You may think that there are people out there who’ve got it all together with their money—who never make a false move.
Well, you’d be wrong.
The truth is that hardly anyone is perfect when it comes to their finances. Even the most financially savvy of us make mistakes.
In fact, a report from the Consumer Federation of America and Primerica found that two-thirds of Americans admit that they’ve made a money blunder. And while the study found that the typical bad decision cost only $5,000, the average cost was $23,000. Translation: There are some costly lessons being learned.
We asked five readers from diverse backgrounds to dish about their own major financial faux pas in the hopes that maybe you can avoid making them, too.
The Irrecoverable Business Investment
Back in the early 90s, Linda LeBlanc, 59, and her husband teamed up with another couple to open an indoor sporting business in addition to their full-time jobs. Together, the two couples contributed a total of $70,000 to finance the venture. LeBlanc and her husband funded their half by refinancing their mortgage, tacking on an additional three years of payments that would expire just as their second child entered college. “All in all, it wasn’t too bad because we actually got a lower interest rate than what we had been paying,” says LeBlanc.
The problem was that business wasn’t good.
The couples found that, while they were great friends, they had different working personalities—and contrasting expectations of the division of labor. LeBlanc also credits the location’s lack of visibility for its demise. After two years, the business went under, and both couples were out the initial start-up money.
LeBlanc and her husband were able to recoup some of it by declaring the loss on their taxes, but they were forced to eat the investment in the building, as well as the special equipment that they could not resell.
“It wasn’t like we lost our life savings, but it was a big chunk of time, effort and blood, sweat and tears that could have been directed elsewhere,” says LeBlanc of the two years of long hours and no pay. “In retrospect, we should have hashed things out at the beginning, in a joint business venture contract or a partnership agreement, rather than just leave it up to our friendship to figure things out.”
The Endless Real Estate Transaction
In 2003, Pauline Paquin had $25,000 in savings and a dream of purchasing an investment property to rent. “I was picturing things back when there was no crisis, no bubble and easy lending,” says Paquin, 32. “I would buy my first place, and earn a 10% return on it. After two years, I’d go back to the bank to show that I was a successful landlady, ask for some more money and then repeat the process. By age 40, I would have a dozen properties, and live off my rental income for the rest of my life. Easy!”
So Paquin eagerly bought a small studio apartment on the outskirts of Paris, where she lived at the time. “I knew the price was low because the neighborhood was not ideal,” she says. But it wasn’t until after she purchased the flat that she realized just how bad the area was. “At night, there was drug traffic, delinquency and gang fights,” Paquin says, adding that other landlords were skipping out on maintenance fees.
In 2005, Paquin decided to sell the unit because she found that, each year, she was actually spending more to maintain the property than she made back in rent. But the neighborhood scared away serious bidders, keeping Paquin tied to the property for another seven years. Eventually, in late 2012, after years of low bids and delinquent tenants, Paquin finally sold the place.
Her net profit over nine years was $54,000—about $6,000 a year for a lot of stress. “My biggest mistake,” Paquin says, “was buying my first property without doing any homework about the neighborhood.”