The Don’t List

In my younger (stupid) years I was riding a wave of picking hot stocks and making a killing. I’d watch throughout the day as Yahoo, Cisco, Oracle and other tech stocks shot up.

On paper, I was making money. Until the market started to crash. And like so many others I thought if I stayed in just a little longer the stocks would bounce back, and I could make back some of my losses. I was like a gambler, hoping for the next turn of the card to put me back in the game. Instead, I lost tens-of-thousands of dollars.

One really bad financial decision can haunt you for decades, and maybe a lifetime. I’ve made plenty of big money mistakes. But life is about trying to avoid the big mistakes and making a lot of good small decisions that compound over time.

Here’s my list of things to avoid at all costs to experience a life of massive abundance.

1. Don’t follow conventional wisdom

The conventional wisdom being pushed on us is littered with trap doors that can torpedo your finances, your marriage, your retirement, and your peace of mind:

• You need to take out a car loan to get reliable transportation
• You need to go into massive debt to get an education
• You can buy it now and pay for it later
• You can buy lots of stuff, and it will make you happy
• You can afford everything
• You can borrow from your 401(k) to pay for it
• You can declare bankruptcy and all your problems will go away

This ‘wisdom’ many of us have bought into at one time or another amounts to nothing more than conventional lies.

[clickToTweet tweet=”By following unconventional wisdom you’ll experience a life very few even know exist.” quote=”By following unconventional wisdom you’ll experience a life very few even know exist.”]

2. Don’t try to time the market

I won’t bore you with the studies I’ve read (lots of numbers and statistics). They show trying to sell investments when the market starts to go down and buy when the markets look like they are on the rise is an exercise in futility.

Market timing as this is known has been systematically shown to fail to beat out a buy-and-hold investment strategy 99.98% of the time.

Dollar cost averaging beats out market timing over the long term. When everyone else is selling, it’s time to keep buying and get a bargain.

[clickToTweet tweet=”Market timing is for market losers.” quote=”Market timing is for market losers.”]

3. Don’t buy as much house as the bank will let you

My boss told me I should buy as much house as the bank would let me because houses go up in value. And your income goes up too. Makes sense, right?

When I was approved for my first home loan, the bank said I could buy 25% more house than I ended up getting. Which was 25% more than I initially had budgeted. Had I gone along with the bank I could have had a loan that was $50,000 more than what I got.

And the house I got was way too much than I should have purchased.

[clickToTweet tweet=”Decide how much house you can afford based on your take-home income, not what the bank tells you” quote=”Decide how much house you can afford based on your take-home income, not what the bank tells you”]

4. Don’t trust the experts

Ask five nutritionists or doctors if bananas are good for you and you’ll get five different answers. Personal finance is no different.

• Buy or lease a car?
• Rent or own a home?
• Front loaded mutual funds or index funds?
• Buy or sell stock?
• Pay down your mortgage or invest instead?

The only expert you can trust is you. Because nobody cares about your money more than you. Never stop learning about money, and research every financial decision you make so you can make the most informed decision for yourself.

Just because someone’s advice got you out of debt, it doesn’t entitle them to tell you who to buy your insurance from or where and how you should invest.

[clickToTweet tweet=”Become your own trusted advisor.” quote=”Become your own trusted advisor.”]

5. Don’t keep up with the Joneses

• Infinity
• Land Rover
• Infinity
• Lexus
• Ford Explorer
• Suburban
• Lexus

I think there is a neighborhood Bible study that goes on once a month in my neighborhood. With about forty women. And their cars line the street.

I’m always blown away by all the nice new vehicles along the street curbs.

But after being in personal finance for so long what I’m really thinking is

The bank owns that car, that car, that car, that car, that car…

A majority of people’s finances are in lousy shape for two simple reasons – eating out too much and poor car buying choices.

[clickToTweet tweet=”According to millionaires buying used cars was a key factor in helping them become millionaires” quote=”According to millionaires buying used cars was a key factor in helping them become millionaires”].

6. Don’t ignore old people

My wife’s grandparents were from the greatest generation. Her grandfather was a WWII veteran who earned several medals in combat. For that generation, any debt was a bad thing, and you didn’t waste anything. If you wanted something, you saved for it.

My parents were the same way. My mom didn’t have her first credit card until she was in her 60’s. And she only got one because she was convinced she might need it for something (I don’t think she ever uses it).

My parents never bought a new car. They always bought used and paid in cash. They never had debt (they lived in rented apartments their entire lives). They lived a simple lifestyle, never in want. And they were pretty freaking happy from what I could tell.

[clickToTweet tweet=”If you want some good lifestyle advice, talk to a 70 or 80-year-old.” quote=”If you want some good lifestyle advice, talk to a 70 or 80-year-old.”]

7. Don’t ignore your spouse

When my father-in-law passed away, we had a heck of a time finding all his passwords, where the finances stood, and all the different accounts.

If you have a spouse take the time (today) to share what the state of the family finances is. Each of you should:

• know how to get at all the money
• have access to all the accounts
• know all the passwords
• know where all the gold coins are hidden
• have power of attorney over the other

[clickToTweet tweet=”It is better to be prepared for something that never happens than to be unprepared if it does.” quote=”It is better to be prepared for something that never happens than to be unprepared if it does.”]

8. Don’t take the shortest path

I’ve had the pleasure of speaking with millionaires who earned their wealth through investing over the years and slowly building wealth. I’ve also spoken with people who have lost millions by being lured into investment scams that promised higher than average returns.

There are few, if any, shortcuts to building wealth and retiring early. But there is a single guarantee of how you can build wealth:

Consistent saving over a long period in low-cost index or mutual funds.

[clickToTweet tweet=”If it sounds too good to be true, it probably is.” quote=”If it sounds too good to be true, it probably is.”]

9. Don’t get emotional

Eighty-percent of making smart money decisions is your behavior.

Being able to say no to bad buying decisions.

Being able to say no to unimportant things in your finances, while saying yes to things that are important.

Being able to ignore the next hot stock tip.

Being able to say no to another night of eating out with your friends because you can’t afford it.

Being able to say yes to your dream vacation because you’ve saved up to pay for it in cash and deserve it.

[clickToTweet tweet=”When you improve your behavior with money, you’ll have more money.” quote=”When you improve your behavior with money, you’ll have more money.”]

10. Don’t go it alone

I’ve been in debt, and I’ve been out of debt. To get out of debt took some help. To stay out of debt took some help. To grow financially independent and retire early took some help.

What I’ve found is no matter where you are in your financial journey, there is always someone smarter than you to help you get to the next level.

[clickToTweet tweet=”The person who thinks they know it all is the person most likely to lose it all.” quote=”The person who thinks they know it all is the person most likely to lose it all.”]

**Inspired by Christopher Kimball’s The Don’t List from the summer issue of Cooks Illustrated