As someone who writes about personal finance, I've seen my share of frightening statistics: Americans are neglecting their retirement savings, falling down on emergency savings, and racking up tons of debt on their credit cards. All of these are mistakes you're likely to regret if you fall victim to them. And while I've thus far managed to avoid those landmines, I have made my share of financial blunders in the past. Here are two that I'm not particularly proud of but that I'm hoping other people can learn from.
1. I invested money in a home instead of in stocks
My husband and I bought a house 10 years ago, and in an effort to keep our mortgage payments as low as possible, we made more than a 20% down payment. Offhand, that may not seem like a particularly irresponsible move. But we also snagged a ridiculously low fixed interest rate on our mortgage (well under 4%), which means we would've been better off putting down 20% only and investing the rest of our money.
The stock market has historically delivered around a 9% average annual return. Had we taken the extra $20,000 we put into our down payment and loaded up on stocks instead, we quite possibly could've grown it into roughly $47,000 over the past decade. Instead, we tied up that money in a house and gave up the option to invest it.
It may be tempting to put as much money down as you can when you're buying a home. But if your credit is strong and you're able to snag a low mortgage rate, think about what you might do with that extra cash instead.
2. I underestimated the cost of maintenance
The house my husband and I bought a decade ago was new construction -- we watched it being built from the ground up. As such, when we mapped out what our budget would look like upon closing on that house, we didn't allocate very much money to upkeep. In fact, I believe our initial budget called for something like $50 a month in maintenance. Our logic was that since everything was brand new, it wouldn't cost a ton to maintain, and we certainly wouldn't face any major repairs early on.
Wrong. Having a newly built house didn't let us off the hook from doing things like caring for our lawn, cleaning our gutters, and having our heating and air conditioning systems checked. And while our home did come with a one-year warranty, shortly thereafter, we had a number of things break that required costly repairs. Unfortunately, our budget didn't allow for that, and we had to tap our emergency fund on more than one occasion until we learned to shift our expenses around and rework those numbers.
The takeaway? Always budget properly for home maintenance, even when you're buying a property that's fairly new. On a national level, standard upkeep will generally cost anywhere between 1% and 4% of your home's value. This means that if you purchase a $400,000 home, you're looking at $4,000 to $16,000 a year in maintenance costs. Obviously, that's a large range, so take the age of your home into consideration when mapping out your budget. If your property is on the newer side, you might land in the 1% to 2% range, and if it's older, you might go with 3% to 4%. But either way, you'll probably need a good bit more than $50 a month.
Writing about personal finance doesn't mean I don't make money-related mistakes of my own. Sharing these stories will hopefully help others avoid falling victim to the same blunders.