Everyone has a bad habit, or two. And some habits are worse than others. We all know that habits are hard to break but, when it comes to your finances, not kicking a bad money habit could be detrimental to your financial health.
Americans have a lot of debt. This has caused financial disaster for many individuals and families. According to a Federal Reserve report, total U.S. outstanding consumer debt was $3.24 trillion, as of July 2014. That includes car loans, student loans and revolving debt, but not mortgages. Total U.S. outstanding revolving debt, which is primarily made up of credit card balances, was $880.5 billion, as of July 2014. Student loans now make up the second largest form of consumer debt behind home mortgages.
If you find yourself doing financial gymnastics, it’s time to make active changes and better decisions that will improve your finances and your life. Below, we share our list of top 10 bad money habits.
#10 – Carrying a credit card balance month-to-month.
Why is that bad? First, it does nothing to help you improve your credit score. Second, if you carry a credit card balance from month-to-month you will have to pay interest on top of your original purchase. Carrying a balance is a bad idea.
#9 – Making late payments.
Making late payments is the easiest way to mess up your credit score. Your payment history makes up the largest component, 35 percent, of your credit score. If you are late on making payments not only will your credit score suffer, but also you will be charged a late fee, which could add up to $35 per transactions in some instances.
#8 – Not knowing your credit score.
If you don’t know your credit score you could be getting over charged if there is erroneous information on your report. Be sure to review your credit report at least annually by visiting www.annualcreditreport.com.
#7 – Not automatically saving every paycheck.
If you have direct deposit you should set up an automatic transfer into a savings account with each paycheck. Not saving automatically can wreck havoc on our financial lives. After all, something, requiring our money, always seems to come up making saving less important at the moment. Don’t let this be you. Set up an automatic savings plan. Even $5 each paycheck can make a huge difference over the long-term.
#6 – Impulse shopping.
Habits are hard to break. If you find yourself excited about an item, give yourself time. Wait to buy something you think you really want and become good at questioning every purchase. If you go home and wait 24-48 hours before you make the purchase, chances are you won’t want the item any longer.
#5 – Assuming that you are too young or too old to start investing for the future.
Young adults today are usually inundated with debt, particularly from student loans and automobiles, but still you can find at least a small amount of money to invest on a monthly basis. A good way to start is by contributing to an employer-sponsored 401k plan, if offered. Contributing a small amount, and the power of compounding creates a unique opportunity for young investors to reap huge benefits in the future. So, even on a tight budget investing is possible. On the other hand, some people panic because they have not been able to save as much as they hoped or should have. While it is never too late to invest, as an older worker headed towards retirement, you will have to invest more of your cash and likely will be advised to take less risk with your money.
#4 – Taking money out of a retirement account.
Taking money out of a retirement account is a big no-no! This should be an absolute last resort. If you withdraw money before your turn 59½, you will pay a 10% tax penalty, in addition to regular income taxes. In addition, you will lose the affect of compounding interest by withdrawing funds from this account.
#3 – Not budgeting.
When you don’t budget and don’t know where all of your money is going you could be committing financial suicide. Budgeting is a tool that can help you create a plan that works for you. A budget does not have to be restrictive. Use it to empower you to take control of your money.
#2 – Not taking advantage of an employer 401K matching.
If your employer offers a 401k, particularly one with matching funds, dive in and take advantage of it, at least up to the percentage of the match. You will be losing out on free funds for your future by not participating in this plan.
#1 – Living beyond your means.
People end up overextended financially when they live life spending on credit and pretending to have more money than they do. Stop trying to keep up with the Joneses when you can’t afford to.
Financial peace is priceless. If you find yourself on a financial roller coaster that never ends, now is the time to hit the emergency break. Stop doing the same thing over and over again. Take control of your financial life by ending your bad money habit(s). Although this may not be easy, focus on where you want to be instead of where you currently are, financially speaking. And, if you find you can’t do it alone, get an accountability partner.
Changing habits may be hard but not impossible!