3 Ways To Increase Your Financial IQ, According to George Kamel
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Andrea Norris
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Levi Leidy
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Personal finance expert George Kamel has a few suggestions for boosting your financial IQ. If you’re unfamiliar with the term, it simply refers to your money smarts and how well you manage your finances. Getting smarter with money often requires no more than developing some new habits.
If you’d like to raise your financial IQ by a few points, here are three ways to do it “so you can make great financial decisions and reach your money goals faster,” according to Kamel.
1. Be Intentional With Your Spending
Most unplanned — unintentional — spending is considered impulse spending, two-thirds of which Kamel says happens in bed on your smartphone.
Capital One Shopping estimates the average consumer will spend $3,381 on impulse buys this year, or about $281.75 monthly. If you’re an average shopper, you make 9.75 impulse buys each month, spending $28.90 per purchase.
To get control of impulse spending and possibly save a few hundred dollars a month, Kamel suggests using the 24-hour rule. Here’s how it works: If you see something you want to buy, wait 24 hours. If you still want the item at the end of the wait period, make the purchase.
Implementing a waiting period is especially effective if you’re an emotional shopper, as it can allow time for the mood driving your purchase to change. Here are some other tips that can help you be more intentional with your spending and avoid impulse buys:
- Shop with a list and don’t buy anything not on it
- Set a budget for each shopping trip
- Never click online ads
2. Invest for the Long Term
Kamel advises long-term investing and riding out stock market drops, even significant ones. He points out that the 40% of investors who pulled out of the market in 2022 when the S&P 500 dropped over 30% missed out on the growth when the market recovered.
Even missing out on only a few high-performing days can cost you. According to Franklin Templeton research, a $10,000 investment — that remained fully vested — in an S&P 500 index fund from January 1, 2003, through December 31, 2022, had a price-only performance of $62,755. Missing the top 10 performing days dropped that figure to $28,750, a difference of $34,055.
‘Buy and hold’ is a passive long-term investing strategy recommended by many financial experts. You ignore day-to-day market fluctuations and hold on to your investments for a specific period regardless of what the market does. Passive investors often earn higher returns than investors who try to time the market and frequently buy and sell.
Long-term investing allows you to use compound growth to build wealth, earning you returns on your initial investments and all prior returns as long as you reinvest them.
3. Automate Your Finances
Kamel recommends automating your finances in two ways. First, set up automatic transfers from your paycheck to your retirement accounts. That way, as Kamel says, it’s out of sight and mind. Second, put as many bills as possible on autopay so you never miss a payment.
While taking the “out of sight, out of mind” approach with your savings can be effective, you may want to use caution regarding automatic bill pay, depending on your financial situation.
If you typically only keep enough in your checking account to cover bills, you could end up with an overdraft if you don’t closely monitor your account balance. Also, always check to ensure billers withdraw the correct amounts from your account and credit you for the proper amount. Automation doesn’t eliminate bank and billing errors. So, keeping a close eye on your accounts is another habit that may increase your financial IQ.
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