7 lessons I learned from my biggest financial mistake

I have a story I’m a little embarrassed to share, but one that some may be able to relate to or learn from.

This is a story that started when I was fresh out of college (Maybe there is something to the studies that say young adults at this age don’t have their judgment capabilities fully developed, but I digress). I had grand plans to be financially smart. I went from finishing my undergraduate degree in the spring straight into a master’s program in the fall and I was also working full-time. My plan was to cash flow my Master’s degree as I went through and not have to take out student loans.

I royally screwed up that plan.

It started when my husband wanted a truck. Not just any truck, a Toyota Tacoma. We were both driving 12-13 year old paid for Subarus at the time. (Side note: we lived in a rural area without public transportation and I frequently travelled overnight for work so two vehicles were a necessity).

Since we were DINKs (dual-income, no kids) and had disposable income for the first time, we felt like we had money to spend.  Although in the grand scheme we had very normal, modest jobs and were not making a ton of money.

Mr. FC had wanted a Tacoma since high school. He began to research Tacomas thoroughly. He learned about their specs, price ranges, and features, and then he started watching auto sale sites. Daily. The tipping point was when a colleague got a brand new Tacoma and he was totally smitten with that truck.

I want to be clear that I don’t blame my husband. This story is owned by both of us, together. Even though I wrote about our biggest money fight, in all honesty, money is one thing we hardly ever fight about. We talk everything through (often even the littlest purchases) and consult each other. This situation is no exception.

Have you heard of attentional bias?

At that time, I had no idea what attentional bias was, but we were completely guilty of it.

Attentional bias is when we give our attention to something and begin to over-inflate its value and positive impact on our lives. It’s a positive feedback cycle where the more you obsess over something you want, the more it makes you want it.

Mr. FC had crossed the line from research to fixation on a Tacoma and was falling prey to attentional bias. Then, like a virus, I let it spread to me.

I began to think about my little Subaru. It had some weird issue with the engine and severe hail damage, but it ran. Since I did quite a bit of driving, I wanted a car with better gas mileage. I liked the appeal of a Toyota Corolla because they were “cheap”, had good gas mileage, and consistently rank among the most reliable vehicles. I started to think that I deserved it and had earned it (Hah!).

Attentional Bias led to a Big Purchase

I don’t remember when we officially made the decision to go to the car dealership. It definitely wasn’t after saving up enough money to buy the car outright, but one day, we went. We were going to look for a Tacoma.

Mr. FC found one that he loved, and then we decided just to test drive a Corolla while we there.

We ended up trading in both our little Subies and left with two brand new cars. I’m sure we made the car salesman’s week. We also left with $50000 in car debt.

We live in a state that charges registration based on a formula of the age of the car and the factory cost. The newer and more expensive the car is, the more you pay in registration. So, between the two vehicles, we also owed nearly $1000 in registration fees plus taxes.

Then Life Happened

About six months after we bought the cars, we moved across the country. Our jobs changed and our circumstances changed and we finally admitted we really couldn’t afford $800+ in car payments on two modest incomes.

We decided to sell the Tacoma because it was the more expensive one and we were breaking even on the value to loan ratio. We kept the Corolla and decided to just pay it off because we were so underwater at that point.

Lessons I learned:

1. It takes one day to accumulate debt that can haunt you for years. 

We were debt free when we bought those cars and I still kick myself for giving away that status so easily. Debt should be considered a heavy and serious prospect and you should thoroughly weigh all that it will impact before you decide to commit to it.

2. Debt is a problem that grows upon itself.

The money I had intended to use for cash flowing graduate school went to our new cars instead of school. So, I had to take out student loans. I learned that debt limits your opportunities and can exponentiate when you are giving your paycheck to past priorities. My debt problem grew because I couldn’t pursue the things that my life had moved on to without more debt.

3. Be aware of attentional bias.

Where you give your attention, you spend your time. Time is money. I now try to be cognizant of the things I am focusing my attention on, and try to make sure I am not focusing on material things. I would rather focus my attention on things like my family and gratitude. It’s one way I’m trying to incorporate intentionality and simplicity in my life. I want to be the one to consciously decide where I spend my time and money without being unduly influenced by biases.

