“What bad financial habits? I have none.” – said no one. Whether we like it or not, all of us, including myself, have some bad financial habits. For some of us, they could be small and not really that harmful, or for others, large enough that they are really holding us back from achieving our financial goals. To have a healthy financial situation, grooming yourself to develop favorable financial habits is key. But first, you’ll need to quit the bad habits. Let’s take a look at some important financial habits to quit and how to go about quitting them for good.
Sit down and think/plan
In our fast-paced world, we often times run on auto-pilot. We allow our habits to prompt what we ingest, read, watch and even how we spend our money without giving much thought to these actions. When you spend money just to spend money or to satisfy an impulse, you lose out on the gratification of reaching your financial goals sooner. Aside from family and health, finances are one of the biggest parts of a person’s foundation. For that reason, you should always make time to sit down and think about where your money is going. Start off by asking yourself questions like, “Is my spending in line with my values?” and more importantly “with my goals?”. What are my financial goals? What plan can I put in place to achieve them? Take adequate time to assess your financial situation; it cannot be squeezed between your twitter postings and driving to work.
Mind your budget
If you have unlimited income, this blog post is not for you, so please leave quietly. For the rest of us, our income is limited, not necessarily low, just limited. That means, since what we’re able to contribute to our savings is limited, we should make efforts to limit our expenses. We can’t spend more than we make, but a majorly bad financial habit is that over 60% of us either spend more than we make or break even (a professional and nice way of saying ‘living paycheck to paycheck’). This means that we’re not saving anything and/or are further going into more debt. While we may not like the word ‘budget’, that’s exactly what the doctor prescribed, a detailed rundown of expenses and savings for goals that are at or below our income. If you want to start budgeting, you can request a budget sheet from InvestEd.
Say no to credit when possible
Credit is the invention that makes the world go around, but at the same time, it can be the invention that can get you stuck in place for many years, not save much at all, and keep you at a miserable job just because you have bills to pay. Credit is NOT ‘found money’ and it needs to be repaid, with interest. But still, many people use credit in an irresponsible manner without much thought or a sound plan for repayment. Debt and its payment were the number one financial stressors for most people in a recent survey. Use credit wisely. An example could be using credit for big things like a house or reasonable student expenses but avoid carrying credit balances on credit cards or other short-term loans. This ‘found money’ soon becomes ‘stress money’ that asks a lot more than just interest from you.
Avoid emotional spending
We hear it all the time, “I did something good and I just deserve it”. Sure, you may deserve something, but is it that few thousand dollars purchase of ‘insert a depreciable item that will lose value and interest from you in the next 3-6 months’? Sometimes our spontaneous ‘I deserve it’ purchase, especially if we haven’t saved for such spending, becomes ‘I deserve the debt that came with it’. Be reasonable with yourself and always refer back to your budget. If buying something is incentive enough for you to reach a personal goal, by all means, do, but make sure it is logical financially for your current situation.
Automation is your friend
Another bad financial habit it consistently talking about getting better with handling your finances, but not following through. The next time you have a conversation with a friend, spouse or ideally, a financial advisor, and you agree to kick a bad financial habit, just do it, right then and there. Make it automatic. We forget, we regret, we may not have money later etc., so just make the good habit you just talked about, AUTOMATIC. Set up direct deposit to a savings account or create an account with a budgeting app that will track your spending and alert you when you’re close to reaching your allotted funds for a period.You might feel like you’re back to training wheels, but having these accountability buffers helps keep you on track until you’re able to move along on your own with ease. Be patient with yourself.
Stop listening to music
Financial music that is, which I refer to as white noise. It’s just financial media wanting to fill-in their time slots between commercials. Please avoid both the time between commercials and hopefully the commercials as well. Most of the time, financial media will make you react to some financial noise when the best move is no reaction at all, especially if you have a good long-term plan drafted and in order. Don’t fall for the quick emotional buck.
Manage your panic & euphoria
Please avoid both while investing and planning for the long-term. While these feelings happen sometimes in the stock market, they are extremes and are advised to be avoided. Panic will make you sell at the wrong time, while euphoria will make you buy at the wrong time. Your best bet is to find a way to be somewhat neutral.Develop a long-term plan for your goals and just leave panic and euphoria to drama students.
These are just some of the bad financial habits we see around us, and of course, we can think of more, but the suggestions for quitting these few bad habits can lay the foundation for helping to eliminate others. It is said that we’re made of habits, and if that’s the truth, then let’s create some good habits instead. Make a financial plan, save periodically for your goals, automate your bills and your savings, invest early to take advantage of compounding and share this knowledge with people you love and care about. Bad financial habits are all around us, but so are the opportunities to rise above and do what’s good for ourselves and others.