October 14 2009|11.33 AM UTC

David Tu

Seven Financial Mistakes That Ended Disastrously

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As the saying goes, hindsight is 20/20 — especially when it comes to mistakes in financial moves. From the dream car turning into a lemon to smoking your son’s college savings, we asked other popular personal finance bloggers what their worst financial moves were, here are seven financial moves that ended badly:

The Dream-Car-For-a-Year

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Jim from Bargaineering:

Fortunately I haven’t done anything too terribly disastrous with my finances but I can’t say the same for my poor sister. In her second year of college she got it into her head that she really wanted one of those “cute” Volkswagen Beetles. The first year was a dream, the car ran great, it had no problems, and she loved then. By year two, the problems creeped in. First her dashboard shorted out. Then her back taillight burned out. Then she had her hubcaps stolen! It all came to a head when my parents and her visited my graduation. As they were ready to go back home to New York from Pittsburgh, the passenger side window fell into the door and refused to come up. We had to cut a piece of plexiglass from Home Depot and tape it over the opening of the window so they could make the 8 hour drive home! My sister now hates VW Beetles. :)

The Expensive Student Loan

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Stephanie from Poorer Than You:

As a 17-year-old, I bought into the story that everyone told me: student loans are a normal part of life; you’ll get a job and eventually pay them off. I applied “early decision” to a college that was too expensive for me – though I didn’t know that – and a major that wasn’t going to earn me enough money to pay off those loans. By my third year, I’d maxed out the amount I was allowed to take out in federal student loans and also maxed out a credit card trying to make up the difference. I was miserable and terrified.

I ended up dropping out of school for nine months to get my act together and figure out a way to pay for school. By that time, I was too far in – my credits wouldn’t transfer to another major or another school. I managed to switch to Multidisciplinary Studies and added another concentration onto my first major, which allowed me to graduate more-or-less on-time. Now I’ve graduated, but I’ve got $42,546 in student loans that I’ll be paying off for years and years!

The Business Financed by Credit Cards

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Jeremy from Generation X Finance:

My biggest financial mistake occurred during college, which might not be much of a surprise. During my final few years of school I had decided to start a business from my dorm room. Being the computer geek that I was and having a lot of websites I figured I could branch out and start hosting websites for others as well, so I started my own web hosting company. It started out small but after a few months it began to grow rapidly and I had to find a way to expand. Being a poor college student I made the biggest mistake possible. I started financing the business with credit cards.

Big mistake. At first I just needed a few hundred dollars here and there to keep things going, but soon I had to start buying new servers, additional bandwidth, and paid for an automated ordering system and server administration platform. Before I knew it I had sunk tens of thousands of dollars into the business and most of it was on credit cards at 15% APR or more. This did help the business grow, but not fast enough to keep up with the minimum payments and finance charges. I was eventually able to sell what was left of the business, but the damage was already done, both to my bank account and my credit score. That poor decision lingered with me for years, although it did teach me a valuable lesson.

The Risky 529 Plan

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Ben from Money Smart Life:

One of my rather recent money mistakes was losing a big chunk of my son’s college fund. I had originally opened a 529 college savings plan in my name to pay for my Masters degree and put the money in the conservative option since I had a very short timeframe.

My company ended up reimbursing me so I transferred the 529 into my son’s name. I figured since he had a much longer timeframe before he needed the money he could afford a little more risk. I updated the account so that new investments would buy into a more aggressive fund and I also moved the current investments from the conservative option to the most aggressive fund.

Shortly after I moved the money over the market melted and a large part of his college fund evaporated. Sorry little buddy, maybe you’ll decide to skip college and instead start a company that you’ll sell for millions someday.

The More-Than-Expected Home

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Madison from My Dollar Plan:

In 2005 we spent our time planning and building a beautiful custom home. Unfortunately, we didn’t spend much time budgeting while we built. Each time we met with a subcontractor we picked our favorite high end finishes. In the end we spent about $130,000 more than we planned, but we were happy with our selections.

However, once you commit to spend more, you compound that amount with a higher assessment and pay extra real estate taxes and extra homeowners insurance. Don’t forget the extra interest on the mortgage. We love our house, but if we build again, you bet I’ll make sure we don’t get so carried away!

