I am excited to kick off a new weekly series today called Friday “Financial Foul Ups”. The series will be here every week and will outline financial mistakes that myself or other bloggers have made (with their permission, of course). If you have a mistake you would like others to learn from, please contact me to write a guest post for this series. It should be fun – or painful!
My most recent screw up, and yes, it was a grand daddy screw up that cost me the opportunity to earn $2788.80, happened just last week. As my readers know, I totaled my car about 3 months ago. In turn, I bought a new car a couple weeks ago. This was not the mistake. The mistake was what I did with the insurance money from my totaled car.
I financed my new car, and put no money down. This left me a big windfall of $4,200 (the money I received from the insurance company from my totaled vehicle). I had big plans for this $4,200. Almost all of it was going to go into the market somehow. So I started to analyze where I should put it; my brokerage account, my Roth IRA, etc.? My Roth IRA needed about $3,000 to be maxed for the year. I was on pace to max it out by April 15th next year anyway, but I wanted to speed up the process. I put $3,000 of the insurance money into my Roth. Like that, *poof* its gone!
Where I Fouled Up
I didn’t see the big picture and I sure as hell didn’t think outside of the box. I didn’t look at how my money flows from account to account. Let me explain. Currently I have an incredible 401(K) match from my employer. Unfortunately, I can’t take advantage of all of it because the 401(K) limit is unattainable for me at my current income level. The match that they offer is $.50 on the dollar up to the maximum allowable contribution. For those that aren’t in the know just yet, that means I can put in $16,500 pre-tax and my company will put in $8,250. That is a sweet deal.
Before, I digress too far (and I am sure some of you can see where this is going), I will say that I currently put 20% of my income from my employer into my 401(K). Now, if I would have used that $4,200 of insurance money as income for 4 pay periods (which is about what I would have earned) I could have upped my contribution to 100% receiving a HUGE boost to my 401(K) as my employer would have matched 50% of my entire salary for 4 paychecks! Just take a look at the chart below. Not seeing the big picture, not taking an extra few minutes to analyze the situation cost me $2,788.80 of employer match. Almost $3000 of free money!
Yeah, I messed up. I am ashamed to say it, but a bit of shame never killed anyone.
What I Learned
This situation was an oddity. For those that are in my situation and can’t afford to fullly contribute to our 401(K) but have a great match offer from your employer, I hope you can learn from this. Please, think about how to use those windfalls to improve your financial situation for today and for tomorrow.
I will say, I didn’t fail entirely. I didn’t spend the money on frivilous goods or unnecessary luxuries. Maxing out my Roth was one of my goals for this year, and I accomplished it in September. However, that goal was to be accomplished regardless of me finishing it early. I failed to recognize the opportunity to receive an additional $2788.80 and I am still struggling with that fact. This was a royal mistake for a personal finance guy, but I have already learned from it and I can promise you, I won’t let an opportunity such as this pass me by again.