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This week we have: Tom Drake from MapleMoney!
I was so excited to have Tom volunteer to participate in the Wins and Losses Series. As you’ll read below, he’s been doing this blogging thing for 10-years!! Thats like 52.5 blogging years (when converted) and I can’t wait to share his wisdom and experience with you! But more than blogging, he’s been making financial decisions, evaluating the results of those decisions, and writing about the process for a decade. He’s full of tremendous insights… So let’s get to it. Take it away, Tom!
Hi MikedUp Blog readers!
My name is Tom Drake, and in my real life, I’m a financial analyst. However, I’ve also been writing about money on the internet for 10 years. My blog, MapleMoney, is all about helping you set and reach financial goals so you can live the life YOU want. I like to help people define their own success — and then reach it.
My job as a financial analyst and my time in the PF blogging trenches have allowed me to learn a lot about myself and about the kinds of mistakes we make. I’ve made my share of money mistakes, and had some wins, too. I hope my experiences can help you learn something valuable — without the need to learn it the hard way.
Losing: Credit Cards and Buying Too Much Crap
My losses have a lot to do with poor planning, impulsivity, and credit cards. It’s a common tale, I know, but I also learned some valuable lessons. I also learned how to turn a loss into a win with credit cards, but more on that later.
Indiscriminate credit card applications
My first big loss was using credit cards without fully understanding them — or being ready for the responsibility.
I applied for my first credit card in college. And what made me apply? The credit card had a picture of my school on it so I figure that’s what you’re supposed to get. I didn’t realize there were better options out there. After getting approved, I decided to keep my good fortune rolling, and I applied for another credit card. This one came with an Oilers t-shirt. I was declined for an account, but I got to keep the shirt.
The problem with all of this was that it was too easy for me to apply for credit cards, and then, if I got them, run up balances. To a young mind, it doesn’t really occur to you that this isn’t your money. It feels like you have money, when in fact you’re using someone else’s money — and you have to repay it with interest.
Buying too much crap
This whole credit card situation led me into my second big loser move: buying too much crap.
Having credit cards, and even student loans during college, meant that I had what felt like a ton of disposable income. Of course, it wasn’t real income. But the refunds from my student loans and the credit card limits made me feel rich.
So I spent the same way I thought rich people did.
I bought hundreds of CDs, DVDs, and video games. In fact, I paid more than $1,000 for one of the first DVD players when they came out in 1998. To me, buying things, and being able to say I was the first with all these gadgets, felt like winning. In fact, I was just piling up a bunch of stuff.
Learning the hard lessons
In the end, I looked around and realized that I’d wasted a lot of money trying to feel good about how cool I was. After a while, that DVD player dropped dramatically in price. I could have spent much, much less, just by waiting a few months.
I also discovered that interest is a real pain in the pocketbook. When buying a bunch of stuff on credit, the thrill wears off and you’re stuck with things you don’t care about that much, and people aren’t as impressed as you wanted them to be. Plus, now you’re in debt and you have to pay back more than you spent in the first place.
The main takeaway from my losing experiences
Rich people aren’t what we think of as rich. There’s a reason that the number one car amongst millionaires is a Toyota. People who live comfortably live that way because they understand their values — and they know that the key to wealth is smart spending and investing in long-term assets.
My CD collection is next to worthless right now. However, my stock portfolio is helping me build a better future. By reviewing my values, and understanding what really matters to me, I was able to shift what I was spending on the latest gadgets to investing in my future.
Do I enjoy my theatre room downstairs and a good movie? Sure! But now I save up for the things I want and pay for them upfront, as part of my smart spending strategy — after I’ve taken care of goals like retirement.
Winning: Learning to Use Credit Cards the Right Way and Investing Smart
The good news is that I’ve learned from my mistakes, and now I have some solid wins that have helped me make the most of my money.
Turning credit losses into credit card wins
My first big win was learning how to use credit cards to my advantage. After losing out because I didn’t understand how to use credit cards as a tool, it changed the game.
Now, I use credit cards as part of my budgeting. I know how much I spend on things like groceries and bills, and I incorporate it into my credit card strategy.
Basically, I put what I can on rewards credit cards. However, I only spend what I can afford and what’s already planned. No using rewards as an excuse to buy something extra and expensive!
Thanks to my smarter credit card strategy, I’ve been able to redeem points for things like free travel and cash back. I also pay off my credit card balances each month so I’m not accruing interest. That way, my regular, planned, everyday budget actually helps me save even more money in the long run as I get free plane tickets and cash back.
Focus on low-cost investing
I also learned how to make the most of my investing. In the past, I’d been using high-MER active mutual funds. Fees were eating away at my returns. So I switched to index funds and low-cost ETFs. Pretty soon, I saw better performance in my portfolio, and I got to keep more of my gains because they weren’t being siphoned away by fees.
Here in Canada, we have a lot of great tax-advantaged options when it comes to investing, so I chose low-cost funds to be held in these accounts. In fact, I’ve discovered that robo-advisors are pretty much the simplest way to invest these days. I’ve put my investing on automatic, and my portfolio is doing better than ever.
Key takeaways from the wins
In the end, the main takeaway is looking at your money as a tool to help you achieve your lifestyle and financial goals. With a smart strategy and your goals in mind, you can spend and invest money in a way that works for you.
I was able to turn my credit card use around by stopping the mindless spending and really focusing on what I wanted from a credit card. And, I was able to take my long-term wealth-building goals to the next level by changing my approach to low-cost funds with a little help from a robo-advisor.
Figure out what you want your money to accomplish, and then create a plan around what it takes to make it happen. I’ve done it with a combination of smart credit card spending and long-term investing tweaks. How are you using money to reach your goals?
Have you made any similar credit card mistakes? I remember those school-sponsored cards during my orientation in college, and the folks pushing the cards and t-shirts didn’t also hand out a pamphlet outlining interest rates and the potential negative results of using cards… Where do you stand? Let us know in the comments below!
Thanks for reading!