Who Consumers Really Need to Protect Themselves From

This week is National Consumer Protection Week so you might have been hearing a lot about how to protect yourself from fraud, scams, identity theft, etc. This is important information but the reality is that the biggest threat to us as consumers is staring at us in the mirror. Here are some ways we sabotage ourselves and what we can do to protect ourselves:

Trying to keep up with the proverbial Joneses. Research shows a positive correlation between social indifference or the “ability to resist the temptations of fashion, trends, fads or the luxury car parked next door” and net worth. Basically, the less you care about what other people are doing, the more money you’re likely to have. As Will Rogers once said, too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like. It’s one thing to treat yourself to something you truly enjoy. It’s another thing to treat yourself to something that someone else enjoys (or is pretending to as well).

Instead of focusing on what other people are doing, take time to think about what’s most important to YOU. For example, I’ve decided that eating out is something worth splurging on but not having a big home, a new car, expensive clothes, or the latest technological gadgets. Determine what priorities are most important to you.

Not being conscious of our spending. Another big mistake is not even being aware of where our money is going and whether there are lower cost ways of achieving the same result. We tend to only think about big purchases but small, regular purchases can add up to even more money over time. You don’t want to do the same thing over and over just because it’s what you’re used to.

Go through all of your regular bills and ask yourself if each expense is  something you really want to pay for. If so, can you find a better deal? Here are some examples of relatively painless ways to reduce some of them.

Not planning ahead. Two of the biggest sources of credit card debt are vacations and holidays. I’m not saying to forego them. (Although there are ways to reduce costs for both.) However, we don’t want to be paying interest on them long after they’re distant memories either.

Fortunately, they’re easy to plan for because we typically know when they are and can decide how much we spend. The key is to estimate how much we’re going to need, divide that amount by the number of months until we need the money, and have that amount automatically set aside in a separate bank account before we even have a chance to spend it. If you’re having trouble saving that much, you may need to either free up money somewhere else or adjust your vacation/holidays plans.

Overspending on fun stuff. I see two types of mistakes here that are similar to what many people experience when trying to diet. Some attempt to track every nickel and dime they spend and end up feeling overwhelmed. Others try not to spend anything and feel deprived. While both approaches can work for some people, many others  give up and find themselves overspending again.

It’s important to be realistic here. After subtracting your regular expenses and your savings goals from your take-home income, set aside the remainder in a fixed allowance for discretionary expenses like eating out and shopping. The important thing is that you only get to spend that amount. When it’s gone, you’re done until the next month. If you have money left over, you can use it to splurge guilt-free in the future.

Not taking advantage of free money. I’m always surprised by how many people fail to take advantage of discounts, loyalty programs, and credit card rewards. These can be dangerous when they’re used to tempt you into spending more but they can also be a way of getting the most from the money you were going to spend anyway. The last thing you want to do is leave free money on the table.

Look at what you spend the most on. Can you save by shopping around, using coupons and sites like Groupon and Living Social, or buying in bulk? If a particular favorite place has a free rewards or loyalty program, why not sign up? For some ideas, see my blog posts on eating out (did I mention I like to dine out?) and travel bookings.

It’s easy to blame big companies or fraudsters for our problems. But unless you’ve been the victim of a massive Bernie Madoff-like scam, the person you most need to protect yourself from isn’t anyone “out there.” It’s you. What will you do this week to protect yourself?

More like this:

What’s Your Plan For a Financial Independence Day?

What’s Your Plan For a Financial Independence Day?

I personally think of financial independence as consisting of three different levels: ...
Read More
The No-Tracking Budget

The No-Tracking Budget

Putting together a budget is one thing, sticking to it is another ...
Read More
Woman calling for savings account

Why You Should Start Saving NOW

Pretty much every personal finance resource will tell you that the earlier you start saving, the better off you'll be ...
Read More

Subscribe

Be the first to know when new resources are published.