Bad financial habits are difficult to break, but you cannot even begin to break them if you cannot identify them.
Do you find yourself short of cash and constantly in debt regardless of your income level, and cannot understand why? See if any of the five following bad habits may be the reason.
- . Living Beyond Your Means – It isn’t rocket science – if you continually spend more than you earn, you are going to be in serious financial trouble. Constantly carrying credit card balances or borrowing money to cover bills only compounds the problem (both figuratively and literally through compounding interest on your debt).
Credit and loans have their place in good financial management, but they must be controlled. In general, don’t charge more than you can pay off at the end of the month and don’t take out loans to cover expenses that can be handled through spending control.
- Failure to Budget – Most financial bad habits have roots in failing to make a budget. You cannot control overspending if you have no budget to compare your spending to.
There are several ways to budget and plenty of online resources to help you with the topic, but in general, you need to list your monthly expenses and allocate your income to them. Do not forget about large annual expenses like insurance and taxes. Leave yourself a small amount for discretionary purchases; otherwise, you will never stick to your budget.
If you find you are spending more than you make, you need to prioritize your expenses and decide where to cut. The easiest way is to classify your typical expenses as needs versus wants. If you cannot do this objectively, find a sympathetic friend to help you assess your spending realistically.
- Impulse Buying – Even the best budget cannot help you if you do not have the discipline to stick to it. Impulse buying kills budgets. This does not mean that you have to plan every purchase, but it does mean you need to budget a certain amount of money to spend on whatever you want. Tracking all of your expenses for a short time, no matter how small, will help you curb impulse buying. Keep a small notepad with you and write down all your expenses down to the morning candy bar or cup of coffee. You will probably be amazed at how much of your spending is small impulse purchases, and by tracking them, you can start prioritizing them and eliminate some of them.
- Poor Debt Management – Now that you have stopped digging, you can worry about how to get out of the hole. Prioritize your debt by the highest interest rate first (usually credit card debt), and pay that down as much as possible while maintaining minimum payments on the other debts.
Never be late with your payments. Late payments have serious ramifications for your ability to get credit or financing, and even more so if it is obviously a habit. Lenders assume you are overstretched and unable to make payments on time or, even worse, that you are lazy and don’t take on-time payments seriously. Woe unto you if creditors come to that conclusion about you.
- Failure to Save – Part of your budget must include a savings component. As you dig out of debt, that savings component may be very small, but it is important that it is not zero. Saving is a good habit, and it takes time to instill that habit.
If you can break these financial habits, you will be amazed at how your savings will add up over time and momentum will build to keep your financial discipline. Then you can finally get around to seriously saving and planning for retirement, which you probably haven’t been doing either. Congratulations – you have now conquered a sixth bad financial habit!