6 Ways Your Lack of Financial Savvy Hurts Your Wallet

No matter what kind of career path you choose, you will face many financial decisions throughout your adult life. It’s easier to make the right decisions when you understand what it means to save, spend and invest. However, if you don’t have a good relationship with money it can actually cost you more than you realize in the short- and long-term. 

Here are some of the most common ways a lack of financial literacy hurts your wallet and what you can do to get your relationship with money back on the right track.

Do you save or do you spend? Do you find you start shopping when you are bored? What was your relationship like with money when you were growing up? If you don’t know the answers to these questions, it will be difficult to understand your financial tendencies.

Joe Buhrmann, CFP and senior financial planning consultant at Fidelity’s eMoney Advisor, recommends asking and answering these questions to determine if there are patterns in your financial habits. Once you know more about your financial tendencies, you can determine if these are problems you can overcome (such as scaling back on shopping to combat feelings of boredom) or if these problems are more systemic in nature, like struggling with a lack of a living wage. Then, you can begin setting short-term, intermediate and longer-term goals to get into good financial health.

Some of the financial decisions you’ll face throughout your adult life include taking on a car or school loan, signing up for a credit card and paying rent. If you don’t understand the basics of financial literacy, and the terms and conditions of what you are agreeing to, you may be viewed as susceptible and run the risk of potentially getting ripped off.

The good news is that it’s not too difficult, or too late, to gain some financial common sense. Tom O’Gorman, partner and advisor at AP Wealth Management, said do not enter into any agreement that you do not fully understand. Consider the person who is on the other side of the trade, especially in the case of financial products like annuities and real estate investments. It might be someone who knows more than you do and is trying to sell you, regardless of whether the sale is good for you or not. Reach out to a financial advisor or another financial professional to further discuss any agreements and determine if it’s in your best interest.

A lack of financial savvy means that you probably don’t budget (or stick to a regular budget) and you have a tendency to live outside your means. This also makes you slightly more susceptible to lifestyle creep. For example, if you receive a raise at work, you might consider this an incentive to start spending more money. The more you spend and keep spending, the more you may struggle to keep expenses under control. 

Avoid giving in by spending less than what you earn, saving and focusing on short-term, intermediate and longer-term financial goals.

Financially savvy individuals have a working knowledge of credit cards. They know how to pay off a credit card balance, not to max out their credit limit and how interest rates work. 

Most importantly, they don’t view or treat credit cards as free money. If you don’t properly understand credit utilization, you are at a higher risk of getting into debt and harming your credit score.

What happens if you don’t have enough money for a missed bill payment? What do you do if there’s a medical emergency and you’re faced with a bill you cannot pay? Do you worry about making it to the next payday? What about paying rent, your mortgage or any other bills next month? Those who struggle with or lack financial literacy are hurt in the worst way possible: They do not have a plan.

Chuck Czajka, founder of Macro Money Concepts, said that the results of not planning ahead for your financial future can be devastating. 

“People who do not plan tend to live day-by-day and may lose control over their financial lives. Because they don’t plan, they tend to do the same thing over and over and really never become financially literate,” Czajka said.

Money makes us feel many emotions, but one emotion we should never feel is that our financial situation is hopeless. 

A lack of financial savvy may make it difficult to ask for help. However, there’s never a wrong time to ask this question, build a plan and become financially literate. The sooner you reach out to a financial advisor for guidance, the more you’ll be able to get into good financial shape and better understand your relationship with money.

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