% that year, your net profit would only be 5%. If your fund lost money, you still had to pay the annual fees.

Furthermore, some of these funds charged fees when buying or selling known as front-end and back-end loads, respectively. In short, fees are bad and will eat away your profit!

Lessons learned: Avoid financial advisors that recommend investment products with high fees. Instead, open a brokerage account like Interactive Brokers or TD Ameritrade and buy low-cost and globally diversified Exchange Traded Funds or ETFs. They are basically a basket of stocks of the world’s largest companies. Some of my favourites are. Vanguard ETFs (VT, VWRL, VWRA) or iShares ETF (IWDA). The annual fees for these ETFs range from 0.07% to 0.22% and the cost of purchasing these ETFs is very, very minimal.

Financial Mistake 5 – I invested based on what’s hot

In early 2000, I invested CHF5,000 in various tech stocks during the internet boom. I felt confident that I could beat the market and make lots of money. My selection of stocks was based on recommendations from friends, colleagues and the news. Obviously soon after everything collapsed, I sold what little remained of my stocks. After I got burned, I did not invest in the stock market for a long time (which was a big mistake!).

If you are investing based on what is hot, it’s the wrong reason to invest. Most of the time, this is part of a herd mentality, which can lead you to buy high and sell low.

I made the mistake of hopping on the latest hot trend, without fully understanding what they’re doing or why they’re doing it. Instead, investments should be grounded in your values, life goals and risk tolerance. When you have clearly identified those criteria, you can confidently use the investment portfolio to work toward meeting those goals while staying within your comfort zone when it comes to risk.

Lessons learned: The majority of your investment should be in low-cost and globally diversified Exchange Traded Funds or ETFs. But if you are the type of person that needs to actively trade, then invest only a small portion of your portfolio (that you are willing to lose e.g. 5-10%) in more risky assets like individual stocks, cryptocurrency or even NFTs.

Financial Mistake 6 – I stayed out of the stock market for several years

After I lost money during the collapse of the internet stocks, I stayed out of the stock market for many years. This was a huge mistake! 

If I had stayed invested in the stock market, my portfolio would be much larger than it is now.

The stock market is not a scam. In fact, it is one of the best ways to grow your money. The key is to stay invested in the market for the long term.

If you are not invested in the stock market, you are missing out on some of the best investment opportunities out there. The stock market has beaten other investment vehicles such as real estate and gold over the past few years.

Lessons learned: Stay invested and continue to invest in low-cost and globally diversified ETFs regardless of how the stock market is doing.

Financial Mistake 7 – I didn’t automate my finances

When I started my journey, I wasn’t consistently saving and investing every month as I had to transfer money manually from my bank to the investment accounts. Sometimes I forgot and sometimes I was busy.

My portfolio would have grown even bigger if I was consistent in saving and investing every month. I really wished I had started automating my finances a long time ago.

Lessons learned: Now my finances are automated such that as soon as my salary comes in, at least 40% of my salary goes to several investment accounts. Then I get a reminder by email that money was sent. All I have to do is login and buy my favourite low-cost and globally diversified ETFs VT, VWRL, VWRA or IWDA.

Final Thoughts

Even if you have made these mistakes, don’t lose hope yet. You can still learn from these mistakes and start making positive financial changes today. As soon as I realised mine, I immediately corrected them.

Despite my greatest financial mistakes, I also made good choices such as tracking my expenses to know where my money is going and optimizing my spending. I also read many financial books along my financial journey that improved my portfolio and increased my net worth as a result.

The biggest lesson learned was to stay invested and keep my investments really simple by investing in my favourite low-cost and globally diversified ETFs i.e. VT, VWRL, VWRA or IWDA.
I hope you found this post insightful and helpful. Please let me know in the comment section below what are your financial mistakes. Don’t forget to follow the monkey!

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