Breaking bad financial habits may be a challenge. If you’re making financial new year’s resolutions, you might consider making a review of your financial habits part of the process. It’s not uncommon for people to have bad money habits that they don’t realize are hurting them.
We want our valued members to be in good financial health. As you prepare your list of resolutions, we hope you’ll use this list of 11 bad financial habits and swap them out for the healthy money habits we recommend in the new year.
#1: Not Having (and Sticking to) a Budget
Budgeting is a healthy financial habit that too many people ignore. When you create a budget, you’re committing to living within your means. Sticking to your budget can make it easy to adopt other healthy money habits that are impossible without a budget.
If you don’t already have a budget, the best time to start is now. You can use our free budget calculator to enter your income and expenses. From there, it’ll be simple to save money and plan for a healthy financial future.
#2: Making Impulse Purchases
Impulse purchases can lead to bigger financial issues down the road since they often result in overspending. Some examples of impulse buys include in-app purchases and those last minute items you add to your grocery cart as you wait in line at the register.
You can avoid impulse buying by making a list before you go shopping and then sticking to it. You may also want to set spending limits for apps you use regularly—something that’s easy to do when you create a monthly budget.
#3: Not Prioritizing Saving
You may have heard that the best way to save money is to make paying yourself a priority. We sometimes talk to Addition Financial members who pay for everything else first before they think about saving. Switching those priorities (in the right way) can make it possible to save more.
Of course, we’re not recommending that you avoid making necessary payments. Rather, we’re saying that if you set a SMART savings goal and build it into your budget, you’ll be less likely to push saving money to the back of the line as a financial goal. Remember, you can always set up automatic transfers to your savings account to coincide with when you get your paycheck.
#4: Not Taking Advantage of Compound Interest
Putting your money in investments or accounts where you earn compounding interest is one of the best ways we know to maximize your savings. You can improve your personal finance habits across multiple areas by avoiding this one detrimental money habit.
You can earn compound interest in a variety of ways. Options include a traditional savings account, a high-interest savings account or a money market account. Small savings can grow exponentially if you start early and add to your savings on a regular basis.
#5: Not Having an Emergency Fund
You never know when your financial situation might change. It could change for the worse if you lose your job or take a cut in pay, or if you or a family member gets sick. For these reasons, it’s essential to have an emergency fund with enough money to pay for at least six months’ worth of expenses.
Only 19% of Americans increased their emergency savings in 2023. We suggest prioritizing emergency savings, which should be sufficient to cover six or more months of expenses. (We’d suggest a year if you’re the sole breadwinner or work for yourself.) You can start by setting up automated transfers to a dedicated savings account, preferably one with a high interest rate.
#6: Getting Credit Card Cash Advances
Credit card cash advances offer a quick way to get cash but they come with a high price. Interest rates on cash advances are higher than average and they can lead to a pile of debt that can leave you in real financial trouble.
Having a budget and an emergency fund can help prevent the need for credit card cash advances. If you don’t have any savings, you may need to tighten your budget to allow for regular monthly savings. Once you’ve done that, you’ll have money that’s accessible and you won’t be tempted to go for a cash advance.
#7: Accumulating Too Much Debt
Credit card debt is an issue for many of us and if your debt is too high, it can impact every other part of your life, even putting your financial goals out of reach. Using too much credit can negatively impact your credit score.
Instead of using your credit card, we suggest a spending habit that requires you to use cash or a debit card instead of a credit card. You can put your debit card information into a mobile wallet to keep your spending secure. An alternative would be using a rewards credit card and paying the entire balance each month.
#8: Not Planning for Retirement
Most of us want to retire, but a report from CNBC found that 56% of Americans don’t have enough money saved to retire comfortably. Very few of us could live on Social Security payments alone.
When you’re choosing financial goals, retirement planning should be a priority. Without proper planning, you could outlive your savings. Combining several good money habits, we suggest automating your retirement savings to take advantage of compound interest to make sure you’ll have the money you need to retire when you want to.
#9: Paying for Unused Subscriptions
It’s become increasingly common for companies to turn what used to be one-time purchases into subscriptions. These subscription costs can add up quickly—and because they’re usually billed automatically, it’s easy to lose sight of how much you’re spending.
You may want to consider using a spending app to track recurring purchases and cancel those you aren’t using. Whether you signed up for a free trial and forgot to cancel or you’re just not watching that streaming service enough to justify the cost, it’s possible to find $100 or more in unnecessary monthly spending.
#10: Emotional Buying
If shopping’s an activity you turn to when you’re upset, you may be spending more than you intend to spend. Getting something new might make you feel a little better in the short term, but it could also be getting in the way of your financial aspirations.
You may be able to get emotional buying under control by finding other ways to soothe your emotions. Examples might include getting out in nature, doing something creative or getting some exercise.
#11: Convenience Spending
How many times have you popped into a convenience store for something you need and paid an exorbitant price for it? While we understand that conveniences may be necessary at times, relying on convenience spending can do a number on your budget.
A little bit of planning can help you avoid the need for convenience purchases most of the time. For example, keeping a running grocery list on the refrigerator or setting aside time to meal prep on the weekends can do a lot to help you avoid convenience spending.
Money Management Tips to Build Good Financial Habits
Even one bad money habit can derail your financial goals. Here are some of our best money management tips to help you build good habits and keep your financial goals on track:
- Find an accountability partner: Choose a friend, partner or sibling to check in with about financial goals. For example, if you have a bad spending habit, you might ask someone to help you steer clear of overspending or impulse buying.
- Use financial affirmations: It can sometimes be difficult to keep your goals in sight. Using a financial affirmation that’s specific to your goals can help you avoid unnecessary spending.
- Write down your goals: Research has shown that people who write down their goals are 42% more likely to achieve them than those who don’t write them down. You may want to post a written list of your goals near your work space or on your refrigerator to make sure they’re at the front of your mind.
- Use a spending app: There are tons of spending apps out there. They can help you get a handle on how much you’re spending, create spending budgets and even help you identify and cancel unwanted subscriptions.
- Create milestone goals: When you’re working toward a long-term goal, you might not recognize how much progress you’ve made. Breaking a large goal into smaller goals can help you stay on track by giving you a chance to appreciate how far you’ve come.
These tips can make it easy to achieve your goals by giving you the tools and encouragement you need to stay on track financially.
Break Bad Financial Habits with Help from Addition Financial
Bad financial habits can prevent you from achieving your most important money goals, whether you’re saving to buy a house or planning for retirement. The 11 bad habits that we’ve identified here, together with the money management tips we’ve shared, can help you break those bad spending and saving habits and allow you to reach your financial goals.
Do you need help with money management? Addition Financial is here to help! Click here to read about our MEMBERS Financial Services program and make an appointment today.
Posted on Dec 27, 2023
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