Developing good financial habits can take years, but the benefits of forcing yourself to be learn how to be smart with money pays off HUGE, and pays off quickly. Once you have finances under control, staying out of debt becomes simple, you can maintain a strong credit score, and you can get the financing you need for just about anything down the road. It really is a good feeling.
The result of several bad financial decisions is usually what lands us in trouble and debt.
You need to be able to identify bad habits now and understand the ways in which you can avoid making those mistakes again. For instance, I recently bought a house and used thousands of dollars I was saving to pay my business takes. I knew it was a risk – but I was stable and I had to move. The day I closed on the house, one of my clients called me saying they had to cut my pay in HALF. This was completely unexpected – had this not happened, I would have been able to easily recoup my tax stash (because of course I had this all planned out). I am still dealing with that decision today! What I learned, however, is that if it feels risky, dont do it! Simple.
Of course, its okay and kind of normal to make financial mistakes. What is not OK is letting those mistakes turn into ongoing bad habits. Lets look at 11 good financial habits you should utilize now to stay out of trouble later.
Biggest Financial Mistakes
1. Overspending With Credit
Dont use your credit card accounts to develop spending habits that overwhelm your monthly income. If you notice that your monthly credit card payments are starting to become more than your monthly income, then you need to break this bad financial habit quickly.
The solution to this type of problem is to use credit in a responsible manner. Dont purchase things on a credit card that will take longer than three months to pay off. Dont just make minimum payments on your credit cards each month, either – youll quickly head towards financial disaster, or at the very least, waste tons of money on interest. You need to understand your own finances and prevent yourself from making credit purchases that will create monthly payments that go on for years.
2. Neglecting A Monthly Budget
Many people find themselves over-extended with their monthly bills because they have no idea how much they really need to spend each month to pay bills and meet expenses. The best way to monitor your monthly spending is to utilize a budget. You will find that most people who do not use a monthly budget are also the same people drowning in debt.
List all of your bills and expenses on a piece of paper each month and then schedule payments based on your monthly paychecks. There are many computer programs available to help people create and maintain a successful monthly budget.
3. Impulse Buying
People sometimes joke with each other about impulse buys they make when they go shopping, but impulse buying is a horrible financial habit to get into. Impulse buying is the act of purchasing products that you want, but do not necessarily need.
Most people do not track their impulse spending and the results can be hundreds of dollars being carelessly spent each month and only deepens the hole created by crippling debt. (Reminder: these 16 money-saving apps can help.)
To avoid impulse buying, you should plan each shopping trip and only buy what you need. If you need a little extra help in controlling your impulse spending, then only bring with you the cash you would need to make planned purchases and leave your credit cards, checkbook, and ATM card at home.
4. Overspending On Monthly Expenses
Are you someone who stops off on the way to work and spends $6 on a coffee in the morning? It seems harmless enough, but it is actually a very bad spending habit. That $6 coffee represents $30 per week in added expenses, which becomes $1,560 per year in money lost. If you would just bring a coffee from home, you could save $1,560 per year and apply that money towards other bills.
It is easy to allow your expenses to get out of control, but it is just as easy to curb your spending and make sure that you are only buying the essentials. To help in curbing your expenses, you should track all of your spending for one month to determine what you buy, what you spend, and then decide what you really need.
For example, you may see in your log that you are wasting money each week on that morning coffee and buying lunches at work. With real numbers from your expense tracking, you can determine just how much money you are wasting. It is easier to develop good financial habits when you see how much damage the bad habits are doing in writing.
5. Missing Monthly Credit Card Payments
Every time you miss a credit card payment, the creditor adds a late fee to your payment and increases your interest rate. It is not uncommon for a late fee to run anywhere from $30 to $50 each month. That increased interest rate is also applied to the late fee, which causes you to lose even more money. If that isnt enough, late credit card payments also damage your credit score.
6. Neglecting Long-Term Planning
Want to retire someday? What have you done to prepare for those golden years when you will no longer be generating an income through your job? If you have a retirement plan through your job that you are enrolled in, are you sure it will give you the income you need?
Get into the good habit of talking about your retirement with a certified professional and make long-term plans that make sense.
7. No Contingency Planning
During the course of a month, just about anything can happen that could suddenly put you in a financial bind. Car trouble seems to be a big one. Many people get into credit trouble because they are unprepared for unexptected expenses and rely on their credit cards to get them through. These are the sorts of bad financial habits that put people deep into debt. Personally, I start to feel uncomfortable when my checking account goes below $3,000.
8. Not Planning For The Future
We tend to make changes to our lives without any type of financial planning to go along with those changes (getting married, moving to a new area, buying a nice car and not planning on the increased maintenance cost, etc). This is how people get overwhelmed with debt and find themselves in desperate situations.
9. Redundant Spending
Do you have a cell phone and a landline? Do you pay for cable but mostly stream shows through Netflix and Hulu? Redundant spending is a matter of not making the right choices with the products and services you buy, which causes you to spend money that you do not need to spend. Before you purchase a product, think about whether or not you already have a product that can do the same tasks and save yourself some cash.
10. Not Taking Advantage Of Better Pricing
Did you really need to purchase that new car? You could have saved thousands by buying a reliable used vehicle… but yes, this can also be tricky and there are certainly situations where buying used can wind up really hurting you. But still, if there is one bad spending habit that most people are guilty of, it is not taking advantage of better pricing or shopping around.
11. Neglecting Maintenance
If you regularly change your oil, you decrease the amount of money you spend on gas while extending the useful life of your car. If you get your furnace serviced by a professional each year, you save money on your energy bill. Product maintenance saves you a lot of money in the long run, even if it feels “expensive” in the moment.
Well, that should be a good start to get you on track to financial stability. If a lot of these seem like no-brainers, then why arent you doing them? Dont put this off any longer – start right now and thank yourself later!