With 2023 just beginning, now is the perfect time to start examining your money habits. Like smoking or watching too much television, bad financial habits can cause frustration and harm. When it comes to bad money habits, the effects can be detrimental on your household and lifestyle. From paying thousands in credit card interest to damaging your credit, poor spending habits can cause a lot of uncertainty in life.
The good news is that bad money habits can be broken with determination and effort. The first step is recognizing what you want to accomplish and examining which habits are preventing you from reaching those financial goals. Once you are aware of your bad habits, you can develop a plan to break them. Here are four bad financial habits and what you can do to break them:
1. Spending Money Impulsively
Research shows that the average household spends nearly $20,000 per year on nonessential items. This amount covers everything from going out to eat to enjoying happy hour with friends to taking a tropical vacation. Impulsive nonessential spending leaves less money in your budget for essential things like mortgage payments and car notes.
You do not have to completely eliminate nonessential spending from your budget. In fact, it is unrealistic and unhealthy to think you can completely get rid of luxury items. However, examining your monthly expenses and separating the wants from the needs is a great first step to cutting back on unnecessary spending.
Creating a reasonable budget is also a great way to stop unnecessary spending. Your budget should account for every expense, including entertainment. Stick to that budget and stop once the money allocated for discretionary spending for the month is gone.
2. Not Saving for the Future
If you are like most people, you have goals for the future that require financial resources. Whether you want to buy a house in the next five years or you want to retire early, your goals will take a significant amount of planning and saving. However, most of us are not actively planning for the future. A significant percentage of Canadians 25 years and older have no retirement savings at all, and many more only have a few thousand dollars saved. Further, many people do not have enough savings to cover a basic expense such as a car repair expense or medical bill.
The first step to break this habit is to simply start saving. Set up an automatic transfer from your checking account to your savings account each month. Even if you can only afford to transfer $10 each month, it is a start. Start the automatic transfers and do not touch the money unless you have an emergency, and always replenish the funds you use.
3. Relying on Credit Cards
Most of us have at least a few credit cards that we regularly make everyday purchases with. Having a credit card in itself is not a bad thing. Responsibly use is often necessary to build a good credit score, and the travel and other rewards associated with cards can be significant. However, most people do not pay off their balances in full every month. Carrying a credit card balance is dangerous because interest accumulates quickly and before you know it you have a bill you cannot pay.
If you struggle with overspending on credit cards, cut them up. Don’t tempt yourself. Take the temptation out of the equation altogether if you are struggling. If you want to have a credit card or two to build credit, don’t open up cards with high credit limits. Keep limits low and pay off your balance in full each month.
4. Not Sticking to a Budget
Not creating a budget — or not sticking to it once you have one — pretty much ensures you overspend on unnecessary items. A budget is like a road map that points you in the right direction. A budget does not need to be complicated or fancy. You simply need to include all of your expenses and income sources. You cannot spend more money than you have coming in each month.
If you find yourself short at the end of every month, examine your budget carefully and cut out unnecessary items such as cable television or eating at restaurants. If you are in a relationship, it is important that both you and your partner stick to the budget. Your finances can quickly spiral out of control if only one of you is taking the budget seriously.
Contact LoanConnect for Emergency Financial Help
Even with great money habits, unexpected problems sometimes arise. If you need emergency funds to cover an unexpected expense or medical bill, contact LoanConnect now. We can connect you with a loan that comes with a reasonable interest rate and a low monthly payment. Don’t stress about unexpected expenses any longer. Get the help you need right now. Apply for a loan today and receive the funds you need as soon as tomorrow.