Habits are easy to form and hard to break, especially when it comes to how we spend our money. We often make financial decisions on autopilot, without giving them much thought before or after, from the daily coffee run to shopping as a way to relieve stress. So what are the worst money habits you can have and how do you fix them?
Not understanding your spending
No matter what your age or income is, any financial adviser worth their salt will tell you to start with drafting a budget. The aim of a budget is not to impose draconian measures on your lifestyle but to gain an understanding of your spending habits and identify areas of improvement.
“The main thing is to have an idea of your cash flow and do a list of big ticket items and expenses,” says Marc Bineham, director at Noall & Co and vice president of the Association of Financial Advisers. “It’s amazing how much that helps people realise what their spending habits are and it puts some certainty around their financial condition.
“It makes you think twice about your spending, so it’s a very powerful thing to have that understanding, particularly at a young age.”
Writing down your monthly expenses and working out a budget should take no more than 10 to 15 minutes every month, Bineham says. “Otherwise no one will do it.”
There are many benefits to saving, among them financial security, the ability to meet financial goals and being able to deal with unexpected expenses. Failure to establish a regular savings plan is one of the worst money habits to fall into so nip it in the bud quickly.
Bineham advises making your savings part of your monthly bill cycle and making it the first bill you pay. “Make yourself your own creditor,” he says. “The first bill you pay should be to yourself into a separate high-interest savings account by direct debit. That one tip works incredibly well. We’ve seen people save for a deposit for a home or a holiday without realising it.”
If you haven’t been a regular saver so far, don’t be too ambitious to start with or you may fail, Bineham warns. “Start with something you’re not going to miss, such as $100 a month. After six months, you may find you can increase it. People usually do.”
Accumulating credit card debt
Credit cards are wonderfully convenient but credit card debt can be crippling on your financial stability. With interest rates ranging to over 20 percent, you end up paying a lot more than the original purchase price and it can take years to pay off the debt.
Ideally, you should pay off your credit card balance in full each month. If you already have credit card debt, Bineham advises shifting the debt to another credit card with a no interest period and using that timeframe to pay it off in its entirety.
Not paying bills on time
What’s a few days here or there, right? Unfortunately, not paying your bills on time will give you a poor credit history – and it’s a bad money habit to fall into. Lenders can use your credit report to determine whether to approve your loan applications, so a bad report can affect important aspects of your life.
A good way to break this habit is to set up an automatic payment via direct debit to all your regular bills. Alternatively, set calendar reminders for yourself to ensure you never miss a payment.