Sometimes you have to learn by doing, even doing the wrong thing. And that’s true, unfortunately, in personal finance.
Just ask Bankrate’s experts. Even they have regrets about their financial decision-making earlier in life: how they invested, where they socked away their savings and how they borrowed and repaid debt.
But take their experiences to heart. Then you, hopefully, won’t have to learn the same lessons the hard way.
Ditch your bank’s low-interest checking or savings
Ana Staples, principal writer (credit cards), doesn’t remember her first savings account fondly.
What I wish I knew earlier: “My first savings account was with a major bank. It earned meager interest and charged a hefty monthly fee.”
What it cost me: “$200 to $300 in fees, plus more in interest that I could have earned”
Why it’s an important lesson: “I was actually losing money on [my first account] rather than saving. I closed that account in 2020 and opened a high-yield savings account — never made the same mistake again.”
Bankrate tip
“Don’t just go for the savings account offered by the same bank where you have your checking account. Shop around and pay attention to rates and fees.”
– Ana Staples, Bankrate Principal Writer
Matthew Goldberg, senior reporter (consumer banking), said he also boarded the high-yield savings train too late. Goldberg estimated that not opening his first account until 2019 cost him “between $500 and $2,000, and perhaps more due to preserving purchasing power.”
“Yes, rates have generally decreased, but I’m still earning an amount of money that I’m proud of in interest payments each month,” says Goldberg. “And I’m outpacing inflation. So, I feel really good about that each month when I see my interest credited.
Bankrate tip
“With high-yield savings accounts at FDIC-insured banks that have no minimum balance requirement and no monthly service fees, savers of all levels should consider these accounts. Of course, make sure you’re at an FDIC-insured bank, are within FDIC limits and that you’re following the FDIC’s rules.”
– Mathew Goldberg, Bankrate Senior Reporter
Contribute the maximum amount to your 401(k)
Benét Wilson, lead writer (credit cards), didn’t max out her employer-provided retirement plan up to its contribution limits, even when provided with a company match.
What I wish I knew earlier: “All I saw was a chunk of my meager paycheck being taken away for something that was way, way in the future, instead of understanding the joys of compounded interest.”
What it cost me: “$100,000-plus”
Why it’s an important lesson: “Your retirement comes faster than you think. You feel like you have all the time in the world to work on your 401(k) and other retirement planning. I say: There’s no time like the present to get it done, to ensure you have a large enough nest egg to enjoy yourself after you retire.”
What if your company doesn’t offer a match? Fortunately, there are many retirement savings vehicles. If you’re self-employed, for example, consider a solo 401(k).
Establish and separate your savings goals
Karen Bennett, senior writer (deposits), looks back and wonders how much sooner she could have achieved her goals of traveling or buying a new car, to name a couple of examples.
What I wish I knew earlier: “To come up with clear savings goals and create different buckets to save for them.”
What it cost me: “Tens of thousands in extra savings”
Why it’s an important lesson: “Having the money saved up ahead of time means you won’t have to go into debt to pay for these things, which is a wonderful feeling.”
Bankrate tip
“When saving for multiple goals, it helps to keep the money separate for each planned purchase or expense. This way, you’re not coming up short for any goal, such as by taking from one category to fund another. One way to do this is to open up separate savings accounts for each goal. Alternatively, some banks offer a single savings account that enables you to set up buckets, or custom categories, for each of your goals.
Whatever savings account you choose, make sure it’s earning a high yield. Top-earning accounts are currently offering yields more than 400 times greater than accounts that earn rock-bottom rates.”
– Karen Bennett, Bankrate Senior Writer
Tap credit card rewards (especially for free travel)
Katie Kelton, senior writer (credit cards), used a cash back credit card for much of her early adulthood. In retrospect, she’s pained by the “opportunity cost” of not snagging travel points instead.
What I wish I knew earlier: “How valuable credit card rewards could be, so I could’ve cashed in on more free travel, among other perks, in my early 20s.”
What it cost me: “It’s hard to estimate, because I could’ve snagged several thousand dollars in welcome bonuses throughout the years, in addition to regular rewards earnings. But I would approximate around $5,000.”
Why it’s an important lesson: “I traveled a lot in my 20s — to Italy, Peru, Mexico, Northern Ireland and all over the U.S. with friends. For most of those trips, I didn’t earn or redeem a single travel point or mile. Then… I learned how travel points are typically worth more, even though Americans prefer cash back. I researched when to get the best welcome bonus for a card and how to combine rewards for a higher value. Basically, I gained a ton of knowledge on how to tap into the valuable world of rewards. Now, my flights are covered by points.”
Bankrate tip
“Rewards aren’t for everyone, especially if you’re accruing interest on a credit card balance or chasing rewards while in debt. But if you’ve got a good handle on responsible credit management, I recommend doing your research to find the ideal rewards card that matches your spending habits.”
– Katie Kelton, Senior Writer
Make index funds a part of your portfolio
James Royal, principal writer (investing), regrets not moving faster to “invest in a strong stock index fund,” to avoid the “volatility of individual stocks.”
What I wish I knew earlier: “How easy it is to invest in these funds and make money over time even without having a lot of investing knowledge.”
What it cost me: “Millions of dollars, because the more you delay beginning to invest, the more it costs you [in lost earning potential] decades later.”
Why it’s an important lesson: “While the stock market can be volatile, over time it’s been ‘up and to the right,’ making individuals a whole lot of money… You might think that stocks are only for rich people. But stocks are how the wealthy became wealthy, and you can do it, too.”
