Ten Financial Mistakes to Avoid

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Who Makes Financial Mistakes?

I doubt anyone can honestly say they have not made financial mistakes. 

I made plenty of errors by the time I turned 40! come in all shapes and sizes, from petty to life changing. 

The outcome of some financial decisions is not known often for many years.  Without certainty, investing is a game of playing the odds and minimizing risk.  You cannot invest without taking some risk. 

No one is going to make it through life without making some errors of judgement.  The aim of the game is to reduce the risk of large or repeated financial mistakes. 

Financial Mistakes to Avoid in Your Twenties…

– Taking on Education Debt without Considering Expected Return of Investment

Debt can be good, bad or tolerable.  Education debt is generally considered “Good debt”. 

The government have recently introduced the “Job ready package,” which has adjusted subsidization of tuition fees, according to anticipated job availability. 

Universities are not happy, raising the ideal of education for education’s sake.  But few students can honestly afford to dig themselves into debt without the security of likely employment, and a salary that will eventually compensate their debts. 

I see the change in subsidization as a helpful hint for young school leavers to examine the reality of their intended studies. 

I can’t say I put a lot of financial analysis into my study choices, apart from that I could loans to cover my expenses! 

Many school friends were disappointed to need to work unrelated minimum wage jobs for a year or two after graduation. 

For those that go ahead and pay the extra to study their passion, there will at least be less competition.  Many others will find other ways to learn the skills they need.  No one buys a painting because their impressed by the artists professional qualifications!  

– Looking Rich

Your 20s’ are a vulnerable time.

Self esteem is often under developed.  There can be an urge to prove yourself, and appear successful to parents and peers. 

Spending more than you earn to have the clothes, electronic goods, car and home that projects an image of success is a common error. 

As you get older, people tend to be relieved to care less about what others think.  Humans are pretty self-absorbed, over time most realize nobody is looking anyway! 

Now I am financially successful, I feel absolutely no inclination to flaunt it, instead liking to blend in.  Trying to impress others is a complete waste of time, if you can accept this in your 20s you are well ahead of the pack.    

Not Saving for the Long term

It’s easy to have a short-term outlook.  The very few who think and invest for the long-term during their twenties reap massively out sized rewards. 

From age 25, just $255 extra per fortnight into your superannuation earning 7% will grow to $1million by the time you are 60. 

Financial Mistakes to Avoid in Your 30’s

Your 30’s are often full of huge financial moves, moving up the ranks of your career, perhaps having kids and buying a home. 

Money is often tight with so many competing priorities.  Financial progress may feel slow, just make sure you’re moving in the right direction

– Paying Interest on Depreciating Assets

To build wealth efficiently using leverage, you want to buy assets that appreciate more than interest paid.  The gradually widening gap between asset value and debt owed is where wealth is built. 

If money is borrowed for depreciating assets, such as vehicles, the gap is still widening – but this time to destroy your wealth.  And the gap gets much larger much faster. 

Even if you have no capacity to buy appreciating assets, avoiding depreciating assets like the plague will put you in a far better situation when your income does increase and give you breathing room. 

– Drift

Drift is unintentional spending.  You will be busy with work, exams, kids and life. 

It’s easy to ignore your finances and forget to set and work towards goals.  If you are lucky enough to be able to pay the bills and lifestyle expenses without worrying, it’s easy to feel you are doing pretty well. 

Remember to make a plan, put some savings aside for emergencies, investment, retirement and other goals.

– Buying the Wrong Home

Buying a home is a huge financial decision and your entire financial future can be heavily influenced by your choice.  No pressure! 

The median house price Australia wide is $550,000.  The capital city Australian median is over $800,000. 

Make no mistakes, this is a huge amount of money.  Lifestyle choices should influence, but not entirely drive the decision of what, where and when to buy. 

An example: Three Registrars

All three of our registrars are looking to buy their first home to live in.  They all have a good borrowing capacity and plan to spend $800,000. 

Assuming a long term 6% interest on 90% lending of $720,000, each registrar will pay a total of $834,000 in interest over 30 years on top of the principal amount. 

Each registrar has saved up and pays upfront for a 10% deposit ($80,000) and buying costs ($48,000). 

Alan buys a home on the outskirts of a regional town, capital growth only keeping pace with inflation (2%) so he doesn’t make any real growth, but at least he’s not paying rent.  

Jo buys a house near where she works, outside the big cities but with a busy local economy.  Her home grows in value at 4% (real growth therefore 2%, adjusted for inflation), compensating for the interest paid over the years. 

Laura lives and works in Sydney and has brought a scruffy unit in a desirable neighbourhood.  She is lucky enough to see 7% (5% real) growth over 30 years, which multiplies the value of her home.

Beyond just saving rent, or compensating for interest paid, this equity growth allows Laura to borrow to buy further income producing assets. 

Laura’s financial success is incomparable with Alan and Jo’s.


– Buying a House “Just to Get on the Ladder”

In medicine, postgraduate doctors move regularly to fulfill training requirements. 

Young professionals often feel the pressure to buy a home just to get “on the ladder”.  Those planning to keep moving often buy and then rent out when they move on. 

This can be great idea, but you want to buy a place like Laura’s if possible.  To buy for purely personal reasons, you need to be staying in one place for 10 years. 

If staying put for less than this, the decision is an investment. 

