Triple Blunder

Sanjib Saha

I’VE BEEN MANAGING my own finances for a long time. Along the way, I did some things right that served me well and some things that didn’t—including three big blunders.

My money-management journey started when I got into a new middle school that was 12 miles from home. The daily commute involved a short bus ride to the nearest railroad station, a 20-minute trip on a suburban train and then a quick walk. To save money, I skipped the bus ride on my way home and walked instead. My parents okayed it and let me keep the nickels and dimes. My first lesson in frugality turned into a lifetime habit.

I was lucky to get an early start on my career in software development. Not only have I enjoyed the work, but also I’ve valued the steady employment and income. I’m fortunate that I never had to worry about missing a paycheck.

You’d think that an early start, steady income and good savings habits would be a sure shot recipe for financial success. I thought so, too. But alas, I didn’t know what I didn’t know. My lack of basic financial literacy during the first half of my working life led to three major money blunders.

Blunder No. 1: Mistaking the sidelines for the playground. Some people choose to stay on the sidelines, sitting on cash while they await a better time to invest in the stock market. Such market timing is controversial, but at least it’s intentional. In my case, I wrongly assumed that bank accounts and certificates of deposit were good investments for the future. I was clueless about other asset classes and their long-term return potential.

Result? Though I saved a lot in my early years, my investment growth was anemic. By not dollar-cost averaging into stocks. I missed out on the magic of stock market compounding. When I learned that asset allocation is the primary driver of investment returns, the cause of my portfolio’s chronic low returns became obvious. I changed course, but the damage already done was huge.

Blunder No. 2:  Lacking long-term financial goals. I was good at taking care of near-term money matters, but oblivious to longer-term goals. Instead of planning, I was saving aimlessly. My approach proved to be a dumb one.

Examples? I rented for too long because I never gave homeownership serious thought. Many friends bought their first homes early on. I could have easily followed suit. Renting vs. owning can be a tricky decision for many folks. But buying would have been a slam dunk in my case—if I had given it some thought.

By the time our need for a single-family home in a good school district became obvious, the local housing market was already on a tear. I was almost priced out of the market by the mid-2000s housing bubble. Luckily, I found a small place that met all our important criteria. Even so, I had to stretch, borrowing more than I wanted to. It took me years to get the burden of that mortgage off my back.

Blunder No. 3: Underutilizing tax-sheltered accounts. I had always viewed a high tax bill as a nice problem to have. Paying hefty taxes meant I was making good money, right? Wrong. Little did I know that high taxes can also be a sign of financial ignorance, as it was in my case. I still pay the penalty for that ignorance.

How? I missed years of IRA contributions because I knew nothing about them. Even my 401(k) contributions were at the default low level—enough to get the full employer match, yet far below the allowable maximum. I saved consistently throughout my working years, but most of it ended up in taxable accounts. I paid a lot of tax on my investment earnings, especially in my high-income years.

It took me years to realize my goof. By then, I’d already missed the boat for contributions to both tax-free Roth IRAs and tax-deferred traditional IRAs. Thankfully, my employer’s 401(k) plan offered the chance to make mega-backdoor Roth conversions. I took full advantage of the plan, maximizing both pre-tax and after-tax contributions in an effort to make up for lost time.

Did any of these blunders destroy my finances? No. I was protected by my steady career and frugal lifestyle. Still, these mistakes made my financial life much harder than it needed to be.

A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous articles include Freedom FormulaFeelin’ Groovy and Ready or Not. Self-taught in investments, Sanjib passed the Series 65 licensing exam as a non-industry candidate. He’s passionate about raising financial literacy and enjoys helping others with their finances.

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