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We all have bad habits, but maybe none are as destructive as bad money habits. We will show you your worst money habits.
No One is Perfect
Every New Year we all make resolutions, things we want to change and better about our lives. And top among them for many are finances.
That might be in part because our resolutions are too vague. We know we have bad money habits, but we don’t really pinpoint what they are.
Well, the first step is knowing as they say. So by identifying our worst money habits, we can start down the path of breaking them. Once and for all.
1. Budget? What’s a Budget?
You cannot meet any financial goals unless you have a budget. Many people avoid making a budget because they think it will constrain their spending. If that sounds like you, take the first step in creating a budget and set up an account with Mint.
Mint doesn’t force you to budget, but it makes it easy if you choose to (you should choose to). When you set up a Mint account, it will show you how much money is coming in and how much is going out and on what.
Mint pulls all of your transactions made on your debit and credit cards so you can see what you are spending money on.
You might be surprised by things like how much money you are spending on things like food and entertainment every month. Seeing that information laid bare may be enough to prompt you to actually start budgeting your money.
Until you do that, it will be tough to meet any of your financial goals whether you want to pay off debt or start saving for a house. At least take that first step to see where your money is going.
2. You’re Not Serious About Debt
If you aren’t deliberate about paying down debt, you are spending more money than you have to and paying down debt will take longer than it should. If you have debt, you need a plan to tackle it.
The two most effective methods of debt repayment are the avalanche and the snowball methods.
The avalanche method means listing your debts in order of highest interest rate to lowest and then paying off as much as you can afford on the highest interest debt first while paying only the monthly minimum payments on the rest.
When the first debt is paid, you take the money you were paying toward it and use it to pay the next debt on the list while continuing to pay the minimums on the others. You continue this until all of the debts are paid.
The avalanche method saves you the most money because you will be paying less interest over time.
The snowball method lists the debts by dollar amount from lowest to highest without regard to the interest rates. From there it works the same way the avalanche method works. The benefit of the snowball method is that it kills small debts relatively quickly which gives you a feeling of accomplishment.
Whichever method works best for you is the method that works best.
3. You’re Too Serious About Debt
Debt is not a good thing, but some kinds of debt are worse than others. What makes debt good or bad? The interest rate. Credit card debt is a bad type of debt because the interest rate is so high.
Student loan debt is not such a bad debt because student loans typically have relatively low-interest rates.
If you have credit card debt, there is no such thing as being too serious about paying it off. If you have student interest debt, it might not be such an emergency.
The average stock market return is 7% per year. If your student loan interest rate is 4% or lower, it makes sense to take some of the money you are using to overpay your student loans and invest it, so your money is making you some money.
If your student loan interest rates are higher than 4%, you might want to consider refinancing with a company like LendKey. Refinancing will reduce your interest rate which will save you money over the life of the loan.
Pay your student loans but don’t shovel every extra dollar at them, let that extra money make you some money.
4. You Have No Emergency Fund
An emergency fund is money that you save in the event of something like a job loss or an unexpected expense like a car repair or having to replace a necessary appliance. The danger of not having an emergency fund is that you put those expenses on credit cards.
Charging a new washing machine to a credit card might not be the end of the world. It might cost you extra money in interest for a few months, but it won’t ruin you financially.
But if you were to be out of work for an extended period and had to put everyday living expenses on your credit cards, that could be an end of the world financial situation.
Ideally, we would all have six months of necessary living expenses (rent, mortgage, utilities, car payment, groceries, etc.) saved in an emergency fund.
That can seem really out of reach for a lot of us, but we should all sacrifice enough to have at least $1,000 set aside for an emergency.
5. You Don’t Invest
There are a lot of reasons why people don’t invest; they’re afraid to, they don’t have enough money to start, they don’t know enough about investing. All of those are bad reasons; there are no good reasons to start investing.
If you don’t invest your money, you are not going to grow your wealth. There are only so many hours in the day to actively earn money, so we all have to make passive money, and the best way to do that is by investing.
You don’t have to have a lot of money or know anything about investing. Robo advisors like Betterment have made investing accessible to all of us, even those of us who don’t have or make a lot of money or know a bear from a bull.
It’s not that you shouldn’t learn some investing basics, an educated investor is a better investor. It’s merely that you don’t have to know anything to get started and by continuing to wait, you continue to leave money on the table.
When it comes to investing, there is no substitute for time. The longer your money has to grow, the more it does grow. If you have $1 and five minutes, go to Betterment and start investing.
If your employer offers a 401k plan, that is an easy way to invest. And if your employer offers a 401k plan with matching, jackpot! Matching is literally free money. If you’re still skeptical, at least contribute the amount needed to get that match money.
6. Making Late Payments
If you want to have a good credit score (you do), you can’t make late payments.
Late payments are the most significant factor in your credit score, and you might have perfect marks in every other category, but if you make late payments, your score is going to hover in the basement.
The most important things to pay on time are credit cards and loans like your mortgage, car payment, and student loans. Those lenders report late payments to the credit bureaus.
Utility companies and landlords or management companies may or may not report late payments.
