5 Bad Money Habits That Need to Go

Image credit: https://investedwallet.com/14-bad-money-habits/

Whether you have money in your savings account or are drowning in debt, getting rid of these bad money habits will be a great step towards improving your financial well-being. Think of these bad habits as if they were a leaking faucet, flushing your hard-earned dollars down the drain. Once you fix the leak, you will be able to do more with your money, so let's get started.

Bad Money Habit #1. Letting your budget figure itself out. 

Think of your budget as a wild animal. If you let it run free, it will bite your head off. If you tame it, it will be a faithful and caring companion. If you're new to budgeting, begin with totaling your income (after taxes). Then subtract your fixed expenses (such as rent and other monthly bills that do not fluctuate depending on usage). Then calculate the average you spend on fluctuating bills (electricity, gas, etc.). For instance, add how much you spent on gas in the last 6 or 12 months and then divide that total by either 6 or 12. Repeat this for each fluctuating expense and subtract each average amount from your income. Finally, analyze your spending. How much do you spend on Uber, eating out, grocery shopping, entertainment, and so on? Many financial experts recommend that you save at least 20% of your monthly income. If you're able to do that, good for you. If you aren't, think about how you can lower your expenses (save electricity, walk instead of taking an Uber, eat at home instead of going out, etc.) to reach this monthly goal. If you cannot cut down your expenses, think of a way to make extra money on the side. Also, think about what you are saving for. Are you planning to buy a house? Would you like to go on a nice vacation at the end of the year? Having specific goals keeps you motivated to save and increases the likelihood of reaching your goals. 

Bad Money Habit #2. Paying interest on your credit card purchases.

While credit cards can be a great way to make large purchases that might be hard to pay for at once, they are designed to whet your appetite for purchases you cannot afford. They allow you to stretch your budget whenever you need (or want) to, which might lead to debt accumulation. That's how credit card companies make money and you lose money. Whenever possible, try to pay your credit card bill in full by the date it's due to avoid paying interest. Many credit cards offer cashbacks, so if you use your cards wisely, they will pay you to use your cards (and not vice versa). If you have to carry over a balance, come up with a plan to pay it off as soon as possible. If you have multiple credit cards, you can rotate your usage, which will give you more time to pay (use your Mastercard while you paying off your Visa balance) and save on interest. And, most importantly, avoid making impulsive purchases, especially the expensive ones. Consult your budget and see how that purchase affects your spending to saving ratio and decide if the purchase is worth it. 

Bad Money Habit #3. Downplaying your debt.

Perhaps, the biggest mistake you can make when it comes to thinking of your debt is believing that you "don't owe too much money." Maybe you don't or maybe you do. Think of your debt in terms of concrete numbers: "if I pay x amount every month, I will eliminate my debt in y amount of months." Knowing how much you owe and how long it will take you to pay it off sets up realistic expectations and enables you to adjust your budget accordingly. That credit card bill, back taxes and speeding tickets won't pay themselves. The longer you're putting off the payment, the bigger problems you will have in the future, so you need to have a plan. Check your budget to see how much money you can dedicate towards paying your debts and set up automatic payments if possible. Also, whenever possible, make sure the amount you pay is larger than the interest or fees you are paying every month. Otherwise, your debt will keep growing, and you won't get any closer to paying it off. 

Bad Money Habit #4. Spending Money To Make Money.

Though every job comes with its own expenses, you have to make sure to subtract those expenses from your income. If you drive for work, do you get reimbursed for gas? If no, subtract your gas expenses from your income. You are paying that amount regularly just to go to work. Once you do that, you might find that you are making less money that you thought you did. Adjust your budget accordingly. Considering your work-related expenses when budgeting helps you analyze your income and brainstorm some ways to increase it if necessary (switch careers, take on extra work, and so on). Whenever possible, try to minimize the amount you spend while making money. Otherwise, you run the risk of working hard and not seeing the fruits of your labor in your bank account, which can be discouraging and even depressing. 

Bad Money Habit #5. Not Investing into Your Retirement.

If your company offers to match your investment into your retirement (401K or its equivalent), and you aren't taking advantage of their offer, do reconsider. Investing as little as 3% of your paycheck adds up over time, and, if you budget well, you probably won't miss that in your paycheck. Find out the maximum amount your employer is willing to match and invest at least that amount if possible. If you can, aim to invest 10-15% of your pre-tax income into your retirement to make sure you can live comfortably when you no longer work for a living. If your employer isn't offering a 401K, research some other ways to save up for your retirement. Though retirement seems like a vague dream to someone in their 20s (especially if they are barely earning enough to get by and have student loans to pay), do your best to start saving up for it. Not having to worry about having no income besides Social Security, your future self will be grateful for your sacrifices.

Goodbye, 2020, The Year When Time Stopped

Image Credit

Even though the practically empty Times Square on New Years Eve seemed to suggest otherwise, the countdown to New Year was probably one of the happiest for many of us. 2020 has been an unusual and challenging year in so many ways, bringing on us the global pandemic, economic shutdowns, health concerns, the mixed blessing of working from home, inability to travel not only outside of the country, but pretty much outside of the neighborhood - and this is just scratching the surface. Many people lost their jobs and their loved ones. Many people courageously risked - and lost - their lives on the frontlines, making sure the essential jobs are being done. Many people were and are struggling to pay rent. Counting down to the beginning of 2021 was a symbol of hope that this coming year would be better. We can only imagine all the wishes and resolutions made. 

Yet, perhaps, it is worth taking a moment to reflect on everything we learned this past year. Guided by social distancing and self-isolation, we had a unique opportunity to spend more time by ourselves or with people within our household and to rely on hobbies we could engage in without leaving the house. We have recognized the sacrifices of essential workers we might have previously taken for granted: taxi/bus drivers, train conductors, cashiers, restaurant workers and other people who couldn't work from home and who put long hours into delivering us the essentials we needed. We have gotten accustomed to wearing masks in crowded public spaces, the habit that seems to be here to stay even after the pandemic is officially over. 2020 was the year when time stopped, allowing us to examine ourselves, the society we live in and people we encounter on a daily basis. Placed under the metaphorical magnifying glass, our virtues and flaws became clearer, for better or worse. 

As we look forward to "going back to normal," we have to admit: life will never be the same again after 2020. When the clock of time starts ticking again, it will mark the beginning of a new era, and it is up to each and every one of us to make sure we come out of this experience as better people than we were before. We have to recognize that there is healing to be done, and we need to show kindness and empathy towards ourselves and others. As 2020 taught us, life is priceless and fragile, and it cannot be taken for granted. As it also taught us, we are stronger when we are together and when we help each other. Let us take these positive lessons with us into the new year and use them as building blocks, on which our future will rest.