If you are a regular reader of this blog, then you are already pretty financially savvy. Let us take it up a notch higher now.
Here are some simple tips that follow the broad script outlined in the financial wellness guide.
Powerful Tips to Be More Financially Savvy
Here are 5 uncommon yet powerful tips that will help you to be financially savvier than most people around you.
Employer Loyalty is for You, Not Your Money
Just like integrity, employer loyalty is a basic expectation from all employees.
But that loyalty only applies to you as an individual with the skills you bring to the job.
Don’t extend this loyalty to your savings because diversification is one of the key tenets of investing.
No matter how optimistic you are about the prospects of your employer it is never a good idea to leave all your eggs in the same basket.
Leaving a large part of your personal savings tied up to the fortunes of your company or industry is not financially smart.
If your company does well you will be part of it anyway, through your annual salary increases and/or bonuses.
But should things go the other way, you may lose your job but at least your savings and investment won’t be directly impacted.
If all this sounds too abstract let me make it real for you.
Employees at Lehman Brothers are a case in point. You can read how they lost millions of their personal savings too with the collapse of the company.
Now you may be getting a part of your compensation as stock options with your current employer.
It is fine to stick with those till the time you are free to sell them.
Your employer may not always look favourably upon you for selling your stock options. That is a personal choice you will have to make from time to time.
But putting any money voluntarily into your company’s stock, debt or some other financial scheme should be clearly avoided.
There are plenty of other options in the market where you can deploy your savings instead.
Know When to Ask for Help
Most financial decisions you make on a day-to-day basis are pretty routine.
You don’t really need a financial advisor to help you with these.
Things like how much to spend on a new outfit, an evening out with your friends or which hotel to book for your holiday.
But being financially savvy is also about knowing when to ask for specialist help.
It is a good idea to ask for help or get a second opinion on 2 types of financial decisions in particular.
When the feedback from your decision is going to come after a long time
Imagine you go to a new restaurant and order a dish.
As soon as you take the first bite, you will have feedback on your choice. If you don’t like your dish, you are probably never going there again.
Now compare this with investing money for your retirement.
Since it is a process that you will be doing for the next 15-20 years, it will take a really long time before you have feedback if you made the right choice.
And if you have not made a good choice, it will be too late to do something about it.
Feedback about your choice that arrives when you are already retired and run out of money will be of little help.
When the decision is personal and emotional
We are not very good at making rational decisions when we are emotionally attached to the subject in question.
For example, the decision to sell the house you grew up in can be very personal and emotionally charged.
It is much more than a piece of real estate as far as you are concerned.
You are likely to value it much higher than someone else looking at the same property.
Part of this is explained by the endowment effect.
Getting some help from an external expert minimises the emotional impact on the choice you are about to make.
Be Wary of Watercooler Talk
A lot of what we do in life is influenced by what we see people around us doing.
The office pantry is the preferred place to exchange office gossip with your colleagues.
It also is the place where you are most likely to get the “hottest investment tips” from your co-workers.
The most common place for someone to boast about how he made a killing with some investment idea.
It can be hard to know if the person is telling the truth or just building some hype to pull you into a Ponzi scheme.
Do make sure to take anything you hear at the water cooler with a spoonful of salt.
If an investment idea sounds too good to be true, it probably is.
By all means take the investment idea from your co-workers but do make sure to research it further when you have the time.
Jumping into any financial product simply based on the chatter of a colleague is not a financially savvy way of going about it.
Not Being a Sucker is a Huge Advantage
Here is the interesting thing about personal finance:
Contrary to popular opinion it takes very little effort to get yourself up to a basic level of financial literacy.
A level that is good enough to ask a couple of sensible questions to someone selling you a financial product.
Consider this situation:
Let’s say someone is trying to sell you a financial investment that is “guaranteed” to give a 15-20% return in one year.
A basic level of financial literacy will allow you to ask the seller a couple of simple questions:
Can you show me the piece of paper where it says this return is “guaranteed” and by whom?
How much of your own money have you invested in it since it is such a good offer?
A couple of questions like this is all it takes for the seller to know that you are not a sucker and will not accept things at face value.
It will save you from putting your hard-earned money into an unsuitable investment.
Not falling for a bad investment idea is just as financially savvy as choosing a good investment.
The seller will quickly leave you and end up pitching the product to someone else who has not bothered to learn even the bare basics of personal finance.
And that includes most of your colleagues since so few people actively make the attempt to acquire the basics of personal finance knowledge.
Don’t be too loyal to Loyalty Cards
If you are used to showing great loyalty towards your loyalty cards, you might be losing money without realising it.
Loyalty cards are one of the best marketing inventions that make you spend more money than you intended to.
Are you doing any of the below:
Spending money to take more expensive flight options just to keep your airline miles active?
Overspending to get into a higher tier of loyalty level (from silver to gold)?
Giving money in advance to your coffee shop or gym to get a loyalty discount?
Committing yourself to a time share scheme for the next few decades of holidaying?
Buying things you don’t really need because there is great deal only for loyalty card members?
Loyalty cards are great for the companies selling them.
They are not so great for you, if you lack the self-discipline for analysing every purchase decision you are making.
Take a peek into your wallet.
Maybe it is time to chuck away some cards that are actually making you spend more money than you want to.
Getting financially smarter than others is not that difficult if you take some uncommon but simple steps like the 5 outlined above.
In order to be financially savvier, you don’t need to be smarter than others in the traditional sense.
You just need to be more disciplined.
Dushyant Choudhary is the founder of dushyantnomics, an early retirement blog for professionals. Dushyant retired early from his 9-5 corporate life after a successful international career. He brings his knowledge and experience to his current role where he’s dedicated to helping professionals achieve a fulfilling retirement.