Investing for a better return elsewhere whilst renting may be a better financial decision.   Index funds/ETF or a carefully chosen investment property are both good options. 

– Neglecting Retirement Savings

It is easy, and very common, to neglect retirement savings due to all the competing financial demands during your 30s. 

But this is the decade you have most influence over your retirement age and lifestyle (assuming you weren’t too interested in your 20s!). 

Make sure you are taking advantages of all the tax savings associated with superannuation. 

Consider investing extra inside or outside superannuation.  At 30, an extra $375 per fortnight invested earning 7% will grow to an extra $1 million for retirement at 60 years old. 

It gets far more expensive as you get older due to the dwindling influence of compound interest

Financial Mistakes to Avoid in Your 40’s…

– Paying off Your Mortgage

Controversial I know! 

I know the thought of being mortgage free is a psychologically tempting prize. 

Inflation is what makes the price of goods, services and income increase every year.  The Reserve bank aim to keep inflation at 2-3 % long term. 

Due to inflation, your mortgage debt and repayments relative to income reduce over the years.   In thirty years time, your mortgage repayment will feel far less significant than it is today. 

At current record low interest rates, paying off your mortgage early is a huge opportunity cost. 

Consider investing savings sooner rather than later to maximize growth before paying off your mortgage.  Or split savings between the mortgage and investments. 

Just don’t leave thinking about investing until after you’re completely debt free – you will have missed out on most of the growth potential. 

Once you are on track to reach financial independence by your desired retirement age, paying off your mortgage may provide a nice lifestyle boost.

– Focusing on Income over offspring

These are peak earning years, but for many of us critical years to be present and growing strong relationships with growing children.  

The need to get ahead financially and be present for our kids can often conflict. 

Ideally you want to do the heavy financial lifting before kids, but that is often not possible. 

Try and balance the two priorities so you don’t suffer later regrets.    

– Divorce

Of course, this may relate to a mistake made a decade or two again – marrying the wrong person. 

Divorce is the commonest, most devastating financial event to occur. 

Chose your partner carefully, talk about your goals, finances, and core beliefs early and regularly. 

Financial mistakes to Avoid in your 50’s and Beyond

There are few working and compounding years left to recover from errors.  Risks taken should be reducing.  A big issue is suddenly realizing you are not on target for a reasonable age retirement, taking excessive risk to try and compensate. 

I met a lovely chap, who after achieving a reasonable retirement nest egg, withdrew the lot to buy a franchise in the local shopping centre. 

The business could not make a profit and eventually he lost all his retirement savings as a result. 

Passion projects and new careers at this age need to carefully minimize downside risk.

– Speculation

Also encouraged by a feeling of needing to catch up, those wanting returns above 7-8% can be tempted to speculate. 

Day trading, FOREX, investment property brought without research and independent advice and cryptocurrency are all areas that can look shiny and attractive but hold significant danger. 

Have someone you trust that you can run ideas past, and make sure you consider their opinion. 

How to Recover from a Financial Mistake

People don’t like to share their errors, so you rarely hear about them.  If you have made a large financial error, you may be in a dark place.  It can feel very lonely.  You are definitely not alone.

I have had the unfortunate experience of watching my own folks make a $400,000 error.

They were absolutely determined to invest in their builder’s commercial build, despite a complete lack of knowledge and experience.  The adult kids’ relationships with our parents was at times strained due to us repeatedly raising concerns that this was a terrible idea.  

It is still very difficult to talk to my parents about why they went through with this risky investment.  They were promised 15% returns, and I suspect just liked the idea.  

When it became obvious the money had gone, they went through denial, panic, anger, regret, sleepless nights and nausea. 

It felt like they were enacting their revenge on us for our teenage years, as we went through most of the same emotions along with them!  I was very concerned about their health as a result of this incredible stress.  I am very grateful they pulled through.   

Of course, it is best to avoid financial mistakes.  But if you have made a regrettable error, hopefully it’s not as severe as this example. 

You will eventually put the error in perspective and move on.

Learn what you can from your mistakes.  What factors contributed to the error that you can avoid in the future? 

Find a silver lining!  My parents kept their home, and their health.  They will have to live with a tighter budget as a result of their budget, but will be fine. 

It is important to stop these errors (or hatred for the person who ripped you off) turning you into a bitter person

How to Avoid Financial Mistakes


#1 Don’t rush into any large financial decisions.  Read as much as you can.  Gather information from multiple qualified sources. 

#2 Always look first at risk, identify all risks associated with a decision.  Can you minimize all risks?    

#3 Lose your ego (and build self-esteem instead).  Buying cars and homes to impress others will send you broke

#4 Avoid debt for depreciating assets like the plague

#5 Remember your 1st home purchase can impact your financial journey massively.  Consider renting, rent vesting and buying.  A home purchase is always an investment as well as a lifestyle asset.

#6 Avoid drift with a financial plan that you review yearly. 

#7 Embrace the super power of compound interest – put extra into superannuation early.  Invest rather than pay off your mortgage unless interest rates increase > 5%

#8 Look after your relationships

#9 If it looks too good to be true it probably is – Always check an exciting opportunity with someone you trust who may be able to talk you out of speculating or putting your money in a scam

#10 Spend less than you earn (even a little). Increase the gap gradually over the years until you are on target to your goals.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.