Bankrate tip
“Anyone can get started investing, even with a small amount of money. The secret to investing is to buy an index such as one based on the S&P 500, invest in it regularly and then hold on for decades. Forget buying and selling and all that Hollywood nonsense you see.”
– James Royal, Bankrate Principal Writer
Always compare multiple mortgage lenders
Ted Rossman, a senior industry analyst, admitted to the mistake of blindly following his real estate agent’s recommended mortgage lender. He applied to only one home loan company before closing.
What I wish I knew earlier: “I should have shopped around more aggressively.”
What it cost me: “I borrowed $417,000 at 4.625%. I don’t have the loan anymore, but if I held it for the full 30 years, I would have ended up paying about $355,000 in interest. If I had shopped around and gotten a rate a half-point lower, the total interest expense would have been about $273,000.”
Why it’s an important lesson: “Getting at least three price quotes is a good idea, especially with something as expensive as a mortgage. But that’s also good advice for home renovations, insurance carriers, auto lenders and so on.”
Account for the secondary costs of homebuying
Lauren Nowacki, senior writer (loans), recalled that her 29-year-old self didn’t fully grasp the post-mortgage financial commitment of homeownership, such as property tax increases and home maintenance. Her advice: Build that into your budget before you make an offer on a property.
What I wish I knew earlier: “There are so many other costs beyond the ones that come with purchasing the physical house.”
What it cost me: “In the long run, thousands of dollars.”
Why it’s an important lesson: “When it’s your first home, you likely don’t have the stuff required to fill and maintain a home… Maintenance is all on you now, so repairs and such are on you and your wallet. All of that needs to be considered in your budget — and when you’re looking at homes.”
Consider making extra mortgage payments
Linda Bell, senior writer (home lending), would like a do-over for how she and her husband have repaid their 30-year home loan.
What I wish I knew earlier: “The significance of making extra mortgage payments… I wish we were more intentional about bringing down that principal in earlier years.”
What it cost me: “It’s hard to estimate the overall financial impact of our mistake, but through the years, it probably cost us tens of thousands of dollars in avoidable interest charges. The frustrating part is, while we had the extra money most of the time, I didn’t realize what a difference those extra payments could have made.”
Why it’s an important lesson: “It’s not just that we could have paid off the loan faster. The more you chip away at the principal, the less interest accrues over time.”
Bankrate tip
“Take advantage of high-income periods, tax refunds or when you get bonuses from work to make extra mortgage payments. Every extra dollar you put toward your principal now can save you thousands in interest down the road. If I could go back, I would prioritize making principal payments whenever I had the extra cash.”
– Linda Bell, Bankrate Senior Writer
Jeff Ostrowski, principal writer (home lending), is proof that what may be best for one consumer may not be for another. Ostrowski wishes he “hadn’t been so eager to pay down my mortgage.”
“Given the stock market boom of recent years, I would have been better off to keep the mortgage balance elevated and put the difference in stocks rather than my home,” he says. “Yes, paying down the mortgage can help you feel more secure, but it might cost you in the long run.”
Diversify your income and automate your savings
Denny Ceizyk, senior writer (loans) and former mortgage loan originator, says he was in his 40s when he realized that his “one-job life” didn’t support his past choices of taking on debt. He wants you to understand the value of entrepreneurship and cash-flow management, so you can lessen your reliance on loans.
What I wish I knew earlier: “Debt became a crutch in my life because I made a lot of big decisions — cross-country moves, buying investment properties, et cetera — based on a debt-leverage mentality rather than a [focus on] income diversification and maximization. As a former debt salesman, I’ve realized that most loan products, from student loans to mortgages, send people the message that debt is necessary; when the truth is, scaling income and aggressively saving and investing can eliminate the need for any type of debt later in life.”
What it cost me: “Easily hundreds of thousands of dollars. I went from having over a million-dollar net worth about a decade-and-a-half ago to having a large debt load to pay off due to a debt-leveraged mentality that I learned from originating loans for 25 years.”
Why it’s an important lesson: “The swipe-and-go spending culture doesn’t lend itself to savings — and Americans’ low savings rates only bear that out. Besides examining your budget and shopping for loans, Americans should be looking at their earnings, skills and interests to adopt a more entrepreneurial approach to their lives.”
How to improve your financial literacy
Those of us who learned about personal finance as kids are more likely to handle money more effectively as adults, at least in certain ways, according to Bankrate’s Financial Habits Survey. For the rest of us, we could be in for some hard lessons learned.
The learning never really ends, whether you recently graduated college or already have an extensive credit history. Consider that the 11 Bankrate experts we interviewed reported learning their financial lessons in their late 20s and 30s, even into their 40s and early 50s.
And hey, if our experts didn’t know this stuff, you shouldn’t feel bad about your blind spots. To uncover them and avoid potential money mistakes, consider these additional tips:
Additional tips
- Ask a lot of questions. There’s an unnecessary taboo related to talking about money, but it can help to commiserate with friends and family. Better yet, consult certified professionals who can steer you in the right direction. The Department of Justice’s list of approved credit counseling agencies could be a good place to start.
- Question the answers. You probably heard this before, but personal finance is indeed personal. Just because someone says a particular product or strategy worked for them — or because an expert recommends a one-size-fits-all solution — doesn’t mean it’ll work for your circumstances. So, keep a healthy level of skepticism.
- Mix up your media diet. Whether you’re a book reader, social media user or a podcast listener, find personal financial influencers who are experts (perhaps through first-hand experience) in their fields. You can also utilize free resources online, such as Bankrate’s suite of calculators.
Have you learned a hard financial lesson? Email the writer at APentis@redventures.com.
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