Depending on how you were raised and how you’ve learned to treat money, you may have picked up some bad money habits over the years. That’s completely normal, but if you don’t recognize those habits and actively try to correct them, it could have a massive effect on your financial well-being in the future. Luckily, the hardest part of correcting a bad habit is realizing that it even exists. So, let’s break these bad habits before you go broke!
Understanding our bad habits. The first step towards fixing our bad money habits is recognizing which of your habits might be working against you. Then you’ll work to replace a bad habit with one or more good habits. Once that’s done, you’ll be well on your way to a rewarding financial future.
Here are five bad money habits:
- Not spending wisely. Nonessential spending means less money to put toward essential items, like making mortgage or rent payments, reducing credit card debt, paying off student loans or setting aside money for retirement.
- Not setting aside money for emergencies. Emergency expenses have a way of popping up when you least expect them. Whether it’s a broken leg, two flat tires or a sick dog, an emergency can easily set you back thousands of dollars. If you haven’t built up much of an emergency fund, those costs could affect your budget for years to come.
- Not getting a handle on credit card spending. As of May 2020, Americans on average had about $5,300 in credit card debt, according to Experian data. While some may have no trouble tackling that amount of debt, others may find it difficult.
- Not saving for the future. At some point, you might want to buy a house. Or maybe you hope to put your kids through college. And, chances are, you’d like to someday retire. These goals typically require years of planning, and decades of saving. Have you started saving for those moments yet?
- Not sticking to a budget (or even creating one). Not setting up a budget—or not sticking to one that you already have—removes a key to controlling your finances and ensuring your short-term and long-term financial needs are met. A budget drives your financial decisions and serves as a map that points you in the right direction.
How do we break these habits? Breaking habits doesn’t have to be complicated. You just have to be open to the idea, willing to change your habits and apply the solution. So, let us help you get off on the right foot with some advice on how to break each of these habits.
- Be smarter about your spending. Make purchases with cash so that you to stay within your means. Cook at home to help you save money and make going out to eat a special occasion. Pause before you purchase and ask yourself, “Is this purchase necessary for me right now?”. Review your monthly and annual memberships and subscriptions and make sure they are worth the purchase.
- Emergencies happen, be prepared for them. A simple approach to this is saving money for that “just in case” event. Set up a separate emergency savings account so you’re unable to dip into it for day-to-day spending. Start by setting up an automatic deposit of $25 per paycheck into your emergency account. You probably won’t even miss the $25. Once you’ve established the routine, increase that amount and watch your savings grow.
- Take credit card spending into your own hands. Make more than the minimum payment on your credit cards to help you save money on interest and wipe out debt faster. Put yourself on a credit diet and give yourself strict limits on what you are allowed to charge each month. Make it nearly impossible to use your credit cards by taking them out of your wallet and deleting your prefilled information on those online shopping websites. Taking these steps will help you slow down and think about whether the purchase is a need or a want.
- It’s never too late to save for your future. Start right now and make it automatic by having money transferred to your savings account as soon as your paycheck hits your account. I promise you, once you get used to this money not being there, you won’t even miss it. Other ways you can find extra money to save for your future is to trim unnecessary expenses or find a side gig.
- Budget, budget, budget. The best way to stay on track with not only your spending but your savings is to create a budget. Whether you are single or have a family a budget makes all the difference. Do the math, set short term and long-term goals and monitor your income vs. spending. Put it down on paper or in an excel sheet so everyone can see the goal and be held accountable.
No matter your path, acknowledging your financial bad habits is a great first start. Your financial dreams are just around the corner and remember, we are always here to help you.
You got this,