Friday Financial Foul Ups – How I Didn’t Earn $3000 in Free Money

Photo by craigmdennis

Photo by craigmdennis

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.

The Situation

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!

My 401(K) Contribution Mistake

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.

10 Responses to Friday Financial Foul Ups – How I Didn’t Earn $3000 in Free Money
  1. Mrs. Micah
    September 18, 2009 | 8:44 am

    Sucks. As you say, not a complete failure–better to save it than not.

    You know, Roth IRAs allow you to withdraw the part you contributed. Unless the value has changed significantly, you could probably take the money back out & try it again. I’m not sure how easy it is, but for $2-3k it’s worth looking into.

  2. J. Money
    September 18, 2009 | 8:53 am

    haha…i like this new series of yours 😉 you can go on for years!!! (ooohhhh) on a more serious note though, at least you’re socking away a lot! much more than i can say about others out there :( great post, bro.

  3. Craig
    September 18, 2009 | 9:14 am

    I like the new series as well. You are putting away a lot of money to make up for the loss and better to learn this mistake (even if a lot of money) now then later.

  4. JerichoHill
    September 18, 2009 | 10:03 am

    Dude, you will have no shortage of stories! And honestly, the best way for folks to learn about personal finance isn’t from success stories, but from where we failed or screwed up!

  5. Stephanie PTY
    September 19, 2009 | 12:21 am

    Argh, I have one of these myself. Last year, I was still a dependent on my mom’s taxes. It was the end of the year, and I had a bunch of money saved up to pay off student loan interest. If I paid it before the end of the year, the tax deduction would go to my mom. If I waited, it would go to me. I decided to do it before the end of December as a Christmas gift to my mom.

    Well, turns out I didn’t read the fine print well enough – there’s no tax deduction if you’re a dependent. Not for me, and not for my mom. If I had waited until January, it would have been 2009, and I would no longer be a dependent on her taxes, and I could get my tax deduction in 2010. But instead, it just disappeared completely, and neither of us gets it.

    It was about $280, I believe, which isn’t much compared to you (10x more in your case!), but it still hurts to have $280 just vanish!

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