Have you ever made a financial decision that you wish you could go back and correct? Perhaps it was a poor decision that cost you some savings, or maybe it’s a regret that isn’t as easily quantifiable.
We continue our series sharing stories in which we asked team members, “What financial mistake did you make in your 20’s?” and more importantly, “How would you advise your 20-year-old self (or other 20-somethings) not to make the same mistake?”
What financial mistake did you make in your 20s?
“Shortly after my husband and I were married, we relocated to another part of the country. We were excited, enthusiastic newlyweds, and soon after moving, we bought a condo in our new city. A few years later, we outgrew the condo and, wanting to start a family, decided to buy a house. The market for condos had softened, so we were unable to sell the condo without realizing what was, at that time for us, a significant loss. Fortunately, we were able to rent out the condo, but we were forced to carry it (and pay mortgages and expenses for two homes!) for a few years. The market was slow to recover, and we eventually sold the condo for a small loss.”
How would you advise your 20-something self not to make the same mistake?
As an advisor and homeowner for many years now, I’ve learned some important lessons about real estate. While buying a home is often the American dream, and from a financial standpoint can provide many benefits, from tax savings to serving as a hedge against inflation, there are practical factors to consider when you’re contemplating making one of life’s major purchases.
Keep your enthusiasm/emotions in check. As is true with any investment, don’t let emotions lead you to purchase a home without thinking through the details. It pays to do a bit of research by asking yourself these questions:
- What is your time horizon? By far, one of the most important considerations in whether to buy or rent is how long the buyer plans to be in the home. Longer timeframes favor buying, while a short time horizon generally points to renting. While renting can certainly have drawbacks, one advantage is that this extra time allows for more time to build your down payment!
- What are current market conditions? We didn’t plan for the condo to be our ‘forever home’, but we also didn’t anticipate having problems selling it just a few years down the road. Life circumstances can change quickly, and economic fluctuations may force you to carry a property for longer than initially planned. Understand where you are in the real estate cycle both in terms of the market and what type of home you are purchasing.
- Is the current location desirable? We’ve all heard the mantra, “location, location, location” when referring to real estate – and yes, it matters. That was one advantage of owning our condo. Fortunately, we purchased our modest condo in a great area located near downtown and a university, so its location was appealing to college students and young professionals, and we were able to easily find renters.
- What are the trends in the location you are considering? Our condo was purchased at a time when condo sales were booming in our new city, yet we soon learned there are times when market forces will cause prices to swing the other way; condo prices had dropped rather significantly in just a few short years. Condos were no longer as attractive a home purchase in this city as the suburbs were quickly growing with single-family homes in beautiful new developments. Factors such as urban sprawl and gentrification can greatly impact property values. Pay attention to what’s happening not just in your neighborhood, but in your town or city.
- Can you afford all the costs associated with homeownership? Maintaining – and renting out a home – is expensive. Aside from the usual costs of owning a home – mortgage, property taxes, and utilities – it’s inevitable that a major repair will arise at some point, and that’s exactly what happened to us. The roof began to leak in the condo and required a full replacement. Then when a new job forced us to move out of state, we had to hire a property manager to manage the condo rental. While we were fortunate to cover some costs by renting out the condo, all these additional expenses were quickly adding up.
Buying a home can be an exciting time. However, keeping your emotions in check and asking yourself some important questions before and during the process can help minimize costly mistakes.
What financial mistake did you make in your 20s?
“When my husband and I were first married, we both had busy careers but always carved out time to discuss and manage our finances based on our now-shared financial goals. Fast forward several years and three children later, and the responsibility for our family finances gradually fell solely on my husband’s shoulders as I took on the primary role with the kids and running our busy household. Our finances remained my husband’s sole responsibility for quite some time until I once again became more involved, but I wish I had been a more active participant during those earlier years.”
How would you advise your 20-something self not to make the same mistake?
There’s often a time of adjustment when newly married couples begin managing their finances as a team, as a couple may begin to make joint financial decisions regarding budgets, financial goals and debt management. But as the years progress, it’s natural for couples to share a division of labor due to increased responsibilities from demanding jobs, children, and household responsibilities.
Yet, I handed the financial reins to my husband. I was fortunate that I trusted my husband implicitly, and we continued to make all major financial decisions as a team, but I didn’t have as good a grasp on the details as I should have. After a few years, I realized this had to change as I found I knew more about my workplace finances than I did my own. I now reflect on what I would caution anyone considering leaving the family finances solely in their partner’s hands:
- Don’t feel the need to “do it all”. If you’re overwhelmed, and don’t know where to start – or don’t feel you have the time to manage all your family finances – start with something small even if it’s balancing the checkbook every month, while your partner handles a chore that you regularly do. The following month, try tackling another area, for example, updating the monthly budget.
- Know where everything is! And by ‘everything’, know who holds your mortgage, where your investment accounts are held, where your will and insurance policies are, what the passwords are to the online financial accounts, etc. Not only can this provide you with a general overall financial picture, but possessing this knowledge can be a lifesaver in case of an emergency.
- Make financial communication a priority. This is often easier said than done but just as your family’s health is a priority – so is your family’s financial health. There are ways to stay ‘in the loop’:
- A regularly scheduled date night with your partner can serve as a prime opportunity to discuss your finances in a relaxed setting. Use these check-ins to track your progress towards your goals, discuss any changes or challenges you’re facing, and adjust your financial plan as needed.
- If you employ a financial advisor, make sure that your advisor also invites you to meetings and solicits your input and opinions on key decisions. Obtain your own credentials to access your portfolio information on your advisor’s portal and/or your custodial accounts.
- Know that you’re setting an example. A financially engaged parent can serve as a positive role model for money management in the family. Let your kids see you making responsible financial decisions, such as budgeting, saving for the future, and even investing. If you’ve opened a 529 education savings plan for your children, explain to them how an educational savings plan works and your efforts to fund it. Talk about family financial goals at the dinner table (keeping it age-appropriate) and make it relatable so they understand the importance of financial literacy in their own lives.
By taking these steps and actively participating in your family’s financial affairs, you can reinvolve yourself in the decision-making process and work together with your partner to achieve your financial goals. Remember that communication, collaboration, and commitment are key to building a solid financial foundation for your family’s future.
If you’re a young adult looking for answers to your financial questions, we invite you to sign up for our Financial Foundations educational series. For more information and/or to register, click here.