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Bad Money Habits
So, you want to buy that 80” LED TV and you can’t afford it. It’s alright because you can put it on your credit card. You don’t remember the last time you reviewed your checking account balance. You have no idea why you have no money even though you think you’re spending responsibly.
You have utility bills that are always late and rent is always behind. Does this sound like you? Hate to break it to you but these are all classic signs of having bad money habits.
Let’s examine the top bad money habits so you can understand how to fix them.
List of Bad Money Habits
We’ll take a closer look at the following bad money habits below:
- Making non-essential purchases
- Leaving a balance on your credit card
- Irresponsible credit card purchases
- Not saving for the future
- Not budgeting
- Not investing
- Not creating passive income
Making Non-Essential Purchases
Do you need that 80” LED TV? I’m willing to bet that your current TV works fine. How about getting that designer coffee every morning that you pay upwards of $10 a cup for?
Dining out every other day to a restaurant? Getting fast food for lunch every day? Sure, it’s cheaper than a sit-down restaurant but nothing beats the value that you get from a home-cooked meal. Also, why can’t you get your caffeine fix from a regular cup of coffee?
There was a point in your life where none of the examples mentioned were ever needed. You did fine then and you’ll do fine now if you removed those non-essential purchases in your life.
People tend to overspend on non-essentials that are associated with satisfying their wants. Wants include fancy coffees, large screen TVs, movie or TV subscriptions, going out to eat, buying name-brand clothing – you get the point.
Look at your spending from month to month and record how many unnecessary items or services you buy. Add up the total cost of non-essential purchases per month. You’ll see that that money can be better used to pay for essential items.
Needs such as medical bills, medicine, mortgages, doctor’s visits, phone bills, and cooking at home should be a priority. Get your spending priorities in order. Take care of yourself and your family’s needs first before you even look at your wants.
Leaving A Balance On Your Credit Card
Is it bad to leave a balance on your credit card? Credit card companies make money from interest on the loans they give out. They can charge whatever they want and you can regularly see rates exceeding 25% in annual percentage rate (APR).
If you borrowed $100 and carried this balance throughout the year, you’ll be paying $125 by the end of the year.
But, this isn’t the full story.
Credit card companies calculate interest daily so you’ll see it compound over time. With this factored in you’ll likely be seeing the effective annual percentage rate (EAR) to be around 28.39%. This translates to a more realistic balance of $128.39.
Don’t pay the least amount on the credit card bill. Pay your credit card bill in full every month. You don’t see it up front, but credit card loans are designed to make you feel like you’re paying your bills through its monthly minimum option.
But in actuality, as long as you have a credit card balance, you’re paying more than you should. At the very least, pay more than the monthly minimum.
Related content: Free credit card debt payoff printable
Making Unconscious Credit Card Purchases
It’s easy to pay for everything from a plastic card. You don’t have to carry around a thick wallet or have a pocket full of change. There’s a hidden price for convenience though.
Ever look at your statement and was surprised to see a charge that you didn’t recognize? This happens quite often with people when they don’t think twice about purchases.
Back before credit cards existed there was paper money and coins. Whenever you had to make a purchase you had to count the money, pay for the item, and wait for the cashier to double-check.
These kinds of checks and balances are rare these days but there is value to this.
Take control of your finances and make conscious purchases. Understand exactly how much money is going towards the things you buy. Try getting rid of your credit card from your wallet and for every purchase try using paper money and coins.
Not only will you become conscious of your purchases, but you’ll sense what’s affordable, expensive, a need, or a want.
If you must use a credit card, make sure you keep all your receipts and keep track of your expenses on online banking.
Related content: The envelope budgeting system.
Not Saving For The Future
Most, if not all, bad money habits affect your future self. When you don’t have enough money to pay for an oil change, it’s likely because you didn’t save enough beforehand. If you can’t pay for an oil change now, what makes you think you can ever retire from working?
Think for the future instead of today. If you pay for unnecessary items or services, that eats into the money that you could have in the future.
The best way to manage your money is to create a budgeting guideline. Experts agree that the 50/30/20 rule in budgeting is a great start towards managing your finances.
This rule advises that 50% of your after-taxed income should be spent on your needs. 30% should be spent on wants while the remaining 20% should be allocated to savings.
For example, if you make $1000 a week after taxes, then $500 should be allocated for paying your phone bill, rent, insurance, and food to be cooked at home.
$300 can be used for whatever you want to buy like wireless headphones, steak dinner, or movie tickets. With the remaining $200 of your paycheck put this into your savings account, retirement investment, or emergency fund.
You can play with these percentages to suit your needs. The important thing is to create a budget plan so you can ensure that your future self will be happy.
Related content: How to stop living paycheck to paycheck
If you don’t know where your money is going then you should really create a budget. Budgets are great for exposing areas of your spending that you can either cut back on, find something cheaper, or stop buying altogether. You’d be surprised at the amount of money you can save that you could use for things like investing and growing your wealth.
The consequences of not having a budget are:
- Being unprepared for emergencies
- Not being able to retire
- Getting into debt
- Having no savings
- A lack of financial security
- More financial stress
Related content: Free budget printable download
Ever wondered how rich people get so rich? They invest their money wisely, and you should too.
Luckily, there are investment apps designed to help make investing easy and accessible for everyone, not just rich people. Some of these apps even allow you to get started with as little as $5, and they even offer fractional shares.
The great thing about these investing apps is that they do all the hard work for you. All you need to do is choose your plan, then start adding money to your account regularly.
These apps make it so easy to get started that there really is no excuse to not start your own investment portfolio.
Related content: How to get free stocks
Not Generating Multiple Streams of Passive Income
Creating multiple streams of income as well as passive income is one of the healthiest things you can do financially. Creating a side hustle that can earn you some extra money that you can either save or put into your investment account will be setting your future self up for success.
Swapping your time for money is absolutely fine, but wouldn’t it be better if you could make money while you sleep? We’ve created a list of passive income ideas for you to get started on today.
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The Bottom Line of Bad Money Habits
Managing your finances sounds difficult to control but it isn’t. Don’t let the bad money habits formed over the years take control anymore. Here’s the good news, everyone can change these bad habits into good ones.
You’ll likely need to get adjusted to one idea before you move on to the next. So, first pick the bad habit that’s easiest to fix, eliminate that bad habit from your life, then move on to the next. Rinse and repeat.
It will take a bit of re-training but keep this in mind. Just as you unconsciously created these bad money habits, you can also consciously create good money habits.
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