Financial Planners - They're Just Like Us!

Financial Planners Are Human, Too

I know it's difficult to believe, but even planners make financial mistakes. Below, seven of my colleagues, all members of the XY Planning Network, share their biggest financial mistakes.

Katie Brewer, CFP® / Your Richest Life

I dropped about $35,000 on an additional degree. I was already in the field of financial services when I started thinking that I would really benefit from getting an MBA, even though my peers and mentors didn’t think it was going to add a lot of additional value. I researched and applied and was accepted into a Professional MBA program. I learned a lot about business in general during my MBA program, but I didn’t really learn anything additional about my chosen field of financial services. Luckily, I was able to knock out the student loans quickly by living well below my means, but if I had to do it over again, I wouldn’t have pursued an additional degree that most of my friends and clients don’t know that I have.
My husband and I bought a house a few years ago (2012). It was a major fixer-upper so we had talked to the mortgage lender about deferring our mortgage payments for 6 months and he said that was an option. When we got to the closing table, it turned out our lender did not include that clause in our final documents, so we either had to move forward or not close that day and most likely not get the house. We signed the papers, which meant we’d have to start paying the mortgage a month from then, plus both of our rents since the home was completely unlivable.

Instead of buckling down, adjusting our lifestyles, and tightening our budgets, I found myself swiping everything on the credit card. I’m sure I had my excuses in my head, but really, I was just taking the easy way out because I had a high credit limit. It grew to a few thousand dollars in a few months and at some point, I remember thinking, well, it’s already high, so what difference is this $10 sandwich going to make?

In less than a year, I had racked up over $7500 of credit card debt and had no idea what the heck I spent it on. There weren’t any big purchases, just a lot of $10 sandwiches along the way. It almost prevented me from being able to refinance my mortgage because the balance was over half of the limit of my card and they caught that when they ran my credit report. I had a write a letter explaining why the balance got that high. Totally embarrassing and nerve wracking.

I was lucky enough to be able to refinance the credit card debt into the mortgage, a decision I don’t usually recommend, but since we had a tenant and the new mortgage payment was going to be so much less than the previous one, and I had no savings, it was the best decision we could make under the circumstances.

It was a big lesson for me to see how quickly and easily credit card debt can creep up when you throw one wrench into the mix. It’s made me that much more empathetic to clients who have credit card debt and feel ashamed by it. It can happen to any of us!
The biggest mistake we made was thinking our house was the super special house that wasn’t affected by the home value crisis.

In 2010 we found our dream home and purchased it believing we could sell our existing home in no time at a profit from where we had purchased it in 2004. That didn’t happen. 

It took close to two years to sell at a price that was at a loss (a small loss, but a loss nonetheless).

Six years on, we are very happy in our new home and plan to be here for the long haul, but our emotional attachment to our first home clouded our judgment on its value.
I have made plenty of financial mistakes but the one that really stands out to me is believing I could beat the market. After working for an investment bank I was definitely overconfident in my ability to pick winning investments, however, 2008 and 2009 proved to me that even the smartest, most well-respected managers had a very hard time getting it right. Since then, my own investment philosophy has shifted to be based more on controlling what you can control (fees, asset allocation, diversification, and how much risk to take) and I have left the rest to the markets.
My biggest mistake was not saving more when I was younger. Allowing lifestyle inflation to creep into my life to “keep up” with my friends. When I first moved to Chicago I wasn’t doing a good job of targeting 15%-20% of my income going into savings (either IRA, 401(k) or taxable). This meant I didn’t really have an emergency fund until I was older. It also meant that I had to play “catch up” to get my own retirement house in order.
I wish someone would’ve mentioned to me to put some of my wages into a Roth IRA when I was in college and younger. I’ve had jobs since I was 16 and was always saving for something besides just working for spending money.  I wish that I had saved a little for those goals and put a little away for retirement.  When I think about the compound interest that I missed out on, it makes me a little sad. Every dollar you invest in your 20s is worth more than $18 at retirement!
My biggest financial mistake actually came about through multiple decisions spanning over quite a few years. I approached and ultimately made these decisions without objectivity. Failure to inject objectivity into my decision making has been my greatest financial mistake. 

Since at the time I was studying to be a financial planner, I assumed I had all the knowledge required to make sound decisions. That notion simply wasn’t true - I lacked objectivity. 

Three rather significant financial issues arose as a result: 

1) Married at the time, we sold a house at a near $20,000 loss
2) Most of our over $100,000 net worth was in cash
3) Cash positions made it really easy to place generating income on the back burner. I became a stay-at-home dad for a year and lived well over three years earning little to no income - on purpose - but spending down our nest egg in the process.

These decisions weren’t all bad. However, from a financial standpoint alone, I can certainly reflect back and see where professional objectivity would have been quite beneficial. 
I have two financial mistakes I’d like to relate.

The first mistake came during the aftermath of the financial crisis of 2007 - 2009 when the S&P 500 lost approximately 50% of its value. This was the first major recession I had experienced post-college, so I was unprepared for the psychological impact both personally and professionally. I continued to invest throughout the downturn, but I should have put more into the market because history has shown that markets recover. That was difficult to remember when the economy and financial markets were in disarray.

Here’s what I learned from this mistake:
Buffett’s words of wisdom. Be mindful of this quote from Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful”.
Cash is king. Thankfully, a recession of this magnitude doesn’t happen often. When it does, be sure to have some extra cash on hand so you can take advantage of good deals in the markets.
The second mistake occurred after my wife (then girlfriend) and I moved in together. Our income increased, but so did our expenses because we didn’t have a plan to deal with lifestyle creep.

Here’s what I learned:
It’s important to set joint goals. We were much more likely to keep lifestyle creep in check if we wrote down quantifiable goals. 
Regular check-ins keep you on track. Setting quantifiable goals is a great first step, but setting aside time to meet and check progress towards those goals is also important.

The moral of these stories: We all make mistakes. What's important is recognizing the mistakes, learning from them, and finding ways to ensure you don't repeat them.

Listening / Reading / Watching

Here's what had my attention this week:

  • The third presidential debate. Ugh. On the bright side, at least we're done with the debates.
  • The Industries of the Future by Alex Ross. This is one of the books I heard about during the super trends session at the recent NAPFA conference. So far, it's great.