Not only are you hurting your credit score when you pay bills late, but you are also getting hit with interest and various fees too. Even if you pay a credit card just one day late, you can be hit with a $25-35 late fee. Do that a few times, and it starts to add up.
It’s one thing to pay a bill late because you didn’t have the money to pay it. It doesn’t negate any of the bad consequences, but it’s understandable, and it happens.
But being late paying a bill because you forgot or just couldn’t be bothered is ridiculous. If you can’t get it together enough to pay your bills on time, set up auto-pay, so you don’t have to worry about it.
If you do set up auto-pay, be sure to check your statements once a month to find billing mistakes or charges that you did not authorize.
7. You Don’t Ask for a Raise
Not many of us are lucky enough to get automatic yearly raises. If your company doesn’t offer them, you have to speak up and ask.
The average rate of inflation is 3.22% so if you aren’t getting at least that much (often called a cost of living raise), you aren’t making the same year to year, you are making less every year!
You shouldn’t just waltz into your bosses office and demand a raise. Show your boss why you deserve a raise, you’ve taken on extra duties, you’ve increased sales by 13%, you’ve saved 17% over last year by changing vendors.
Go in armed with why you deserve a raise and with a number in mind. Don’t offer your number, let the boss make the first number. If it doesn’t match what you want, you can negotiate until you are both happy with the final number.
8. You Stay Too Long
Even if you do get a raise, it’s not likely to make a big difference to you financially. The average raise is just 3%.
That is not even enough to keep up with inflation! No, if you really want a raise, you need to change jobs. The raise you get by changing jobs is a much nicer 10-20%.
And you should be moving jobs a lot more often than you think if your goal is to continue to grow your salary.
Employees who stay in the same job for longer than two years make 50% less over their career than their more job jumping peers.
So update your resume and your LinkedIn profile, attend networking events and always be on the lookout for the next opportunity. A 3% raise isn’t going to make much difference to your finances, 10-20% certainly will.
9. You Only Have One Source of Income
No matter how good you are at your job or how happy your boss is with your performance, things can happen that are beyond your control and have nothing to do with how good you are at your job.
Any of us could have a good job one day and be out of a job the next.
Everyone should be bringing in money from a source other than their regular job. You don’t have to make a lot of money from your second income source although real dedication to a side hustle can mean that it is actually earning you more than your day job.
Americans spend five hours a day watching television; you can take a few of those hours and do something like drive for Uber or Lyft, babysit, pet sit, work for Task Rabbit or sell thrift store clothes on a site like eBay or Poshmark.
If you never lose your job and are never between jobs for any length of time, then your second source of income can go towards debt repayment, investing, or saving for a vacation or the down payment on a home.
If you do ever lose your job, even having a small amount of income coming in from somewhere can save you from putting every single expense on your credit cards. Find something to do to bring in extra money today.
10. You’re the Queen or King of Convenience
Sometimes you just don’t feel like making dinner, so you order out. Sometimes you don’t have time to do laundry, so you send it out.
Sometimes you don’t feel like cramming yourself onto the subway, so you take an Uber. Sometimes you woke up too late to have coffee at home, so you buy it on the way to work.
We all have our lazy moments, and sometimes we have good reasons for them. No one wants to come home from work after a 13 hour day and make dinner. In that case, by all means, let Seamless take the load.
But sometimes, we are just lazy and throw money at the problems our laziness causes. Doing any of these things occasionally is understandable, but when they become routine, you have to change something.
11. The More You Buy, the More You Save
Man, stores know how to get us, don’t they? Retailers want us to spend more money than we planned on, so they make offers like, “Buy $100 worth and save 20%. Buy $200 worth and save 30%.”
Those kinds of sales can be hard to resist, and sometimes they can save us money.
If there is an offer to save more by buying a large quantity of something you use a lot like self-care or cleaning products or foods that are shelf-stable like cans of tuna or tomatoes, buying more is not a bad thing.
But when it comes to things like clothes or shoes or DVD’s, you are spending unnecessary money. You might need a new pair of black pants or a new pair of work shoes, but you don’t need three new pairs of pants or three new pairs of shoes. Don’t get sucked in.
12. You’re Too Cheap
Haha! Gotcha didn’t I? You thought being too extravagant with money was going to be on this list. How can anyone be too cheap?
Well, you’re reading Frugal For Less, so you are already probably less extravagant with your money than a lot of people which means I don’t have to tell you to stop being extravagant.
But I might need to tell you to stop being too cheap. Remember, there is a very great difference between being frugal and being cheap. Being cheap can cost you money in the long run.
If you always buy the cheapest option, sometimes you are going to buy things that are of poor quality. When you purchase poor quality items, you have to replace them more often than if you had purchased something that was a little more expensive.
You don’t have to buy the most expensive option to get good quality, but you are rarely going to get a good quality item that is also the cheapest option. When you need to spend money, do a little research and make sure you are getting your money’s worth.
13. Habits are Not Destiny
We are our habits, but we can break our bad habits, so habits are not our destiny. It’s exceptionally easy to develop bad money habits because we learn them so early. Our habits surrounding money are set by just age 7.
But we learn a lot of new things after age 7, and we can learn good money habits at any age. Don’t let your worst money habits destroy your long-term financial goals.