Bad habits. Theyre pesky, arent they?
Every once in awhile I catch myself in a bad habit. They almost seem inevitable. But Im always determined to squash them as soon as I recognize them. Im sure youre in the same boat.
When it comes to bad financial habits, there are some serious ones that can cost you thousands of dollars. Which of these habits are you guilty of committing?
1. Spending With Credit Cards When You Cant Afford It
Credit card interest rates are regularly well above 10%. That translates into a lot of interest charges if you dont pay off your credit card every month. Worse yet, many people get stuck in a cycle of credit card debt – a habit that seems to just not go away.
Many people make what they consider to be educated guesses as to whether they can afford to put new clothes or high-tech gadgets on their credit cards. The problem is that those who do often dont really know their future expenses.
If youre living paycheck to paycheck, even small emergency expenses can be enough to make you late on your credit card payments. And if youre late once, its so easy to push off paying your credit card debt until youre really hurting. Furthermore, late payments can hurt your credit, and if your credit score drops low enough it can mean higher interest rates for you in the future. (You can see how your credit card debt is affecting your credit by getting your credit scores for free on Credit.com.)
Unless youre entirely sure you can pay off your credit cards every month, you may want to seriously consider not using them.
You may be asking, Hey Jeff, Im not sure how to stop using credit cards – I cant afford to live without them!
Thats a difficult situation, no doubt. In that case, youre going to have to look at both your income and expenses to determine where you can make improvements so you don’t have to depend on credit to make ends meet.
What Is Your Lifetime Cost of Debt?How much will you pay in interest over your lifetime? You may be surprised. Find Out Now
2. Not Tracking Your Transactions With a Budget
One of the best advantages of tracking your transactions is that you can see very clearly where you spent your money over time.
Try tracking your spending for a month (there are free budgeting software programs that can help with that, too). If you havent ever given a second thought to spending, this exercise will certainly help you do that.
When the month is over, categorize and add up your expenses. Many people overspend on the following categories:
- Eating Out
These are categories you should monitor carefully.
Once you know how much youre spending in your categories, make a few goals. Try lowering how much youre allowed to spend in your problem categories incrementally, month by month.
Over time, because youve been tracking your categories and paying attention to your spending habits, youll find you can lower your budget category allocations – saving you thousands of dollars.
3. Waking Up Late
Im convinced that waking up late affects your finances. Allow me to explain.
All of us are pressed for time. If youre like many out there, you dread the alarm clock and reach for the snooze button too many times (that is, more than zero times).
But I bet theres something youd love to do if only you had more hours in the day. Maybe youd exercise, start a side business, or take some online classes. These are all activities that can either directly or indirectly result in more income.
For example, if you take some online classes, you can learn a useful and marketable skill that can earn you a raise, promotion or a better job.
Personally, I found that by waking up early I can have a few morning routines that get me pumped for my day ahead. The later I wake up, the less productive I feel, and the less productive I am.
You can also fill those early morning hours with some of those activities you always wanted to get to but never could. You just might find that even if you dont consider yourself to be a morning person, you could become one.
Instead of focusing on ways to improve your finances through just financial means, look at your entire life – its not as compartmentalized as it may seem and can have profound consequences on your money.
4. Consuming to Hopefully Find Contentment
Something deep down in me cringes when I hear businesses call people consumers. Sure, people consume, but thats not all they do. But maybe businesses sometimes refer to people as consumers because thats what so many do too often: they consume.
Ask yourself if you consume more than you produce. Is your goal in the morning to wake up and say, I wonder how I can please myself today? Or, is your goal to serve others?
Albert Einstein was quoted in the June 20, 1932 New York Times as saying: Only a life lived for others is the life worth while. Theres so much wisdom to that.
But there are other benefits to serving others above ourselves, as well. Have you noticed that when youre busy serving others and making money, you spend less? Perhaps youve noticed the reverse.
Dont consume to seek contentment. Contentment isnt found in consumption, its found in servanthood. Follow this advice, and youll likely keep more cash in your wallet, too.
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5. Using Investment Accounts as Emergency Funds
It happens from time to time. Ive seen a few of my clients raid their investment accounts to pay for emergencies. Sometimes, it even becomes habitual. I understand why they do it, but the tax penalties can be high.
Also, if you use your investment accounts as emergency funds, youll lose all that potential earning power when you have to dip into it for emergencies.
A better plan is to have a high-yield savings account nicknamed emergency fund and not touch it unless theres a true emergency. And dont fool yourself, you really do need an emergency fund.
There are a whole host of emergencies that can crop up when you least expect it: lawsuits, medical bills, job loss, the list goes on and on.
Heres one habit you should get into: taking extra money youve earned every month and pouring it into your emergency fund. You may even put monetary gifts youve received into your emergency fund until youve filled it up (I recommend three to eight months’ worth of expenses).
Say Hello to More Money
Bad financial habits arent always easy to correct. Ill be honest with you, its often very difficult. It requires a shift in the way you think about money.
You might have some bad financial habits right now you dont know about. Brainstorm! Find every last one if you can. You can break a bad habit in less than a month if you stay focused.
Do it. Its worth it.
More Money-Saving Reads:
- What’s a Good Credit Score?
- What’s a Bad Credit Score?
- How Credit Impacts Your Day-to-Day Life
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