Avoid these three money mistakes

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Financial planner and New York Times blogger Carl Richards created a stir when he wrote How A Financial Pro Lost His House earlier this month. It was a gut wrenching true story of how he got caught up in the real estate bubble in Las Vegas and eventually lost his home via a short sale after the meltdown. It created quite the controversy in the financial planning community as planners debated whether he did a service to the public or hurt the reputation of the financial planning industry. I come down on the side that he did the right and courageous thing, since his willingness to share his experience gives us all the opportunity to learn from our mistakes. I've written about some of my blunders before and have to tell you that this pro had no trouble coming up with my biggest three money mistakes. So I'll match my friend Carl and raise him by two blunders.

Gold was going to make me rich

I bought gold in the last gold bubble back in 1979 with the college graduation money I received from my parents. I've written about this blunder before, noting I was sure I was going to be rich. Fast forward 32 years and I haven't even kept up with inflation. Had I put that graduation money in the stock market, it would be worth ten times the amount the gold is worth today.

My only excuse was that, back in 1979, behavioral finance hadn't yet been invented and I didn't realize I was merely following the herd. In hindsight, I came to consider this my best investment ever. Certainly not because it was all that lucrative, but rather because it taught a freshly minted college graduate who was ready to take on the world that he wasn't as smart as he thought. Further, it was the defining event that made me into the indexer I am today.

I bought way too much house

Though Carl may have lost his house, I bought too much house. My wife and I left Aspen, Colorado in 2000 and moved to Colorado Springs. While the two are only 100 miles apart geographically, housing prices could not have been more different. Houses were less than a tenth of the price of glitzy Aspen and utilities were dirt cheap at the time.

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I made the classic mistake of buying an enormous 6,000 square foot house with 20 foot ceilings for a family of three. I'd love to blame it on my wife, but the truth is that I was the one who fell in love with the house and drove the decision to buy it. Today, we are spending a fortune on utilities and maintenance for a house we would be lucky to fetch what we paid for it 11 years ago. The short-term pleasure I felt from owning the big house with the great view has long since passed. Anyone know where I could get a good price on replacing a rotting deck?

The lesson I learned is that even real estate is a risky investment and the cost of maintaining it takes away from the pleasure of having a lot of space with a great view. I underestimated the value of simplicity and now, with our son less than five years from heading off to college, wish we had chosen to buy a small tract home with maintenance provided by a homeowner's association.

I bought stuff rather than experiences

Ever since I was a kid I remember that if I spent money on something like a movie or a concert, it would soon be over and I'd have nothing to show for it except a memory.  On the other hand, if I bought tangible stuff, I'd have it forever and be able to always enjoy it. It turns out that my logic was all wrong.

Life is about being happy and satisfied and all of the research shows that experiences have a far bigger impact on happiness than stuff. For a long time, I focused on the price tag and tended to skimp while on vacations or when attending a ball game or theater.  I mean, it's the same game or play regardless of where you're sitting, right?

Today, I'm loosening up and starting to splurge a bit with some seats near the 50 yard line and having the family swim with the dolphins in Cabo San Lucas, Mexico. The latter is a memory all three of us will cherish for a long time and discuss fondly.

This last mistake is something that will take me a long time to improve on. I'm pre-progammed to accumulate money, which happens to make it difficult for me to actually spend it. Money is stored energy and I'm having a hard time using some of that energy I've worked so hard to accumulate.  Yet I know I can't be buried with it.

Embrace your mistakes

If you think being a financial professional means you don't make money mistakes, think again. I applaud Carl Richards for being so upfront about how he lost his house and I have a long list of destructive money behaviors that often get the better of me.

It's easy to celebrate what we do right and even easier to blame others when something goes wrong.  It's a lot harder to embrace mistakes, talk about them openly, and make changes going forward.

Warren Buffett is the world's most successful living investor and he seems to have no issues discussing his biggest blunders. Perhaps he is such a great investor because he owned up to and learned from his mistakes. If your financial pro has trouble coming up with his money mistakes, you may want to be be a bit concerned.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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