5 Financial Decisions You’ll Regret in 10 Years

by: Donna Wright

Edited by Doug Garfinkel:

The best monetary advice you can give someone is to examine each financial decision you make in life so you don’t wake up ten years later with regrets and poor financial health.

To Regret or Not Regret

A regret is the feeling of remorse for a decision made. When people ask if I have regrets, I typically give an ambidextrous answer like “not really.” That response does not provide a definitive yes or no. I believe that life is a series of choreographed steps that lead us to where we are in this moment. I would never want to rewrite the life I have today. But, like many, I made a few poor financial decisions that I’m regretting today.

Some financial decisions feel right in the moment because you’re not thinking long term. But in time, the repercussions can be felt, and one small decision can turn into one big regret. However, for every “mess” you’re in whether financial or other, there’s a “message” in the form of a lesson so you don’t make the same mistake again.

While the obvious missteps involve budget, saving for retirement, overused credit cards, investments, and no emergency fund, I want to share five not so obvious financial decisions that many people (including me) have made that you actually have control to avoid.

1. Not Understanding The Importance of Insurance

The right insurance policies are worth the cost and should not be viewed as optional but instead a critical step to protect you from unexpected financial burdens.

Auto insurance and homeowners insurance are typically mandatory while renters insurance may be optional. Many folks are unable to afford health insurance due to job loss, putting them at financial risk should a medical issue arise. In fact, an emergency room visit for a minor health issue can cost between $1,500 to $3,000 without insurance. If you think you can’t afford health insurance, healthcare.gov marketplace policies may be affordable to you.

Disability and long term care insurance are equally important. And while life insurance, is not a topic anyone wants to talk about, evaluate whether your family will be financially taken care of in your absence. If not, attaining life insurance could be crucial.

While some people regret not having any insurance, others regret buying the wrong coverage. This can be avoided by comparing policies from at least three different insurance companies to learn policy terms, and exclusions/limitations that could lead to claim denial costing you money from your pocket. Also, don’t get trapped overpaying for unnecessary coverage. Find coverage that meets your needs and budget.

My personal story about life insurance dates back 18 years. I unexpectedly lost a loved one and had no idea the value of his life insurance. I expected that his life insurance from work would equal one year salary. Well, unbeknownst to me, during the previous open enrollment period at work, a coworker suggested he increase his premium to double his salary. It was a surprise and a sense of relief to me.

2. Poor Start With Money in Relationships and Families

Don’t avoid the all-important financial talk with your partner. That could lead to severe financial missteps. Discuss shared visions and realistic budgets keeping each person’s dreams and concerns in mind. To align goals, talk, compromise, and create a budget. It will be worth it 10 years later.

Assuming that as a couple, you succeeded following a financial plan, later on, you’ll need to bring your children into the equation. Planning long-term from daycare to private school to college, and perhaps even paying for a wedding. And what about dance class, piano lessons, travel baseball, and karate classes? Plan and budget accordingly so you have no regrets later.

Another common issue relating to family finances and one that I’m guilty of, is the act of spoiling your children. If your children are still young, take action now to thoughtfully teach them the value of money. Practice the art of saying “no” occasionally so you don’t regret it later.

Pretending to have the funds to afford private school tuition, extracurricular activities, and weddings at the expense of your own retirement savings could be a regret. From experience, I used money from a 401K to help my panicked son pay for outstanding wedding reception bills that arose just weeks before his wedding. I won’t say I regret it, but I will say that I could use that money right now. On the lighter side, I hope that one day he remembers my generosity and offers me a room to live at their house.

3. Renting Instead of Owning

There is a longtime debate about renting vs. buying a house. Not all people have a large sum of money to use as a down payment. However, paying rent on a 3-year lease adds up to a dollar amount that technically could have been used as a down payment to purchase a house.

Here’s a scenario: You plan to live in an apartment for one year while saving for a house. You find an affordable cute one-bedroom and then fees are added for trash removal, renters insurance, Wi-Fi, cable, onsite gym, and pool access. Before you know it, that $1,700 monthly rent is costing you $2,400 per month. So, you don’t have a penny to save for a down payment.

Before you sign a lease for a rental, consider that renting does not offer you equity and you’ll have no mortgage interest nor real estate tax deductions. Even worse, when your lease is up, you don’t own anything. Home ownership also gives you the option to rent out a portion of the house to generate additional income to help offset mortgage costs.

One caveat: While it’s tempting to buy your dream home, stretching your budget too thin can lead to financial stress. Find a realtor to help you purchase a home within your budget.

4. Auto Financing Out of Your Means

Buying a vehicle that is way higher than your budget can lead to regret, especially financing with a long loan term and high payments. The more expensive the vehicle, the higher the car insurance. Purchase a foreign car and you face the high cost of replacing the parts.

Instead of buying the most expensive car on the lot, either purchase an affordable model or select a reliable pre-owned car with a lower monthly payment. Also, if you need to finance, shop around for the best loan rate that will be affected by your current credit rating. In a U.S. News & World Report article, the Experian credit bureau states the average new-car auto loan rates range from 4.66% to as high as 16.01% based on credit score.

Years back, I visited a Hyundai dealership intending to get a specific monthly payment on a brand new Santa Fe. And by the time I drove out of the parking lot with my shiny new SUV, my payments were $200 more than I wanted to spend on the monthly payment. Two weeks later, I was laid off from my job, left with no salary and a HUGE car payment that I’m still struggling to pay three years later.

5. Claiming Social Security Early

As tempting as it is to buy a brand new car, when you reach your sixties, the word “retirement” is as shiny as that car you had your eye on. According to ssa.gov, you have the option of taking social security benefits as early as age 62. Financial experts advise you not to as it’s more financially advantageous to wait until your full retirement age of 70. That advice has definitely been heard because according to retirementliving.com, only 29% of people claim Social Security at age 62, the first year of eligibility.

For example, at your full retirement age, you would receive 100% of your benefit amount. If you claim at 62, your monthly check will be reduced by 25% for life. It will never go up to the full benefit amount. That is a heavy regret. If you hold off until age 70, you can look forward to getting a 32% increase in benefits (8% a year for four years.)

And while you’re desperate to leave your job in the rearview mirror and head out into the wild blue yonder, you must consider the improvements in longevity. More people than ever before are living to 100 years old. Centenarians will need money to live and social security will be the only financial constant if one’s retirement funding runs out. Of course, everyone’s situation is different with multiple factors determining the best time for someone to retire.

Author Bio: Donna Wright is a personal finance blogger for MoolaStakes.com, who enjoys researching, fact-checking, and expressing complex subjects in understandable terms. As a single parent, she knows the pitfalls of poor money management but also knows the satisfaction of improving finances. Her mission is to provide accurate, unbiased money management insights to money-conscious folks, just like her.

This article is for informational purposes only and does not constitute financial advice. Readers should verify all details independently and use their own judgment when following these practices.