It’s good to seek advice on what to do with your money. A lack of financial literacy is a major reason we miss out on opportunities to gain financial security and build wealth for ourselves and future generations. However, what can be more important is understanding the dumb things we do with our money that we should not be doing. We need to unlearn bad habits, not just know the right financial moves to make. If you’re doing the following, my advice is simple: STOP IT!
Stop going to events where you know that getting you to spend is the primary activity. That means not treating weekend trips to the mall as a form of recreation. It also means avoiding so-called parties designed to get you to buy cosmetics, lingerie, art, food or other items. The exception to this rule: You have built this expense into your monthly spending plan—also known as a budget. If that’s the case, only spend what you budgeted for, and not a penny more. Of course, if you don’t plan to spend, you should politely decline to attend, so you won’t be tempted.
Stop falling for the “free shipping” gimmick. You know what I’m talking about: To avoid paying $12 in shipping charges, you order a second or third item you hadn’t planned to buy, costing you $35. You didn’t save $12; you spent an extra $23. As a rule, watch out for any offer of a so-called free good or service that requires you to purchase another good or service to get it. When it comes to selling you something, there is no such thing as free, no matter what you are told. That includes shipping. And another thing: Convenience nearly always costs more than it’s worth, so pay attention, and know the price up front, before you buy. Then ask yourself—is it really all that convenient?
Stop holding on to debt if you have enough savings to pay it off. Yes, you should always maintain an emergency savings fund of at least six months of your annual household budget at all times. However, it makes no sense to have a savings account earning 2 percent interest, while carrying a credit card balance costing interest in the high double-digits. Taking some of that savings to help eliminate the debt will get rid of those interest payments, which will give you more money to build your savings back up. Never carry more debt than you have to, especially at the expense of savings.
Stop being tricked into spending more to “save.” Sometimes it’s that buy-one-get-one-free offer. Other times, it’s coupons, or shopping in bulk to supposedly get more for your money—whatever. If you are buying stuff that is not in your budget or that you don’t truly need, you are not saving money at all. Don’t spend money just to experience the thrill of getting a so-called deal. Besides, most retail outlets use buy-one, get-one-free and similar gimmicks to move items that aren’t selling well, in order to make room for other stuff. They’re not doing you any favors.
Stop bailing out able-bodied adults. Here are the exceptions to this rule: 1. You have little or no debt; 2. your retirement is fully funded; 3. you have the equivalent of at least 9 months of your annual household budget sitting in emergency savings; and 4. you have no problems covering your monthly bills. Otherwise, do not become a source of emergency income for adult children, romantic interests, relatives or anyone else you can’t claim as a dependent on your taxes. Do not become a living, breathing ATM, unless you want to wreck your own finances in the process. Do you think those people making regular withdrawals now will be making regular deposits in your time of need? Not likely.
And speaking of your time of need: Stop putting off saving for retirement. With few exceptions, you need to fund your retirement lifestyle now, not later, and you certainly shouldn’t be waiting on the government or someone else to do it for you. Max out on your 401(k) or other retirement savings plan if you have access to one. Contribute to Individual Retirement Accounts and consider other options. The earlier you start saving, the less it will take and the more time it has to grow so that you will have what you need when the time comes.
Stop spending as a form of emotional release. Spending money because you’re depressed? Wrong. Because you’re bored? Wrong. Buying yourself something that you haven’t budgeted for to get back at your spouse because she bought something that was not in the budget? So, so, wrong—and dumb. There are only two legitimate reasons to spend money: you have a purpose for it beyond merely possessing it, and you can afford it—meaning that you have budgeted for it. Pay attention to any money decisions you are tempted to make that do not meet those two criteria and avoid them at all costs.
Stop spending to please other people. So much of our spending is driven by advertising telling us that to belong with, gain the acceptance, or be attractive to others, we must buy this! Our natural tendency to want to keep up with the Jones is amped up by being marketed to 24-7-365. However, if you allow your need to impress or gain the approval of others to cause you to spend money that you don’t have on things you cannot afford, that is dumb! Stop it. Unless the people you are trying to impress will help you pay your bills and pay down your debts, forget about them.
Stop ignoring the little things. So much of our money is lost to things we can’t even remember buying. Yet another pair of cute shoes that were on sale. That pair of cheap sunglasses from that street vendor on your way to work. The daily latte. Those cigarettes. Sit down and add up how much you spend on such things each year, and you could probably finance your emergency savings fund or knock out a credit card balance. The point is, little expenses add up to big spending. That’s why it’s a good idea to keep a journal of everything you spend, down to the penny, for a couple of weeks, every six months or so. You’ll also notice when other people are spending your money. Once you see the dumb things you’re spending your money on—stop.
Stop acting as if you’ll learn about money by osmosis. Just like with most crimes, pleading ignorance about money is no defense against the consequences, including stress, debt and bankruptcy. There are just too many books, web sites, magazines, apps and other resources that you can use to educate yourself about money. If you really want to improve your financial health, you must add financial education to your diet.