Why Financial Failure Isn’t Weakness
I am not afraid to highlight my failures because I see them as (sometimes costly) learning experiences. We all fall somewhere on the spectrum of safety and risk. I’m a risk taker (about an 8/10), but also try to deploy the right tactics with the resources I have available.
I’ve been there. I have screwed up from a financial perspective (and many other ways) and knew it was going to be costly. The first time it happened, I thought it was going to be devastating. But as I came to realize, the more screw ups you have, the sharper your perspective becomes. Whether you had a healthy financial situation or your finances are a little rocky, sometimes things can go sideways. This is what happened to us.
My First Financial Failure: Overconfidence
The first blow to our savings came when I was 21 and tried to make it big in the stock market. You see, I had started taking classes in finance towards my MBA when I was 19, so I thought I knew how to trade and had the education to back it up. WRONG!
I was trading emotionally and not logically. That little lesson cost me $6,000 in one day. That’s a lot of cash when you’re talking about losing 20% of your net worth in about 5 hours. That day, I learned a thing or two about overconfidence.
My Second Financial Failure: Missed the Fine Print
My wife and I are hyper aware of our budget, income, investments, and other aspects of our financial life. We look at your accounts daily. But somehow we missed a very important detail and ended up owing an extra $25,000. As a young couple, this was not a small amount. We felt sick to our stomachs.
Just like your enemies become your best teachers, my early failures became a gift.
As I’ve mentioned, I’ve screwed up before, but this one was a doozey. Here’s what happened. I signed a franchise agreement that had me paying down a zero interest loan for what I thought was two years, not three. I know, I know. Math. However, my wife and I both believe that we were misled when this was explained to us. But the three year commitment was clearly written out, I just didn’t see it. The outcome: instead of taking distributions from my business and putting an extra $25,000 into my savings account, I had to send that money to the lender.
Side note: I am a firm believer that just about everything in life is negotiable, so I saw this situation as no different. By explaining this scenario to the lender and offering to pay the remaining balance a year early, we negotiated a savings of about $1,400!
Make Your Failures Part of Your Comeback Story
The takeaway for me was simple: we all have setbacks, trip-ups, and unexpected situations that hurt our bank accounts. How you recover from these ‘resiliency lessons’ will determine your trajectory, not only for your finances but the quality of your entire life.
When I fail, it’s simply my First Attempt In Learning. If I quit, it’s because I have Qualities Under Important Transformation. We are now better equipped for what life throws at us.
How We Recovered
At first, my ego took a hit. Turns out maybe I wasn’t as smart as I thought I was. But I picked myself up, reminded myself of my goals, and continued building my savings. You can bet I will never make those mistakes again. It took about 4 months to get the $6,000 back in savings account. And I wasn’t able to take that $25,000 as a distribution from my business. But guess what? There’s power in taking responsibility. I didn’t blame someone else or skip out on my payments. We took responsibility for what happened and started saving again.
- If the sales pitch sounds too good to be true, it probably is.
- Read the fine print. There’s a reason they use the smallest font. That’s where they hide the “gotchas.” Read. It. All.
- Know the difference between smart risk and dumb risk. Emotional investing is dumb risk. And by the way, no fancy degree will protect you from making emotional decisions (just read the news any day of the week). It’s something you’ve got to watch out for constantly. Human nature is a powerful thing.
Your Best Financial Weapon
Saving, or the lack of spending, is my (and your) best weapon. Our frugality can be misinterpreted sometimes. I’ve been called cheap many times but I’ve learned to be perfectly okay with it. Rather than becoming defensive when the word is snarkily beamed my way, I ignore it. Pretty much every single person who has called me cheap has either not worked hard for their money (their parents made it rain for them as kids) or they don’t have a single real asset to their name because they spend indiscriminately. That’s no way to build long term wealth.
Just like your enemies become your best teachers, my early failures became a gift. My wife and I decided to trade some short term pleasures for genuine long term satisfaction.
There’s No Shortcut
There’s really no shortcut. Saving takes sacrifice and discipline. Even if you’re making $200k a year or received an inheritance in the seven figures, you need to have the discipline not splurge it on frivolous luxuries. Spending money is not hard to do. Every year fortunes are lost by people who had huge financial windfalls. Just Google Mike Tyson, Tori Spelling or any number of professional athletes.
If you happen to be like me and not quite at that income level yet, learn to reject stuff (things) and embrace what really matters (people and experiences). Even as my income grows in future years, I have a feeling that I’ll never be a fan of accumulating stuff.
How to Start Small and Save Big
You don’t have to institute crazy austerity measures. Actually, studies show that going cold turkey on all spending will reduce your chances of sticking your plan. Start with one small step. One simple way to do this for me was cutting back on eating out. A decent meal for two is at least $25. I’d much rather use this $25 toward something else that would give me more than an hour in a restaurant.
“Failure is only the opportunity to begin again, only this time more wisely.” ~Henry Ford
My wife and I have embraced this simple concept. Healthier home-cooked food means more savings and more time together. We enjoy the process of cooking a meal and have fun being creative in the kitchen. Compare that to the hassle of driving to the restaurant, waiting to be seated, deciding what to eat, ordering, waiting again, getting our food, waiting for the check, and then driving back home.
Cooking at home also lets us avoid the often processed food that restaurants serve ‘fresh’. We are more aware of what’s going into our bodies since we are the ones shopping for and cooking the ingredients. For us, the benefits of eating at home clearly outweigh the pluses of eating out. And if you’re missing the social aspect, invite your friends over for a potluck. We need to bring back the idea of home gatherings.
Get on Your Way – And Don’t Sweat the Small Stuff
So get going on your financial journey. Everyone will have setbacks. These setbacks can be gifts. You can’t control what people say or do. But you can control how you react. Take your best shot at life. We only get one.
Michael has packed a lot of experience in his 25 years of life. He started his first little business when he was 12 years old, has been awarded a Merrill Lynch Young Entrepreneur Award as a young teen, was an Enactus National Presenter for 2 years while attending Winthrop University, and has been a Finance Officer in the South Carolina Army National Guard for 8 years. He is passionate about helping others reach their financial dreams.