Have you ever had one of those days when you feel like a giant failure? At times, life seems to be a giant pile of mistakes…one piled on top of another.
Today’s post is brought to you (in part) because of a mistake.
Last week, my son came home from daycare with a serious look on his face. Normally he’s a happy goofy guy, but something was on his mind that day. He walked up to me and said, “Daddy I need to tell you something…”
“OK sure, what’s up buddy?” I replied, trying to sound positive.
“I was a bad boy today. I scratched my friend at daycare today.” He said this with a very sad and disappointed face. Please remember — my son is 3 years old. He’s only just starting to learn the difference between right and wrong. He was taking this very seriously.
Apparently, he had gotten into a tussle with another child at daycare (over a toy). During the scuffle, the other child got scratched, and you could tell he was feeling bad about it from his facial expression and tone of voice. It was clearly a mistake.
The conversation that followed between us was about making mistakes. I gave pretty typical fatherly advice — “Hey, mistakes happen. Don’t beat yourself up about it. Everybody makes mistakes. What’s important is what you learn from your mistakes. What did you learn from this mistake?”
This is the kind of advice parents tell our kids all the time, because they’re constantly making mistakes. It’s good advice, and very true.
But after I had this conversation with my son, I began to wonder why we have a double standard around making mistakes. For kids, it’s OK and accepted that they’ll make mistakes. But adults? That’s a completely different story!
A Double Standard
Maybe it’s the attempt to avoid fatal errors — At some point in our adult lives, making a mistake no longer becomes OK. Maybe it’s the fact that when we’re older, mistakes can kill or seriously hurt people.
Make the wrong kind of mistake and you could lose your job, or get put in jail…. or worse.
We go from being children who constantly make mistakes, to adults that abhor any kind of error. Perhaps it’s our years of school…we’re judged at every turn and penalized for every mistake.
Did you ever notice that humans become more risk averse and try to make fewer mistakes as they age? Eventually this phenomena culminates into senior citizens with a portfolio of “ultra safe” bonds that never leave the nursing home. How safe is that?
Ironically, this in itself is one of those fatal mistakes. When we stop making mistakes, we stop learning and growing. Life essentially ends.
It was Neil Gaiman (the author) who best summed up how I feel about mistakes:
“I hope that in this year to come, you make mistakes. Because if you are making mistakes, then you are making new things, trying new things, learning, living, pushing yourself, changing yourself, changing your world. You’re doing things you’ve never done before, and more importantly, you’re doing something.”
When it comes to money, the human aversion to mistakes gets even stronger. Research has show that the aversion of financial loss is greater than the positive effects of financial gain.
Over the years, I’ve made tons of financial mistakes in my lifetime. Here’s a sample of some of the worst financial mistakes I’ve ever made:
- I once bought a used car with a loan, when I was already saddled with massive student debt. Yeah, that was dumb.
- I used to invest in mutual funds that were actively traded. Most had high fees, and high turnover. Good performance turned out to be only temporary.
- Right out of college, I took a poorly paid job with a small startup company. I thought I would make it big with stock options. The company went bankrupt a year later.
- After Borders went bankrupt, and Barnes & Noble screwed up the Nook business, I shorted the stock thinking business failure was eminent. It’s a business in serious decline, but it just won’t die. Eventually I gave up on my short position.
- I used to invest very heavily in technology stocks and other popular momentum stocks. Most of the time these investments didn’t lead to good returns.
- In the past, I purchased new cars instead of older cars. Depreciation is a financial killer.
- For a few years, I was very into deep value stocks — the ‘net-nets’ as Ben Graham described them. These were usually very low quality companies. I don’t know how, but on-average I managed great returns doing this.
- I bought a house that was far larger than I needed. This saddled me with a large mortgage payment, and a ton of home maintenance.
Argh!! I really hate this list. It’s really painful to look back on these mistakes and realize what a complete financial idiot I was. Down right embarrassing is what it is.
But you know what? I’m really glad I made these mistakes. I learned tons from each individual mistake. Without these big mistakes, I wouldn’t be the person I am today. I certain I wouldn’t have a 2.5 million dollar net worth if it wasn’t for all my financial mistakes.
Despite the fact that these mistakes are painful, given the choice I would make most of them all over again. I learned a lot about life, investing, and managing my finances from making those mistakes.
The value of those experiences is worth far more in the long run than the few thousands dollars it may have cost me in the short term.
How To Fail Really Well
A lot of what I write about on this blog is learned from my mistakes in life — Topics like how to invest well, how to save money, and live a really awesome life at the same time.
One topic I’ve neglected to write about (until today) is How To Fail Really Well.
It’s important, because I firmly believe that we learn more from our failures than we do from our successes. As you can tell from my earlier list of failures, I have significant experience at failing!
You want to know the secret to failing like a Boss? Well, you’re in luck! Mr. Tako is going to share the secret to failing well. Here goes…
Secret To Failure #1:
Try new things, but never commit more than 10% of your financial resources. At least until you have significant experience already under your belt in that area.
The point is: failure is going to happen to everybody. Life isn’t all sunshine and roses. Get used to the idea that you’re going to be a failure at something new.
So, plan for failure. Plan for mistakes, and for financial loss. Never commit yourself financially to something so deeply that a failure would be a giant setback to your life.
Fail, but fail small. Then try something new, and fail small again. Eventually, you won’t fail. Maybe it was luck, or maybe you learned something. Be humble. As your financial resources grow you can fail just a little bit bigger, but always remember to ‘fail small’.
Secret to Failure #2:
The most importantly part of making mistakes is learning from it. Analyzing where you went wrong. You don’t want to repeat the same failures over and over again expecting different results, do you?
Whatever you do, don’t forget your mistakes either. Revisit your mistakes frequently. The human memory is weak and forgetful. You can’t learn from mistakes if you forget them. So, I put systems in place to keep myself from forgetting.
I used to keep little mementos of my mistakes to remind me of my failures, but one day I realized I was starting to collect far too much junk.
Now, I just keep a list.
‘The List’ is a spreadsheet I started (and maintain) that contains a looong list of my personal financial mistakes, and a few mistakes that I’ve watched other people make over the years. The document is literally called “The List.ods” and I keep it backed up to the cloud so I’ll never lose it.
Every time I make a new investment or a big financial commitment, I review ‘The List’ to make certain I’m not making the same mistakes all over again. Every time I make a new mistake, I add to ‘The List’.
If you’ve read my About page, you’ll know that a lot of the reason why I write this blog is for my kids. One day, I hope they read today’s post and feel a bit better about themselves (and their own mistakes). It’s for you guys.
Society tell us to avoid making mistakes, but frankly that’s terrible advice. Making mistakes means you’re actually doing something with your life. Keep challenging yourself. Try new things. Plan for mistakes. Fail, but always learn from it. And most of all — don’t be too hard on yourself.
I make mistakes all the time, and I don’t intend to stop making mistakes now that I’m an adult. In fact, now that I’m financially independent, I have the time and resources to make even more mistakes… and I look forward to it.
It’ll mean that I’m really living.
Have any big financial mistakes you want to share? What did you learn from those mistakes?