It always amazes me how silly some otherwise seemingly smart people are. I mean really, are they trying to waste money and time and spend the rest of their lives in a J.O.B. (Just Over Broke) situation? Don’t they want to find a way to get out of the rat race and be the guy putting the cheese into the maze instead of the rat trying to find the cheese? Here are five things people with low financial IQ are doing wrong and what they can do to fix them:

They Don’t Make Their Money Work for Them

Do you know what every rich person has in common? They use their money to make more of it. No, they’re not buying printing presses to counterfeit money (and frankly if you’re thinking of doing that, good luck – the new money is supposed to be really hard to print convincingly, even on a color laser printer).

What people with high financial IQ know is that even if you don’t have a lot of money, you can invest what you do have and make it grow for you. That doesn’t mean that you need to have thousands of dollars in the bank which you can throw into some Apple stock. Nor does it mean that you go out and buy bitcoins (but seriously – if I’d have known about the bitcoin craze four years ago, I totally would have hoarded ‘em).

You see, the thing is, almost every mutual fund has an option called dollar cost averaging. And don’t worry, you don’t need to be a genius to understand how this works. Basically, dollar cost averaging means that you invest a set amount of money every month, say $50. Yes, just fifty lousy bucks a month. Now, some months, the market is up and some months, the market is down but by steadily investing every month, your money will tend to grow overall and you’ll be making more money over time.

They call this dollar cost averaging because the steady investment means that even if you happen to deposit some money when the market is high, over time, it averages out so that you end up with your money growing. Someone who has a high financial IQ knows that they need to make these kinds of steady investments, even if they’re small in order to get wealthy over time.

Mind you, you do need to be careful with mutual funds as well. Many of them have high management fees and loads (a commission you pay when you make a purchase). Look for mutual funds with low management fees (index funds are often the best for this) and funds which have no load. Bottom line, don’t just invest in the first fund you find with a Google search. Take the time to do your research and get it right.

They Use Credit in Silly Ways

Credit isn’t something that needs to be avoided. Credit can be a great thing – it can help you finance a home over a long period of time and it can even finance other worthwhile things like college degrees and cars. The thing is, people often use credit in just plain silly ways.

The general rule with credit is that if you’re paying for it long after it’s gone, it’s probably not a good idea to buy it on credit. Homes last a long time and if you buy them with credit, you’re doing something smart.

But you know what’s even worse? When people spend a ton of money on credit because they want instead of need something. That Rolex watch looks really tempting, doesn’t it? And sure you’ll enjoy showing it off to your friends. Know what you won’t enjoy? Figuring out how to pay for it each month because it was an unnecessary luxury which you really didn’t have the money for.

They Don’t Save for Retirement

So what? Do those with low financial IQ think that their kids are going to support them when they retire? You planning on magically winning the lottery on your 65th birthday? I got news for you my friend – everyone gets older. It’s a fact of life and if you don’t want to be like Jerry Seinfeld’s idea of a complete life (you go from being the 16 year old selling tickets at a movie theater to being the 80 year old tearing them a few feet away), you had better start planning for retirement now.

Look above where I talked about investing and realize that a part of that is saving for your retirement so you’re not the crazy cat lady eating the same food your cats eat because you can’t afford anything else (and actually, the cats will probably eat better than the crazy cat lady does since cat food is pretty expensive anyway).

They Plan Their Lives Poorly

People who are dumb financially simply plan their lives poorly. Maybe what they do is that they take their vacations in the hottest locations where everyone else is taking their vacations and at the same time too. You know what? Those long miserable lines aren’t there all year long and there are even places where you can vacation for cheap.

Plus, if you really want to save money, consider going with a friend. I’m going to Venice next month with two friends and we’re sharing a huge Air B&B. Not only did we save money by going during off season but we also saved money by sharing the cost of the apartment, where we’ll each have our own rooms and we can even save money by doing some cooking for ourselves instead of eating out every meal.

There are other ways to plan poorly of course – how many people have a gym membership which they never use? Hey, if you’re not using it, stop wasting money on it. You might still have a land line even though everyone calls you on your cell these days. People with high financial IQ understand that spending money for something you don’t need is just plain silly.

They Don’t Educate Themselves

There are an awful lot of downright financially dumb people out there who tell me that they think investing is too complicated so they don’t do it. I got news for them – everything is too complicated until you take the time to understand how it works. Heck, there was a time in your life when walking was too complicated so you learned to crawl but you eventually learned to walk, didn’t you?

Investing is pretty much the same deal – you don’t need to be a rocket scientist to figure it out (and frankly, I’m not really sure a rocket scientist would be able to understand so much about investing anyway – I mean look at the guys on The Big Bang Theory – their idea of investing is buying another comic book).

You can start by doing the financial version of crawling – make small investments in index funds. Those are mutual funds which are by definition diversified because they track the largest companies in a stock exchange and they also don’t really need to be managed. And you know what? Financially smart people know that 9 times out of 10, an index is going to outperform any other fund so you’re best off investing in one, at least at first. Until they learn to crawl in the investment world that is.

Bottom line, you can continue to be a financially dumb person who doesn’t understand why they’re always broke or you can start learning to be smarter financially and become the guy placing the cheese instead of the rat trying to reach it first.

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