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You may be shocked to hear this, but I, a copy editor with a communications degree, do not know everything there is to know about finances. And while I like to think my track record has improved since I started working for The Ascent and steeping myself in personal finance knowledge, I have plenty of mistakes in my past that have affected my bank account.
I’ve forgotten to cancel memberships before they auto-renew, and I’ve made impulse purchases that I ended up regretting. But those aren’t the mistakes I’m talking about. I mean the big ones that have cost me thousands of dollars over the years. Here are my top three.
1. I didn’t bring my own financing to the car dealer
I’ve purchased two cars in my life, but neither time did I think to bring my own financing to the dealership. To be honest, I didn’t even know that was a possibility until relatively recently.
By accepting the dealer’s financing option rather than looking around for my own financing ahead of time, I likely paid a lot more than I needed to. On average, dealerships mark up the interest rate on a car loan by 1 to 2 percentage points.
In the second quarter of 2024, the average interest rate for excellent credit on an auto loan for a new car was 6.84%. If you’re getting a five-year, $20,000 loan, you’d end up paying $3,671 in interest. If your rate was bumped up to 8.84%, you’d pay $4,817 in interest. If you’re gearing up to buy a car, learn from my mistake and shop around for financing before you head to the lot.
2. I didn’t shop around for mortgages
This is a similar mistake, but bigger. I bought a house when I was living in California, and then I went through it all again when I moved to Wisconsin. Both times, I felt completely overwhelmed by the process. So many steps! So much money! So. Many. Signatures.
Both times, I was grateful to be set up with a mortgage lender who took the reins on all the financing conversations. It never crossed my mind that I could seek out a lender on my own to try to get the best mortgage rate possible, but I sure wish I’d looked into it.
According to LendingTree, the average borrower could save more than $76,000 over the life of their 30-year loan by shopping around. That’s $76,000 that homeowners could invest or use to pay off credit card debt. If you make $36.54 an hour, that comes out to an entire year’s salary, just poof, gone.
3. I didn’t sign up for a 401(k) right away
When I got my first job out of college, I felt too busy learning the ropes of office life to add opening a 401(k) to my to-do list. But that’s a decision I regret now, especially since I ended up dragging my feet for four years before finally tackling the task. That’s four years of compound interest I can’t get back.
Compound interest is essentially when you earn money on the earnings your money has made. If you have $1,000 in a bank account earning 5% interest, you’ll end the year with $1,050. In year two, you’d earn interest on that entire $1,050, leaving you with $1,102.50 by the end. And the snowball keeps rolling bigger and bigger each year.
By neglecting my 401(k) at first, I missed the chance for those four years of funds to grow into something much bigger. The average return of the S&P 500 since that time has been 13.22% per year, so suffice it to say, my retirement snowball could have been a lot more impressive by now.
Avoid the big mistakes
I’m grateful that none of these errors has derailed my finances. But all the same, it makes me a little anxious to think of what I missed out on. But now that I know better, I’ll do better. And I hope you will, too.
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