Ask CK: What If I Screwed Up a Big-Ticket Decision?

A reader asks:

Your big-ticket decision advice doesn't help someone who screwed up a major financial decision in the past. For example, I bought a house that I can't sell at anywhere near the price I paid. I have a big mortgage and it's killing me. But I already made this mistake, I can't do anything about it now.

Readers, is a legitimate reason for not taking steps to fix a problematic financial situation? Or is it an excuse that just sounds like a reason?

Everybody makes money mistakes. Everybody. And you don't have to be infallible to conquer your finances. But you do have to be willing to face your mistakes--and take mindful action to repair them.

So, that said, the first thing I'd suggest to this reader is get out of the mental framework of presuming there is no solution. That's just handwringing. Instead, brainstorm a list of solutions. Sit down and write down solutions--even ones that seem really dumb or implausible--until you've come up with at least ten. Or twenty. You'll be surprised to find that some of those "dumb or implausible" solutions are mere intermediary steps on the journey to other solutions that aren't so dumb or implausible. Choose a couple of these potential solutions and start executing them.

What I don't want you to do is wring your hands about this mistake, not fix it, and then use it to rationalize further spending and further big-ticket mistakes in the future.

And of course, one of the gravest risks of overspending on a house is the Diderot Effect. We want the things in our lives to match, thus it can become deceivingly easy to "need" a swimming pool in the backyard of that house you can't quite afford. Or, more self-parodyingly, to need a boat, matching Jaguars, and Stickley furniture to go with that house you can't quite afford.

Obviously, this is just yielding to defeat and further compounding the initial big-ticket mistake. Don't do it.

Related Posts:
An In-Depth Review of Your Money Of Your Life
How To Defeat the "Diderot Effect"
Six Tips to Fight the Diderot Effect in Your Kitchen and Home
Money Sundays: How To Make the Tax Code Work For YOU

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Melissa said...

In March 2012, when my paid-in-full Scion xB got double rear ended on the freeway, we replaced it with a vehicle we now seriously regret buying. If we could go back and do it all over, we would have bought a used truck - used is not our first choice, but a truck would have been the right and practical choice for Steve to take to the woods, to cart hunting gear, etc. Now we have to wait another year, maybe 18 months, before we can feasibly trade it in for something else. There ARE other solutions, but they all come now at a cost we're not willing to pay. So, we wait a bit. At least we love our OTHER vehicle. ;)

All I can say is think more carefully next time - live and learn!

Daniel said...

Thanks for sharing Melissa. We've made our fair share of financial mistakes too. We recently did a bathroom renovation here in our townhouse that went way over budget. And I've made plenty of investment mistakes!! I think back to some of the stocks I invested in when I first started saving and investing, I can't believe the obvious lack of rigor back then in my investment thinking.

But as you say: live and learn. ;)


Marcia said...

Oh, I feel ya, do I ever. We bought our house in 2004 in Coastal California. Not quite the peak, but still - now that the housing market has "recovered", it is worth ONLY $100k less than we paid for it (at one point, it was $300k). Let's not even discuss the money we've put into it over the years - $80k probably,

At least we are safe from the Diderot effect, since it's an 1100 sf, 2BR, 1BA, no garage "starter home" (aka, my only home).

I love my little house. Do I regret buying it? Yes. I wish I had waited 7 or 8 years. The two houses next door sold for $288,000 and $213,000 less than we paid for ours, for the same size/age house.

But it's too late for that. I'm not leaving, we aren't underwater, and we can make the payments.

Solutions to the house being too expensive? Short sale, foreclosure (if you really can't make the payment), rent out rooms if you need the money. Sell the house and take a loss, but at least you are out from under it.

Also, don't compare yourself to others. It just makes it worse.

We also bought a new car when our last one was totaled in an accident. I wish I would have purchased a used car, but it's very hard to find one when you are carless. Still, we bought a Civic that I hope lasts 20 years.

Daniel said...

Marcia, great comment. Thank you for sharing, and for your solution-oriented thinking!