Most of us can recognize good money habits: Spend less than you earn, save for emergencies and the future and pay down debt. These habits may help put you on track for a healthy financial future.
But it’s equally important to know which actions to avoid, as they may be a detriment to you saving or are simply not as helpful as you may think. Here are five bad financial habits you may be practicing without even recognizing it.
1. Not Having a Budget
Sure, you may have money left over at the end of the month. But if you don’t have a budget, you may not be saving as much as you otherwise could.
Having a budget may help you make deliberate choices about every dollar. It helps you put aside money for short-term goals, like saving for a down payment on a house, and long-term goals, like saving for your retirement. It also helps you make sure you have enough to cover those infrequent expenses that you may otherwise not think about, like an unexpected doctor’s bill or the fees for your kid’s sports league.
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The simplest budget only consists of two categories: saving and spending. You could further subdivide the spending category into distinct line-items like housing, transportation and food. But if the thought of micromanaging your money feels overwhelming, then at least create a two-category budget, so that you’ll be deliberate about the amount you save.
2. Not Having a Plan
Create a 5-, 10- and 30-year financial plan and then ask yourself how you’ll arrive at each goal. For example, let’s say that in 30 years you want to retire. How much money will you need to live comfortably in retirement? Work backward from there to determine how much will you need to set aside each month to reach that amount in 30 years.
Things may change in the future, and if they do, your plan can change with them. But don’t try to wing it. There’s wisdom in the old saying, “Failing to plan is planning to fail.”
3. Relying on Willpower Alone
Most of us want to break bad financial habits, but we keep tripping up despite our best intentions. If willpower was sufficient at breaking your bad money habits, you’d have broken them by now. The answer? Take yourself out of the equation.
Let’s say you’re having trouble saving money. Set up an automatic transfer from your checking account to your savings account at the beginning of each month. The money will get deposited into savings before you have a chance to see or touch it, removing any temptation you might have to spend it on something else.
4. Spending Hours to Save Only Cents
You may feel savvy by spending hours coupon-clipping or endless comparison shopping, but in the end, these strategies sometimes waste more time and energy than they’re worth.
Let’s imagine that you spend Saturday afternoon driving from store to store because bread is cheaper at one store, milk is cheaper at the other store and bananas are cheaper at the next. You save a few dollars on your grocery bill, but it comes at the cost of several hours of your time (not to mention the cost of the gas you used).
You might get better results from spending that time pursuing bigger wins, like cutting you cable TV package or reducing your cell phone bill by lowering your data plan. Those types of moves may feel less exciting, but they may offer larger returns.
5. Letting Your Emotions Trip You Up
Many bad habits stem from viewing your finances with your heart instead of your head. Ask yourself which money traps you fall into most often, then ask yourself which emotions are behind them. If you’re a shopaholic, for instance, the emotion that drives your addiction may be boredom or the excitement of a “good deal.” What’s a healthier way (emotionally and financially) to address these feelings?
If you’re bored, you could volunteer, join a book club, start exercising or learn a new skill. Any money habit based on a negative emotion is an unhealthy financial habit.
If you mess up — and you will, from time to time — don’t beat yourself up. We all make mistakes. Learn from your experiences and move on — and as you eliminate these bad habits, you should start to notice a positive difference in your finances.