4. Fixating on specific car brands is a great way to spend too much money. 

Mr. FC liked Tacomas, but there was no reason why he needed a Tacoma specifically. There was no reason why I needed a Corolla instead of a similar model like a Honda Civic. This point may be controversial, and true car enthusiasts may argue with me that the little differences between models can matter a lot, but I firmly believe that if we had been open to a class of car instead of specific models we could have saved money.

5. Afford is a dangerous word.

Just because someone will give you a loan does not mean you can afford it. They have no idea what your budget looks like, or what it should look like. A gross salary number looks very different than a take-home salary after taxes, responsible retirement contributions, and other expenses are taken out. Don’t let anyone else tell you what you can afford.

6. If you need a 5-year loan to afford your car payment, you can’t afford the car.

You may be thinking, “You just told me not to let me listen to anyone about what I can afford and now you’re telling me what I can’t afford!?” I don’t care. Five years is too long. Cars should ideally be bought in cash, but I will give anyone grace for life happening and needing to adapt. However, five years is just too long. With a loan that length you end up underwater on the car, it doesn’t let your life move on, and it easily becomes a perpetuating cycle of debt.

7. A car purchase should be made with long-term foresight for your future needs.

When I bought the Corolla, I didn’t consider that I would be starting a family during the time that I owned the car. It seemed too far away at that point. I knew I wanted kids within 10 years though, which is a realistic timeframe for keeping a brand new car.

Pippin says, “I already have to compete with the cat, how will a baby fit too?!”

We hope to have two kids some day and fitting two kids and a large dog in a Corolla is a tight squeeze. I’m not saying I should have bought a minivan and driven it for 5 years unnecessarily before I had kids, but I probably should have bought a used car that I could have gotten more value out of before changing to a family car (or better yet, KEPT the Subie!).

For the record though, the Corolla is paid off now and still a great car with one baby here so I plan to make it last as long as possible!

Looking forward

To this day, I still curse those cars and consider buying them my biggest financial mistake. I do recognize the privilege that this happens to be my biggest mistake yet and not other more serious financial problems.

I attended college on a full academic scholarship and Mr. FC’s family saved money for his education. We didn’t have exorbitant debt from school and we were extremely fortunate that this was a situation where we were able to sell something to partially fix our mistake. Many with crippling debt in other forms (such as student loans) are not so fortunate.

I will likely never buy a brand new car again because the thought of taking the hit on their depreciation gives me physical pain. New car prices are also simply outrageous. However, I will never forget the lessons I learned from this experience.

Financial Mistakes – The official chain gang

This post is part of a chain of personal finance bloggers all telling stories about their financial mistakes.

Anchors: Chronicles of a Father with Cents, A Journey to FI

Link 1: ThinkSaveRetire – Don’t brag about success; tell me your failures

Link 2: OthalaFehu – Budget Bungles, Money Muddles, and Fiscal Flubs

Link 3: Turning Point Money – My Financial Mistakes

Link 4: Femme Cents – 7 Lessons I Learned from my Biggest Financial Mistake

Link 5: Jumpstart from Scratch – Recent Financial Blunder

Link 6: The Frugal Gene – Top 5 Sorry Ass Financial Mistakes of my Early 20s

Link 7: Gen Y Money – My Tell All: Investing Mistakes in my 20’s

Link 8: 99 to 1 Percent – Our 6 Financial Mistakes and 15 Lessons Learned

Link 9: Winning Personal Finance – My 7 Most Regrettable Financial Decisions

Link 10: Chief Mom Officer – Overdrawn Checking Account – CMO Clan Makes A Big Mistake

Link 11: Foreign Born MD – My Biggest Financial Mistake – over A Million Dollars Worth!

Have you learned lessons from your financial mistakes? What about lessons learned from buying cars? Let me know in the comments!!

