Famous financial experts divulge details about past bankruptcies, overdrafts and budget moves gone bad.
Think only laypeople make basic money mistakes? Hardly. Even the pros have mismanaged their finances, and they still do from time to time. Now America’s experts reveal their gaffes — and what they gained from those experiences.
TV and radio talk show host; author of “Priceless: Straight-Shooting, No-Frills Financial Wisdom”
Overleveraging was Ramsey’s most profound error. “I became a millionaire by the time I was 26 years old, but I had borrowed money up to my eyeballs,” he says. “Changes in the financial industry called the bank to look at their loans. They realized they had loaned a lot of money to a kid, and they called the notes. I lost everything.” The ensuing three years, says Ramsey, were “gut-wrenching,” causing his marriage to suffer and leading him eventually to file for bankruptcy.
To reverse course, Ramsey went on a quest to find out how personal economics really works, and then he altered his borrowing behavior. “I decided that I had had enough with losing money! I came to realize that my money problems, worries and shortages largely began and ended with the person in my mirror.”
Today, he warns against discharging debt. “People think bankruptcy will take away all of their troubles. But it won’t! It is much easier both mentally and emotionally to dig your way out of debt than it is to file bankruptcy,” assures Ramsey.
Liz Pulliam Weston
MSN Money columnist; author of “Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number That Shapes Your Financial Future”
Among Weston’s regrets is her first car purchase. “I did what so many people do, which is to pay more attention to the monthly payment than the total cost,” she says. “I chose a five-year loan, which was a long loan back then!” Worse though, says Weston, was buying “retirement property” 80 miles from the nearest road. She still owns it, but “literally can’t give it away because flying an appraiser out there to give it a value for tax purposes would exceed any tax break I could get for it.” What did she learn? “Not to get too far ahead of myself.”
Even now, Weston can occasionally stumble — not with vehicles or real estate or going crazy with a MasterCard, but checking accounts. “I have all the safeguards set up. I check my accounts regularly online. I try to keep a fat cushion in place. I have e-mail and text alerts and true overdraft protection, which draws from my own line of credit, but I still manage to get busy, overlook something, mistime a transfer or fail to accurately predict when a check is going to land, and kapow!”
Lynette Khalfani Cox
The “Money Coach”; author of the New York Times best-seller “Zero Debt: The Ultimate Guide to Financial Freedom”
“I’ve made a ton of financial mistakes,” says Cox. “Letting my car get repossessed when I was in college, cashing out my 401(k) after a corporate layoff and paying big taxes on the money later, and not taking financial issues as seriously as I should have with my ex-husband all come to mind.” Still, she counts accumulating over $100,000 in credit card debt as her nadir.
Resisting the lure of the Visa card can be a challenge, but by understanding and refining her spending, Cox deleted that balance. “A lot of what I had to go through, in paying off debt, was rooted in the fact that I flat-out refused to delay gratification,” she says. “Whether it was fancy dinners out at expensive restaurants and clothes, or trips to the Caribbean and expensive private schools for my kids, whatever I wanted, I got — even if I couldn’t afford to pay for it in cash.”
Staying on top of financial affairs continues to be tricky. “One of the biggest misconceptions people have about financial experts, or even just individuals with high incomes, is that we are someone miraculously exempt from all of the issues and challenges that everyone else faces,” says Cox. “It’s a myth that once you’ve got your financial act together, everything will be OK, and that you can sort of coast.”
Founder and CEO of Mint.com
What does the creator of an online budgeting tool deem his most unforgettable slip-up? Failing to plan ahead, naturally. At 19, Patzer moved to California, neglecting to budget for anything beyond rent and food. “Somehow the idea of phone, Internet, electricity, furniture — even a bed — slipped my mind. I also didn’t count on direct deposit taking weeks to go through.” The ensuing financial chaos resulted in account overdrafts. “This was the first and only time that happened,” says Patzer, who vowed never to let it happen again. “I learned the importance of setting a budget — and planning for when income will occur.”
What vexes Patzer now is when people assume money management is a huge chore or when they are too afraid to look at their finances. “The willful evasion of sticking your head in the sand never did anyone any good,” he says.
Personal finance columnist for SELF, Body & Soul, and Parenting; author of “Money Can Buy Happiness”
For Dunleavey, two errors vie for most notable. “I was going to say that the habit of living beyond my means — and living in debt for most of my adult life — was the worst,” she says. “But actually I made an even worse miscalculation when I didn’t start saving for retirement with my first real job, when I was 24. Who knows when I’ll recover from that loss of savings?”
Ultimately, she learned “that we humans have a terrible tendency to value maintaining the status quo over taking action that might benefit us in the future. Like signing up for the company 401(k) plan! Imagine if I had started my career these days, when automatic enrollment is common. I’d be looking at a wealthier future.”
Though her decisions are healthier now, one negative practice remains. “I am and I may always be an emotional shopper,” says Dunleavey. “I’ve been trying to switch to emotional eating, with modest success. Ice cream is cheaper than a new sweater.”
Founder of Consolidated Credit Counseling Services; author of “Credit Hell: How to Dig out of Debt”
Dvorkin’s biggest mistake? Being enticed by unusually high investment returns and not doing due diligence, he says. When he was a college student, Dvorkin received an inheritance. Wanting to invest the money in CDs, he deposited half into a bank that promised 8 percent to 9 percent interest — double what others were offering. The problem: It wasn’t FDIC insured. Six months later, the bank failed, and his money, required for school expenses, was locked up. After much wrangling, his deposit was eventually released, but without a penny in interest. “That was a very scary lesson,” says Dvorkin.
Though he certainly knows to distrust “too good to be true” deals now, other difficulties remain, such as teaching his children about money. “Trying to instill stuff that I preach is a challenge … making sure that the kids are grounded and have a decent set of values.”
Nationally syndicated columnist for the Washington Post; author of “The Power to Prosper,” out in January 2010
Amassing a seemingly small amount of consumer credit card debt is what Singletary’s cites as her painful financial mistake. “I was just starting out and had a credit card with a $500 balance. I couldn’t pay it off because I just started working. I freaked out — I thought it was the worst thing.” Every month she looked forward to total repayment. “It haunted me so,” says Singletary.
After finally whittling the balance down, Singletary “remembers the relief, the sheer burden that was lifted.” Though she never charged with that particular card again, she does use credit today. Still, she never forgets that credit cards are tools easily abused.
Singletary’s remaining test is overcoming a sense of economic vulnerability. “I have the recommended amount saved up for retirement, education for the kids — but no matter how much you have it doesn’t feel like enough.”
See related: Personal finance experts reveal which credit cards they have, Personal finance boot camps fight debt with hard-nosed approach, Don’t fall for these 7 common credit card myths, 8 things you must know about credit card debt