By Martin A. Smith, CRPC®, AIFA®, President, Retirement Planning Financial Advisor™, Wealthcare Financial Group,...
7 Tips to Break Bad Financial Habits
Developing bad financial habits is easy in today’s fast-paced society. Making instant purchases has never been easier, just click on the online shopping cart and you’re on your way to additional debt. Having high amounts of debt lowers your credit score and affects your ability to make future large purchases, such as a vehicle or a home. Debt can also affect your health as it adds stress to your daily life. Start breaking bad financial habits today with these tips.
1. Cancel Subscriptions You Don’t Use
Review your monthly credit card statement for subscriptions and dues. If you’re not using your warehouse club membership or your gym membership, cancel them. Canceling unused memberships is a great start to eliminating unnecessary expenses.
2. Pack Your Lunch
We all need a break from the office, but eating lunch out is costly. Pack your lunch using leftovers from dinner or plan your lunches for the week on Sunday. With an average lunch cost of $10 a day, you can save as much as $50 a week by packing your lunch. Look for a quiet spot outside to enjoy your lunch.
3. Pay More than the Minimum on Credit Card Balances
Paying the minimum on credit card balances is tempting when money is tight. If your cards have high-interest rates, however, credit card balances will never go away with minimum payments. To break this habit, setup automatic payments to credit cards to pay the balance in full each month or at least pay more than the minimum amount due. Take notice of that Minimum Payment Warning on your credit card statement; it tells you how long it will take to pay off your credit card debt paying only the minimum payment. It also tells you what payment you need to make in order to pay the balance in full within three (3) years.
4. Avoid Making Late Payments
Sometimes we forget when a payment is due and the payment is late. Being consistently late with payments is a habit you don’t want to develop because late payments usually result in fees. This is another situation where automated payments can help break the bad habit of late payments. If your bill is paid by check, then start a budgeting calendar with reminders. (Check out this article for great budgeting apps) Once you get into a monthly routine of paying at a certain time, you are less likely to be late with payments.
5. Don’t Dip into the Emergency Fund
An emergency fund is just that, for emergencies. Make it harder to access by investing it in a money market account or a share certificate. Whatever you do, keep the emergency fund in a separate account and develop a mindset that it is hands-off.
6. Live Within Your Means
Living beyond your means is one of the harder financial habits to break. Every day we receive thousands of marketing messages; sometimes those messages lead us into financial trouble. While it is nice to own the latest gadget, is it really worth the extra increase in your debt? To break this financial habit, separate your “wants” and “needs”, and save in advance for the “wants” rather than increasing your debt for something you don’t really need. You will find that living within your means is a lot less stressful than living beyond them.
7. Pay Yourself First
When you have a lot of debt, it may seem impossible to pay yourself first. Start small if you have to, whether it’s a retirement or savings account. It’s very tempting to spend what is left after pay your bills, but if you include your savings in your budget plan and pay that first just like another “bill”, it will improve your financial situation.
Breaking bad financial habits doesn’t happen overnight; it takes time and dedication, but it is possible. The financial rewards are well worth the effort, as is the reduced stress. By developing a monthly routine, it does get easier. Set up automated payments, pack your lunch, and decide whether or not you really need that latest gadget. Decide today to develop smart financial habits and to change the way you view your finances. By doing so, you’ll be on your way to a better financial future.