My biggest financial mistakes and what you can learn from them - Nadine Higgins

Avoiding financial pitfalls: Key takeaways from common money mistakes. Photo / 123rf

THREE KEY FACTS

• Panic selling shares is a big no-no
• If you have to take a break from KiwiSaver resume contributions as soon as possible
• Don’t let lifestyle spending creep up as your pay rises

I love reading about how someone’s business ingenuity, hard work and/or shrewd investing can result in a financial boon most of us can only dream of.

On the flip side, we Kiwis are particularly fond of indulging in a bit of schadenfreude when someone who dares to loudly live the luxe life takes a tumble from their financial high horse.

While the former might provide inspiration and the latter perhaps a cautionary tale, most of us could learn more from the financial decisions that are neither stratospheric nor catastrophic.

My financial missteps haven’t ruined me (yet, touch wood) but there have been many - and perhaps there are some pearls of wisdom you could learn from my past idiocy.

Panic selling

I won’t pretend it was stellar financial foresight that led me to invest in Xero in its early days on the NZX. I just liked the cut of Rod Drury’s jib, and it seemed like he was on to a good thing.

I was planning to be a long-term investor but, as its share price rose and rose, I got excited - particularly as I was saving for a house deposit. (I should note here that I only had a small portion of my overall savings in shares!).

Every broker I spoke to warned Xero was overvalued – the fundamentals did not support such a share price, they said - but investors apparently disagreed.

But then shares took a wee tumble, then fell a little further - and I panicked. I decided it was better to quit while I was ahead and reasoned ‘Hey, I’d doubled my money’.

Xero shares then resumed their rise, climbing further … and further … and further. I later did the sums as to what that decision cost me, and the answer was hundreds of thousands of dollars. Gulp. Sob. Sigh.

There are many lessons from that experience. First, my reaction to a drop in the share price, coupled with my short-term goal to buy a house, suggests I didn’t have the right risk profile to be investing in shares just then (plus having such a concentration in a single share is the anthesis of diversification wisdom).

It showed me it’s easy to say you’re comfortable with risk when the share price is rising, but the reality is revealed by what you feel – and what you do - when it’s falling.

I also learnt to keep things in perspective – I didn’t lose hundreds of thousands of dollars, I lost the chance to turn my meagre investment into a much bigger sum. Plus, I did manage to use the funds to buy a house – and that also makes me fortunate.

I should also mention that I later re-invested in Xero before it moved solely to the ASX – and it has performed very well since (just not as well as if I’d left my initial investment in!)

Life admin fail

Not all my mistakes were quite so costly, but one that still rankles involves my KiwiSaver.

For a while I was on a contract that took a total remuneration approach to KiwiSaver - meaning both your 3% and your employers’ 3% come from your salary, rather than their 3% being on top (so perhaps my first mistake was not negotiating a better contract!).

As contributions were therefore 6% of my salary, a financial adviser suggested pausing them to help me secure lending for another investment, which I did.

It then took me a long time to resume contributing. I just didn’t get around to it. For ages. What. An. Idiot. Not only did I miss out on the investment returns that would have compounded for decades to come, but I did not put that 3% anywhere productive.

I can’t quantify specifically what that life admin fail cost me, but it was fruitless and avoidable. Learn from my mistakes - pausing your KiwiSaver contributions should be an absolute last resort, but if you need to do it, prioritise resuming them ASAP.

Falling victim to lifestyle creep

Nadine Higgins is the host of NZME's personal finance podcast, The Prosperity Project, and a financial adviser at enableMe. She was formerly a financial journalist and broadcaster. Photo / Supplied

Early in my career, my salary rose much faster than my living costs but my spending adjusted terrifyingly quickly to soak up the difference.

I budgeted like a ninja to survive as a student, then as an intern, but as I moved to being paid a salary, then a higher salary, then into a new job with better pay, my taste got more expensive.

A friend and I look back and laugh (a little ruefully) about how our Saturdays used to involve getting our nails done and going shopping just for something to do.

I enjoyed that financial freedom after a childhood where every dollar was stretched, and I did still manage to save but not nearly as much as I could have – the benefits of which would have paid serious dividends all these years later.

I’m not an advocate of living life in a financial straitjacket if you can avoid it, but I do encourage prioritising what really brings joy. So, let’s just say these days I’m more likely to go shopping in my own wardrobe, and paint my own nails.

I’ve made many more than three financial mistakes, of course, and, while all are devoid of both glamour and gore, hopefully you can learn something from them without having to make them yourself.