Before I dive in, I'll set the backdrop for context.
A few months before the financial crisis began, I had graduated from college and started working at a financial software company in New York City. Things were going well but it didn’t take long for the market to send shock waves across our business. I still remember the day my coworkers and I crowded around a whiteboard and took bets on how far the Dow Jones would drop during its worst decline in October 2008.
Although I was fortunate to keep my job during the recession, many clients I worked with were not as lucky. The financial industry was hit hard and I saw how even the unlikeliest of institutions could disappear overnight. It wasn’t unusual for me to walk empty floors on client visits or process deactivated accounts due to another round of layoffs at a firm.
Fast forward a few years later when I decided to join a fast-growing startup in Silicon Valley. I had moved to California for better weather and couldn’t wait to trade in my corporate business suits for t-shirts and jeans. The tech scene was heating up and unicorns were turning 20-something-year-olds into millionaires overnight. Anything seemed possible! Even though 90% of start-ups fail in actuality, the slightest glimmer of hope to make it big kept everyone grinding harder.
I didn’t walk away with the big bucks from my career but I did learn a lot about myself and how my experiences shaped my perspectives and actions. Looking back, here are some of the mishaps I made along the way.
9 Financial Mishaps I Made Since the Financial Crisis
1. I let my emotional biases get in the way of investing
Entering the financial crisis as an early college graduate immediately turned me off from taking even the slightest risk with my money. I didn’t have a lot of excess cash to begin with and I most definitely didn’t want to lose what I had.
Even though I presumably had more financial knowledge working in the industry, watching my clients drop like flies or lose half of their retirement portfolio overshadowed any logic on the benefits of long-term investing.
Sitting on the sidelines though meant I missed out big-time on one of the longest bull markets in history. It wasn’t until a few years ago that I reluctantly began allocating a portion of my paycheck to Wealthfront. Even though I have several more decades to invest and build up my assets, I could have gained a lot more momentum by investing earlier in my career.
When you start feeling emotionally led by financial decisions, turn to the data. No one can predict the future, but historical trends and patterns can give you more directional guidance and peace of mind. If I stared at a historical chart of the S&P 500 performance for five minutes, I probably could eased a lot of my anxieties.
Even if my investment account isn’t looking as hot today, I know now that there will be a generous upside in the long run if I continue letting my returns compound over time.
2. I sat on too much cash
Since I took a back seat on investing, I let my cash accumulate instead. Watching my bank account grow felt like petting a fluffy puppy. There was no way my money could instantly disappear on paper one day and kick me to the curb!
By hoarding all my cash though, I wasn’t allowing it to work for me either. I had to work even harder to make more of it instead. Putting my cash to better use for long-term gains could have gotten me much further in generating greater wealth.
Although liquidity is king in an economic downturn, there was no reason for me to stockpile more cash than needed for an emergency fund and some additional savings. Once you’ve established a reasonable cost of living and can comfortably support your expenses and savings goals, leverage the rest you don’t need right away for investing opportunities.
3. I didn’t maximize my savings
Not only did I hold onto too much cash, my savings also collected dust in a low-interest bank account. A double-whammy! At the very least, I could have moved it to a risk-free asset such as a money market fund.
Over the past few years, low-interest rates and competition across online banks created a robust market for high-yield savings accounts. At some points, the interest rates for high-yield savings accounts were actually higher than traditional risk-free assets such as US treasuries or CD’s.
Putting my money into a high-yield savings account could have yielded me at least 20x the interest I was earning at my local bank at no risk. I eventually switched over to one, but could have reaped the gains much earlier.
Although many of the rates for high-yield savings accounts have now been slashed due to the pandemic, this lesson taught me to be more attuned to arbitrage opportunities. They are always ways to capitalize on market inefficiencies if you look for them.
4. I didn’t contribute as much as I should have to retirement
Somehow the power of compound interest that I learned in school didn’t exactly stick in my professional career. Imagine if teachers could allow students to invest $1,000 each in the market to experience the rewards of compound returns. How much richer we would all be!
Not everyone has the financial means to max out their 401(K) but even if you do have a little excess cash flow, funding your retirement plan is not usually at the top of the list.
