10 Things Financially Savvy People Don't Do
We get a lot of information these days about what financially successful people do, but we seldom hear much about what they don't do. Maybe it's time to flip the conversation and examine the bad habits that so often lead to shaky financial ground. If you're having a hard time figuring out how to be more constructive in your financial life, the first step is to stop being destructive. Here are 10 things financially savvy people don't do. (See also: Financial Mistakes to Stop Making This Year)
1. They Don't Use Consumer Credit Indiscriminately
Used tactically, credit can be a wonderful tool for seizing bargains, investing in assets that appreciate, and managing logistics like booking services online. But for decades now, the judicious use of credit has been replaced with a chronic abuse of credit. We use it to buy everything from groceries to gasoline and from music to manicures. According to NerdWallet, the median level of consumer debt per household in the US in 2012 was $3,300, and the total national credit card debt level was a whopping $856.9 billion.
The financially savvy tend to avoid consumer debt, realizing how the slippery slope of easy credit can quickly lead to financial disaster. Instead, they leverage credit for specific ends and pay off balances at the end of every month to avoid finance charges and other fees. (See also: The Worst Ways to Pay Off Your Credit Card Debt)
2. They Don't Immediately Indulge Their Wants
We live amid a veritable Disneyland of consumer products. Browse any store or online retailer and you'll be presented with dozens of delights that tickle your fancy and promise to make life better, happier, simpler, and more fulfilling. It's hard not to want it all — and want it now.
While there's certainly nothing wrong with indulging a want every now and then, without some sort of filter, they can eat away at our budgets and leave our needs underfunded. But the savvy vet their wants more rigorously. They wait a few weeks and see if a particular want still scores high on their list, and then scout around for a better deal, a pre-owned option, or another solution altogether. (See also: Cut Costs With a Frugal Filter)
3. They Don't Lease Cars
Generally speaking, leasing a car is a bad idea financially. Those tempting low monthly lease rates hide the higher long-term costs and in the end, you're left without an asset. Savvy savers understand this and typically opt to purchase or finance a reliable used car instead.
4. They Don't Let Advertising Rule Their Lives
We're exposed to hundreds of commercial messages every day. Banner ads and pop-ups interrupt our online activity, point of purchase videos and digital ads wail at us from every grocery store aisle, and our mailboxes (both physical and virtual) fill up with unsolicited offers. It's pervasive and maddening.
As challenging as it may be at times, financially savvy people are able to keep advertising in its place by understanding its solitary goal — to confuse consumers' wants with needs so that our wallets open easier. Developing a critical and reliable response to advertising is a fundamental step in avoiding marketing traps, recognizing real value, and keeping more of your hard-earned money. (See also: Surprising Market Tricks You Should Know About)
5. They Don't Adopt New Technology Immediately
Racing out to buy the latest and greatest gadgetry might be fantastic for your image, but fatal for your wallet. With few exceptions, financially savvy individuals avoid being early adopters of brand-new technology. Why? Well, because new tech usually comes at a premium price, seldom has all the bugs worked out, is untested by the public at large, and is quite quickly replaced with even newer tech. Instead, you'll find Mr. and Mrs. Savvy taking a deep breath, waiting a few seasons, buying third or fourth generation models of Smartphone X or Tablet Y (or even better, buying used), and ultimately enjoying a much better and less expensive product.
6. They Don't Worry About the Joneses
The idea of keeping up with the Joneses is the advertising industry's darling. It plays on people's pride, identity, and insecurity — creating that slight mental irritation that drives so much of our consumer activity. But the savvy and sensible run their own race and, with few exceptions, are able to rise above comparisons that feed egos and starve wallets. (See also: Peer Pressure May Be Keeping You Poor)
7. They Don't Delay Maintenance
It's a painful reality — everything breaks eventually. The real trick to maximizing usage and wringing the most value out the things we own is to be vigilant caretakers. Changing the oil regularly in our cars, rotating the tires, replacing the filters in our home's heating and cooling system, and cleaning and storing the barbeque before the first snow are just a few examples of proactive measures that extend the life of what we've worked so hard to buy. Savvy folks protect their investments through regular, sometimes obsessive, maintenance. (See also: Must-Do Home Maintenance That Saves You Money)
8. They Don't Insure the Small Stuff
Insurance was originally designed to protect us from those losses that would cause financial hardship or disaster. But those essential auto, home, and life insurance policies are now keeping company with protection plans and extended warranties on our smartphones, plasma TVs, and laptops. Insuring these less significant items in our lives might seem like smart strategy, but it really ends up just nickel and diming our budgets. To be financially savvy, ask yourself, "Is it really that important to insure my TV? What would the budget implications be in the unlikely event that it stopped working? Would replacing my smartphone cause me financial hardship?"
9. They Don't Live Beyond Their Means
If there's one way to stay in a chronic state of distress, living beyond your means must surely be it. Not being able to budget and live within the limits of your income produces two equally-painful financial realities. First, it prevents the accumulation of wealth-building capital. Second, it encourages the use of credit — usually high-interest consumer credit — that puts real financial security even further out of reach. Financially savvy folks realize that living within or below their means is the crucial first step in methodically building wealth.
10. They Don't Ignore Savings Opportunities
There are saving gold mines all around us if only we take the time to understand their benefits and get started. Employer-sponsored 401(k) plans that allow participants to contribute pre-tax dollars and potentially access company matching funds are a wonderful way to make saving a habit. And Roth IRA plans that let savers sock away after-tax money and never be taxed on the earnings (assuming certain qualifying conditions are met) are another avenue to build significant wealth over time. Savvy savers take advantage of these and other tools early and put their money to work. (See also: 30+ Savings Changes You Can Make Today)
Granted, this list includes only 10 don't-dos, but there are surely dozens more. Each is based on the same nugget of truth that can be applied in almost every financial situation: become aware of your money. It's harder to do than it sounds. Awareness means understanding our motivation for spending, grasping the opportunities we're given, and defending our budgets against those who don't have our long-term interests in mind. If we can become aware and consistently apply that awareness in all our financial dealings… well then, we no longer have to wonder about what not to do.
What habits have you left behind as you've embraced a financially savvier life? Which ones have had the greatest impact on your budget?