Financial Potholes – Ten To Dodge!

It’s pothole season and good friend and regular reader, “Bowmanifesto”, commented about the “financial potholes” that prevent people from reaching FIRE (financial independence & retiring early).

Just like the potholes in the road, there are hundreds of financial hazards that we all need to dodge each year. Just like the holes in the road, financial potholes aren’t catastrophic, they are just annoying costs that add up and delay our journey to early retirement.

I found a few interesting forum posts on managing the annoying everyday costs that can add up over time. Here are some of the most commonly mentioned ones that when combined, can truly delay your retirement:

“Luxury” Car Loans – It’s one thing to take out a loan for basic transportation, it’s another to borrow money to buy a luxury or sports car. Cars lose money very quickly – even more for “luxury” cars. We are fortunate to have several nice cars now, but when we couldn’t afford it, just stuck to the basics: Hondas & Toyotas.

Credit Card Lifestyle – Similarly, while credit cards are terrific conveniences, if you are carrying a balance and paying interest, you are greatly delaying your retirement. We had way too much credit card debt when we first got married. We were very aggressive in getting balances paid out in a few years, even when we weren’t making much money.

“Investing” in Insurance – I’m a big proponent of being well-insured for the big financial calamities that can come your way, but insurance isn’t an investment. Whole life insurance – in particular – is typically a very bad investment. I had a couple friends who started their career selling insurance and they often get their start convincing other young friends to start investing in whole life.

Spend Entertainment – I can’t believe how much entertainment costs relative to what it did 30 years ago. Concerts, games, and shows are amazing productions to see, but the cost of tickets seems to have far outgrown the cost of inflation. If you can’t easily cashflow an event, just stay home and watch a movie on Netflix.

Travel Troubles – I recently saw that Southwest Airlines will let you buy flight tickets on an installment plan. Their “Book Now, Pay Later” service allows travelers to spread the cost of your purchase over fixed monthly payments.” I can’t think of a worse idea. I guess there could be a argument for people that need to travel unexpectedly, but the great majority of personal travel is discretionary.

Super Subscribing – From streaming services to monthly subscription boxes, it’s easy to sign up for things you don’t need or use regularly. Many subscriptions crank up their pricing the longer you are with them – you might not even notice. I recently was shocked to see that Ancestry – the online genealogy service – charged me $169 for just the first 6 months of 2023. It used to be $69 for a full year. When I saw the charge come through, I immediately cancelled.

Eating Out Too Often – I love to go out to eat, but I can also afford it. Early in my career, I was a brown-bag guy who often brought peanut butter sandwiches to work. Whether it’s grabbing coffee on the way to work, or going out to dinner with friends, eating out can quickly become a costly habit.

Gym Memberships – In Minnesota, the big gyms are starting to position themselves as “luxury country clubs” with enormous facilities designed for working out – and working professionally with office spaces. These giant gyms also come with giant price tags. The initiation fees and long-term commitments maximize the tendency for people to sign up with the best intentions, but quickly stop using them.

Fashion Financials – Keeping up with the latest fashion trends is an expensive hobby. I’m not sure who is really buying the high-priced fashion brands that you see in magazines, but it certainly isn’t me. For nice clothes, I’m good with the sales at Macy’s or Nordstrom’s.

Storage Fees – I have a friend who owns a storage garage facility and I’m amazed at how big it is. His garage is in a small town, yet hundreds of people have hundreds of garages full of stuff. When they don’t pay, he notes that most of the abandoned stuff is just junk. He rarely finds anything of value inside – most of leave-behinds just go to the junkyard.

What other financial potholes would you add to this list?

Image: Pixabay

7 thoughts on “Financial Potholes – Ten To Dodge!

  1. Hidden fees in small company 401-k plans. I went to work twice at smaller companies that had really expensive 401-k plans that were sold to the company founders by insurance companies. They are really elusive about disclosing the fees.

    At one company in particular, I heard a younger salesman who was doing the right in maxing out his 401-k. He had read an article about avoiding high fee structures at small company 401-k plans. So he called up the company’s provider and asked an agent what the fees were. I heard the agent tell him that she could not tell him the fees, because he wasn’t a party on the contract with the insurance company. This is a clear ERISA violation.

    I met with the CEO and convinced him that if the insurance company was charging excessive fees the cost was hurting both his and all the employees’ retirement planning. He gave me a letter that instructed the insurance company to treat me as one of the parties on the contract for disclosing the terms. I benchmarked the S&P 500 fund in their fund lineup and found their Management Fee was 2.35%. I also found unearthed an accounting firm that was performing Nondiscrimination Testing (to assure the plan wasn’t Top Heavy) and found that they were charging 1% to basically perform accounting work. Their S&P 500 fund had total fees of 3.35%.

    After going back to the CEO with my findings, I started looking for lower cost 401-k plans. I finally ended up with one that charges a very reasonable $1,000 per year flat fee that allowed us to put whatever plans you wanted in 401-K. I put mostly Vanguard funds in. Their S&P 500 fund VFINX only charges a .03% management fee. The company even started chipping in 3% of everyone’s annual income as a profit sharing plan. Do this allowed them to offer a Safe Harbor Plan, which made passing the tests for a top heavy plan much easier.

    Liked by 1 person

    1. 3.35% for a S&P500 index fund?! That’s absolutely highway robbery. I’m not a fan of government regulation, but I know we have laws against excessive interest rates. Excessive fees should fall in the same category. There – you made me sound like Bernie Sanders! 🙂

      Liked by 2 people

      1. The CEO of the company we eventually went with was on the cover of Forbes, and the story told about his testimony in front of Congress disclosing exactly how high cost some of the insurance plans were. Donations probably get in the way of doing the right thing.


  2. Thanks for the shout out, Chief! Here are two more potholes. #1: Underestimating Longevity (The biggest danger, by far, in estimating how big the nest egg should be is insufficient planning for full life span; a 50 year-old today should plan for 4 decades). #2: Set It and Forget It (Plans must be monitored on a diligent basis to be sure of staying on the highway to FIRE while road conditions are constantly changing).

    Liked by 1 person

    1. Agree – planning for a long retirement is especially tricky for FIRE devotees. The standard 4% safe withdrawal rate is likely too high if you want to bug out in your 40s.

      Liked by 1 person

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