Had I spent a little time doing the math though, I would have realized how much more my retirement plan could have gained by investing more in my early years. Despite all the odds against Millenials during the financial crisis, we had one of the greatest opportunities to boost our retirement fund by entering at the bottom of the market.
Putting off retirement savings costs a lot more money in the long run. These days I am investing as much as I can to make up for lost time. If you have the means to max out your tax-advantaged accounts or have the opportunity to participate in a company matching program, do so as early as possible.
5. I got too comfortable with my paycheck
My husband and I were fortunate to hold steady jobs since we graduated from college, but having consistent cash flow each month made me a little too complacent. Knowing I had a decent buffer as long as I didn’t spend lavishly didn't motivate me to track my expenses or my bank accounts.
It was only when I decided to take a career break that I got more serious about tracking my money. Once I got a taste of freedom, I never wanted to get forced back into something I didn't love. That motivation inspired me to take more interest in our money. I began identifying where I could optimize my spend and assets, better forecast long-term growth, and establish realistic goals.
Don’t wait until you are in a pinch to figure out that you wasted hundreds or thousands of dollars due to complacency. Get organized about tracking your net worth, assets, and spending in the good times instead.
6. I didn’t prioritize financial planning
Thanks to my comfortable paycheck, I didn’t put a lot of effort into building my financial backbone as well. I leaned on my career as my source of income and didn’t take the time to educate myself on how I could maximize those dollars even further or create multiple streams of cash flow.
Building different financial strategies for taxes, investing, and saving could have saved me a lot of stress when I was dissatisfied with my job as well as an insurance policy in uncertain times.
Building a meaningful and profitable career is a rewarding pursuit but in these economic times, diversifying and optimizing your income streams are more important than ever. Don’t use your career as a crutch to compensate for other efficient ways to grow your wealth.
7. I got greedy with my employee stock purchase plan
ESPP’s (employee stock purchase plans) can offer up to a 15% discount per payout period simply by reselling your company stock right away and cashing in. These days, anything that yields above single-digit returns is a pretty solid investment in my book.
As someone who was allergic to investing in the open market for fear of losing money though, I somehow thought a 15% return on my company stock wasn’t enough. Instead, I let it sit idle waiting for a home run that never came. And lose money I did by getting too greedy.
Sometimes you just have to question your own rationality . . .
8. I sat on my equity for too long
When you have equity at your company, it’s easy to drink the kool-aid and dream of sky-high valuations. No matter how many skeletons are in the closet, you deny any possibility that shareholders will see you as less than a sacred cow.
When my previous company’s stock began to dip, I let my optimism get in the way of making a strategic exit and rode down to the rocky bottom of an unprofitable acquisition.
There will always be winners in the game, but unless you can swallow a major loss, it's wise to proceed more cautiously. Watching your hard earned share value take a nosedive can be a real blow.
No matter how much you believe in your company or its product, think twice about keeping all your eggs in one basket. Put another way, if you were given a large sum of money, you probably would not risk it all on one stock. Consider exiting at different points in time to protect your earnings or diversifying your position across other investments.
9. I put a hefty down payment on a loan with 0% interest
When the economy was still recovering in 2009, I bought a car that offered a 3 year loan at 0% interest. Instead of putting down the bare minimum down payment, I cleaned out most of my savings and put over 50% upfront. Paying off as much as I could felt better than a higher monthly car payment.
Depleting my savings account was a huge vulnerability though and I’m lucky nothing disastrous happened during that time. Even if my accounts were well stocked, I could have invested the money I put into my down payment in an interest-bearing asset instead.
Always look at the opportunity cost of your actions when tying up a large sum of money. Ask yourself if you are putting yourself at risk or if you can use leverage (i.e. debt) to earn more money from a higher interest-bearing asset instead.
The Youth is Wasted on the Young
I’d love to think that imparting the wisdom I had today on my 22-year-old self would have put me in a better financial position than before. But positive change doesn’t typically happen in a vacuum, much less through unsolicited advice. Most times you need to be served a humble piece of pie first.
I am grateful however to have learned these lessons early on in my career while I still have many years to apply what I’ve learned. It’s never too late though to create new habits that will last you in the years to come.
Take time to reflect on your own financial faux pas and think about what you would change today. Your own experiences can be the most powerful motivator for lasting growth.