3 Mistakes that Slowed my Path to Financial Independence

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Today I have something a little different for you, a very insightful guest post from Simon.

The following guest article has been provided by Simon from Financial Expert.

As a financially independent blogger, I am often asked to provide money tips and advice. In particular, I’m asked to help others avoid common saving and investing mistakes.

In this article, I will help you navigate three mistakes which I personally made in the last decade. Collectively, they delayed the semi-retirement I’m currently enjoying, by approximately three years.

Complacent spend swell

At the beginning of my saving journey, I was a frugal purist. My savings rate varied between 50% – 70%. This range meant that even when large expenses did arise, I was still shovelling plenty of cash into my investment accounts.

Frugality came naturally to me when I began to work in a graduate job. I’ll put this down to my ignorance of life’s luxuries. Of course, students as a body, are generally poor and enjoy a simple lifestyle as a result. By simply continuing this into my early twenties, I rarely felt that I was missing out.

So it continued. I rented a room in a house alongside six other professionals ($500 per month) and owned a basic second-hand vehicle.

After seven years of employment, my savings and investments had grown to approximately 4x my salary. This caused a mindset shift because I began to feel ‘wealthy’.

Wealth is powerful. It provides a comfort blanket of indifference which you can wrap around many day-to-day grievances. If an issue was money-related (such as a parking ticket), I could afford to not let it upset me.

However, with new power came complacency. A feeling began to grow that after years of deprivation, I ‘deserved’ something expensive. This itchy desire for a status symbol, combined with a love of the Fast and Furious films, resulted in a couple of minor mistakes:

I had these expensive vehicles over the final four years of my working period, and they were great fun to own.

But they were also expensive to own. They made between $600 and $1,100 disappear each month in depreciation and fuel.

That’s right – at one point I would pay rent of $500, then lose $1,000 in vehicle depreciation. Somehow I had not managed to stay the course when it came to frugality.

Owning a nice car ate up all of the additional income from a string of promotions at work. They kept my savings flat when I could have otherwise turbocharged my savings.

If you can resist the urge of a spend swell as your salary and status increases, you will be able to cut years off your retirement date.

I assumed that a complex portfolio would be an effective one

A common principle touted by passive income builders is to diversify your streams of income. Any job or business that generates a sensible income today, could falter tomorrow. It can be very beneficial to have multiple streams of income to increase the reliability of your income as a whole.

The same rule, of course, famously applies to the process of investing. The maths shows that if you own more than 20 individual stocks, you will become insensitive to the individual risks specific to each company.

My second mistake was in applying this rule in a very clumsy way. Rather than merely checking that my portfolio contained a large number of companies, I began to branch off into different forms of investments entirely.

This is an example of spreading your money across different asset classes, and this is also best practice. For example, many investors hold equities, property and bonds. But I took this to its extreme, and at one point had ten different types of investments.

What was the problem? In one word – fees. By spreading myself so thinly across so many platforms and accounts, I had put myself on the hook for a multitude of fees and charges.

This made it impractical to even consider topping up each investment each month – I would have probably lost half of my deposits in transaction costs alone! This deterred me from investing at all. Cash began to build up in my bank account.

I have since made the transition back to a simple approach with a single fund manager and a handful of peer to peer lending accounts. In fact, I no longer pay any transaction fees.

If you too can keep your portfolio simple, you will keep fees to a minimum. A quick and easy investing process will also remove a barrier from doing this often.

I thought I could see the future

After years of reading investing books and studying professional qualifications, I had amassed what you could call a ‘dangerous amount’ of investing knowledge. I couldn’t yet host an investing course, but I could hold a good conversation in a bar about money.

It was dangerous because I knew enough, to believe I knew everything

In reality, didn’t know enough to realise how incomplete my knowledge was!

This culminated in a clear, downward bet on the UK FTSE 100 stock market index which I made by selling all of my positions. In doing so, I made a huge mistake.

Over the following month, the stock market rallied by a further 10% and I missed out on this once-a-year gain.

The ability to see the future in a relatively efficient market like the UK and US stock markets is almost a superhuman power. With a few years of experience behind me, I should not have assumed that I had gained it!

About the Author

Simon writes course content for Financial-Expert.co.uk; an online creator of free investing courses. Financial Expert covers topics for beginners such as how to buy shares.



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Hi! I'm Katie

I started Katie Saves while on Maternity Leave to document our adjustment to living on less. Now back in work - I blog about all things money with a little life organisation thrown in for good measure. Join me!