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18 Comments

  1. Thanks for inadvertently joining the chain gang!. I can totally relate to your mistake about buying a new car. That’s exactly what I did when I started working. I went from a lease which was a terrible decision to buying a brand new Toyota Rav4. While we had it, we realized the mistake we made just by simply tracking its price thru time via kelly blue book. As a result, something good happened. We bought a 2nd car but this time it was a certified pre-owned and we paid cash for it. After 5 years the Rav4 was paid off and life was good. That same year we were in an accident and the Rav4 was totaled. I received a check from the insurance for 42% less of what it cost. After that, we decided to get another CPO but this time we decided to finance since IR was low and I thought I’d rather invest.

    1. The amount of depreciation new cars take in the first few years really is painful to absorb, but I’m glad it worked out in your situation!

  2. Oh wow! Haha- I have certainly fallen prey to attentional bias (but I didn’t know there was a name for it!). Mr. Adventure Rich loves trucks too! So far, we have crappy old beaters that are work trucks (not our everyday vehicle… we use it for plowing in the winter and hauling brush/yard work in the summer), but I know he’d love a big Dodge or something 😉

    For now, I’m adamant about sticking to our Subarus as primary!

    1. Sticking with paid off cars as long as possible is the way to go! It’s definitely what I will be doing from now on. And Subarus are awesome 😉

  3. Looking back, I don’t think I would have bought a new car when I was in the market to replace my aging Toyota Corolla after grad school. It’s so important to consider what a financial hit you will take sinking that much money into a car that early in your career!! To think how much further ahead my investment accounts would be if I didn’t have a $20k car…. ah well. Lesson learned!

    1. I definitely agree! If I could go back and do it over again, I totally would have invested that money instead of buying those silly cars. I can only imagine how much better off I’d be at this point!

  4. We bought a brand new prius a few years back. We paid it in full which eliminated the worry of car payments and thought we got a good deal because we bought a 2013 model in the beginning of 2014 and they wanted it off their lot so they can bring in the newer models. But it turns out the value of the prius was only $500 higher than what we paid for and that value stayed the same throughout 2013 so it didn’t matter that we bought the car the year after. We probably would have bought the car at the same price during 2013.
    Lesson learned, when car shopping look for a used or pre-owned car.
    Thanks for sharing your car story!!

    1. I think it’s nearly impossible to get value worth what you pay for a new car. I learned the same thing, used cars are a much better value!

  5. Thanks for sharing! I didn’t know Tacomas were so expensive! I think there’s a theme with these mistake posts, cars are not worth it! I bought a small Honda FIT a few years ago and was also looking for an SUV (preplanning for children) but then at the time I wasn’t married so I felt a bit presumptuous to buy an SUV thinking I would get married and have children (because I wasn’t even seeing anyone at the time). Now we have a Mazda CX-5 as our family car, though I see a lot of moms with sedans and children in the back seat, I think it’s doable!

  6. the smidlap’s view an automobile as a disposable tool to be used to go out and get dollars in order to live our lives and work towards FI, but never an “investment.” that being said, we have bought 3 new cars in our lives. i got the cheapest truck on the market in 1995 (no a/c and no radio, if you can believe that) and drove it 15 years until it kinda felt like it might strand me somewhere in an upstate ny winter. mrs. me still has the little sedan we got new in ’06 and i bought one in ’13 that i hope to keep 8 more years at least. the real upside and maybe only one for me is that you get the best 4-5 years of that vehicle’s life and you know it’s history.

    two cool things happened with the 1st one that were like winning lottery tickets: i got hit my someone right in front of a cop (no injuries, thankfully) causing a bunch of cosmetic damage. then, a couple of years later, it was in a huge hail storm in new orleans with more cosmetic damage. turns out in each instance they just give you the estimated damages and you’re not obligated to do the repairs. as they were only cosmetic i kept the cash as i saw zero prestige in perfect looking truck which i intended to drive until it was a dried husk of it’s former self.

  7. I definitely agree that a new (either new or new-to-you) car is a huge decision that needs to be weighed carefully based on current and future needs. Depreciation hurts, so if you aren’t keeping it a long time, it’s definitely better to buy used.

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