The (Un)Spectacular Day Trading

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Lazy Man from Lazy Man and Money:

From 1999 to 2000, I day-traded Internet stocks. I saw how much money was to made by the wild stock swings and I got hooked. I remember buying 100 shares of Egghead, the software company, at $18 and having it go up to $38 in about 15 minutes. Before I could sell it was back down to $16. That seemed to be the way it always went – except for the times the stock just went down. I even had a margin account. By the time all was said and done, my bank account was $10,000 lighter.

I now buy and hold diversified exchange-traded funds.

The Eggs-in-One-Basket

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Silicon Valley Blogger from The Digerati Life:

My first job out of college sometime in the late 80′s afforded me the chance to start building my savings. With a decent salary, I also got myself started with investing in the stock market but I started out rather aggressively — by picking stocks on my own when I hadn’t much experience as a stock investor. I made the mistake of buying one stock with most of my savings: I put several thousand dollars (my entire net worth, for the most part) into L.A. Gear, thinking that Michael Jackson’s marketing campaign for this brand would eventually help it take off. Things were going well until a few months later when Iraq invaded Kuwait, causing the global investment market and in particular, the U.S. stock market, to sink rapidly over the next few days. Needless to say, I watched my stock implode till the point where I could not take it any longer — I sold off my full position at half price and was glad that I did. The stock eventually went down to zero and was eventually delisted from the market.

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{ 12 comments… read them below or add one }

jim October 14, 2009 at 11:58 am

My poor sister and her miserable car are now forever immortalized in Internet history. :)

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Jesse October 14, 2009 at 3:22 pm

Eek these numbers are terrible, but I guess you all learned something right? haha

Thinking of tens of thousands evaporating.. I’m glad I do massive research and am always uneasy about investments even those that seem foolproof.

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Jon October 14, 2009 at 4:25 pm

@Stephanie – really? $42k at what is probably a very low, possibility tax deductible, interest rate to help get a quality education and eventually a degree. The failure wasn’t with the loan but the student.

@Ben – well that was just bad luck but hopefully you left it alone in the aggressive 529. If you have a long enough time frame you should be fine especially when the market is already up over 30% for 2009.

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BillShrink Guy October 14, 2009 at 4:44 pm

Jon: While I’m sure it was quality education, I’m personally in the camp of cheaper public schools. $42,000 is still a lot of money, and many times, the correlation between your loan size and your expected pay is really something many students fail to consider when they decide on the institution/major they’re interested in.

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Life Blog November 7, 2011 at 2:21 am

Its taken a lot of sunken money, but I can now spot when something is too good to be true. I.e. you put like $1,000 into something and out comes like $10,000. I just don’t trust things like that anymore and anytime you are offered something like that you get this feeling, “Oh! This is too easy, why didnt I see this before??” That is the sign to back away and ask some straight up questions. I normally ask people who are really annoying to tell new ideas to because they ask all the hard questions.

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LarryH October 14, 2009 at 4:35 pm

Jim- I’m sorry to say that this story got picked up by Digg.

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NeoMatrixj2 October 14, 2009 at 5:03 pm

My sister had student loans for pharmacy school and immediately after graduation she was in a nice job paying well.

The bank found out how much she made and jacked up her loan payments without notice so now that nice new car she was planning on getting is delayed for a year or two.

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Stephanie PTY October 14, 2009 at 7:29 pm

“the correlation between your loan size and your expected pay is really something many students fail to consider when they decide on the institution/major they’re interested in.”

That sums it up entirely.

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Anonymous October 14, 2009 at 9:42 pm

My son has $72,000 (over $120,000 with interest over 30 years) in student loans. Thank god for the new programs available so that now he can pay on the loans for ten years and have the balance written off. And the payments will be based on his income. He has a good job but was living with absolutely nothing left after rent, etc. He has no bills except utility, food, gas, and car.

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Word October 14, 2009 at 11:28 pm

Regarding the “The More-Than-Expected Home” mistake, I know building a house can be really devastating to your financial plans. You think you have considered most details in your calculations, but you can bet that there will be loads of hidden costs that reveals when you start building. And they will keep on appearing until the house is finished.

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Tracy October 15, 2009 at 9:15 am

Great tips – I think a lot of financial mistakes can be avoided by thinking things through fully before jumping and avoiding impulsive decisions!

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Credit Letter October 16, 2009 at 11:37 pm

What a great post. Also on Madison’s home building budget blow-out, I’ve learned that its like any project management and comes down to controlling 3 things: timeframe, budget and specification. In order for the homeowner to get what they want, (up to spec), frequently this comes at the expense of budget and extra time.

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