Personal finance gets a reputation for being complicated and numbers-driven, like you have to be an accountant, actuary or investment expert to understand it all. But the truth is, most of the everyday reality of personal finance comes down to the uncertain art and science of human behavior. The way we live our lives (in all life’s messy glory) is reflected in our personal finances.
If you live your life with discipline, order and consistent plans, chances are that your personal finances will reflect that. On the other hand, if you have allowed some bad habits to sneak into your life, your finances will be influenced by those bad habits.
Here are a few of the biggest “bad habits” that tend to affect people’s personal finances. Are any of these bad money habits holding you back?
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Paying high interest.
If you’re only making the minimum payments on your credit card each month, you are throwing away hundreds and thousands of dollars over the course of your life. High-interest debt is the worst kind of debt – every month, your debt is costing you more and more money. Instead of paying interest to a bank, look for ways to pay down your high interest debt as soon as possible so you can start saving for your future.
There’s a reason why grocery stores fill the checkout aisles with magazines and candy bars – because people love to make spur-of-the-moment impulse purchases. How many dollars are slipping out of your wallet each month due to unplanned purchases? It might surprise you. If you spend money more deliberately – only spending what you intend to spend, sticking to your shopping list, etc. – the savings can be significant.
Failing to save an emergency fund.
Do you have 6 months of living expenses, saved in an FDIC-insured bank savings account? If not, you’re at risk for a lot of big problems in life. What if you lose your job, what if your car breaks down, what if you have a major medical expense? An emergency fund gives you the freedom and confidence to go through life without these major worries.
Borrowing to buy things that decrease in value.
Most financial advisers will tell you that there are two types of debt: “good debt” and “bad debt.” Good debt is any kind of borrowing that helps you buy something that will increase in value over time – like a house, for example. (Despite the past few years of the aftermath from the housing market crash, if you buy a house, in the long run it is likely to eventually sell for more than you paid for it today.) Another type of beneficial borrowing is when you borrow money to start a business or get a college education, because these are investments in your career and your future earning potential. Bad debt is high interest debt for consumer purchases – for example, if you buy clothes or go out to eat or go out for drinks and put it all on your credit card, you are using high interest debt to by consumer goods that have no future value. Unlike a house or a business, consumer purchases do not increase in value. So don’t borrow to buy things that will not be good investments.
Failing to save for retirement.
Are you saving at least 10% of your income for retirement? Are you maximizing the employer match to your 401(k) savings (or other qualified retirement plan)? Every time you save money, you are sending a gift to your future self. Take good care of yourself in your old age by saving today. According to a recent survey from Fidelity Investments, the average person had $71,500 saved for retirement. If you’re between 31 and 45 years of age, you should plan to save 16 times your final pre-retirement salary.
Missing out on work benefits.
If someone offered you a pile of money, would you ignore it? Unfortunately, many people leave money on the table by not taking advantage of workplace benefits like flexible spending accounts. If you put some money aside in a flexible spending account at work, you can often save money on your taxes while spending money on things you need like child care, health care co-pays, prescription drugs and eyeglasses.
Failing to invest in yourself.
Getting a college education is expensive, but it’s one of the best ways to improve your earning potential and keep you employable. Many people might think that they can’t afford to go to college, or can’t afford to go back for another degree. But the truth is, investing in yourself is one of the best money habits you can make. As long as you’re passing your classes and progressing toward your goals, college is still almost always a good investment.
Failing to upgrade your career.
Are you stagnating in your career? Have you been at the same job too long? Are you still learning new skills and making new connections, or are you falling behind? Don’t get complacent in your career. Keep learning, keep stretching, and keep introducing yourself to new people. One of the worst financial habits is to become too reliant on one paycheck, one company and one type of work. The economy is becoming more competitive all the time, and workers need to be more versatile and agile in seeking out opportunities.
Not facing up to the reality of your money.
Many people don’t know the basics of their financial life. But when it comes to personal finance, ignorance is NOT bliss. What you don’t know about your money can probably hurt you. Do you know how much money is in your bank account? Do you know how much you owe on your credit cards? How much debt do you have? How much is your total net worth? How much are you saving for retirement? Knowledge is power. Start to secure your financial future by facing up to the reality of where you stand today – only then can you move forward to a better place
Do any of these bad money habits sound familiar? Don’t worry! It’s never too late to take proactive steps to improve your financial situation.
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Whatever you need to do to improve your financial habits, Quizzle.com can help you save more money and increase your net worth. We offer free personal finance tools and resources to help you create a stronger financial foundation, set a budget, improve your credit, and save more money.