FOOL'S EYE VIEW
My Dumbest Money Mistakes - Ever!

By Cliff D'Arcy
November 6, 2003

Everyone makes mistakes, because we're all only human. However, there's no need to beat ourselves up about our money mistakes. After all, personal finance has become hugely over-complicated, especially in recent years, so it's no wonder that millions of us stumble through our financial lives.

I've had more opportunities than most to get my financial affairs in order, as I studied maths at university, and then worked in banking and insurance for fifteen years before becoming a financial writer. However, despite a wealth of practical experience, I've still made some major howlers along the way! Here are a few of my worst blunders (there are plenty more, but I have an editorial deadline to meet!):

1. Losing out on a pension

Back in 1999, I was working for one of the UK's largest insurance companies. Out of the blue, I was approached by another company that was closer to home and run by people I respected and admired. As soon as this smaller firm offered me a job, I handed in my notice and never looked back.

However, resigning as soon as my new job offer arrived cost me plenty. That's because I was a member of my ex-employer's pension scheme. It was a non-contributory scheme that promised me a guaranteed pension from the age of sixty. However, as I was one month short of the minimum two years' service required to gain a 'preserved pension', I lost the lot.

My loss: A four-figure pension every year from age sixty until I die. D'oh!

Lesson learned: Pay attention to your pensions!

2. Spending recklessly on credit

As I mentioned in this article, I got the credit card bug when I went up to university. Despite getting the maximum student grant (this was the Eighties), I left college with a sizeable overdraft and two hefty credit card bills. This was entirely due to wild over-spending and a carefree attitude to debt, plus a limited interest in the interest I was paying!

Of course, it took me several years to pay off this mountain of debt, but I was finally in the clear. With my finances looking rosy, I then made an even bigger mistake (see 4 below)!

My loss: At least £10,000. Oops!

Lesson learned: Credit cards, overdrafts and personal loans are unspeakably expensive!

3. Not doing as I'm told

On the first day of the 1999/2000 Tax Year, I started a terrific new job (see 1 above). I was really excited to be working with many good friends in a great company, so I was in a very upbeat, optimistic mood. My wife called me later that day and told me to sell her entire shareholding in her company, as its value had soared in recent years.

Being in such a positive frame of mind, I talked her out of this course of action. As it happens, my wife called the top of the market perfectly, and her shares have never been close to that level again. In fact, they tumbled by 60% over the next four years, and are still down about 45% from that fateful day.

My wife's loss: I'm not sure, but at least £50,000. Ouch!

Lesson learned: Listen when someone smarter than you is giving out orders!

4. Gambling

Being a mathematician, I've always been fascinated by games of chance - that's gambling, to you and me. Unfortunately, for almost five years in the Nineties, I developed a very damaging gambling habit. As the majority of my salary was swallowed up by my obsession, I ended up borrowing a lot of money to make ends meet.

Before I managed to beat my addiction, I found myself with a couple of personal loans and, I think, fifteen credit cards! Recently, I visited a casino for the first time in over four years after a Fool Social, and left hours later with the same thirty pence with which I arrived. Cured!

My loss: The best part of four years' wages. Tut tut!

Lesson learned: Gambling is a mug's game (but investing in gaming businesses can be lucrative)!

5. Investing without doing my research

In this story, I explained how I got carried away with the shares of a company that was in takeover talks. Blindly following a tip, I whacked a big slice of cash into these shares without doing my homework first. Initially, this wasn't a problem, as my stake increased by £20,000 in less than a week.

However, I was too greedy to take this tidy profit, and hung on for bigger and better things. Sadly, what I got was a string of profit warnings, followed by a management buyout after five months at a price around one-quarter of my buying price.

My loss: Over £100,000. Crikey!

My lesson: Don't invest too much into the shares of just one company; don't let greed drive your decisions; don't buy into heavily indebted companies; get out if you don't have faith in a company's management; and many more!

6. Not taking a risk at the right time

My wife and I cautiously climbed onto the first rung of the property ladder almost eleven years ago. However, being new to the property game, we trod carefully, buying a little terraced home that we could comfortably afford. This proved to be one of our best-ever financial decisions, plus we still enjoy living there today.

However, we could have bought a bigger house without stretching ourselves too much, even at a time when the base rate was almost twice what it is now. Even a three-bedroom semi would be worth considerably more today than our modest cottage.

Our loss: £200,000 and counting. Aargh!

Lesson learned: When the odds are strongly in your favour, don't be ultra-prudent!

Okay, so it looks as though I should be living in abject poverty, doesn't it? However, this tale is only about my cock-ups, not my successes... Did I ever tell you about the time we nearly made a million? ;0)

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