Home > Personal Finance > 5 Bad Money Habits You Can Break Today

Comments 0 Comments

Article Re-Written August 10, 2018 by Elisa Ortiz

Everyone has bad habits. It’s just a part of being human. I try to squash a bad habit as soon as I recognize one, and I’m sure you’re in the same boat. It’s easy to develop bad money habits early on in life, and it can be difficult to kick them once you recognize them. In a time where many people are living paycheck to paycheck, bad financial habits can potentially cost you thousands of dollars – money you could be investing for retirement or saving for a down payment on that dream home. Which of these bad habits are you guilty of? And how can you stop them?

  1. Spending More Than You Can Afford on Credit Cards

Most credit card interest rates are well over 15% (and that’s on the low side), which is bad news for cardholders who carry balances month to month. These high interest rates mean you’re paying more in interest and that your debt is adding up quicker. Worse yet, many people get stuck in a cycle of credit card debt – a habit that just seems to never go away.

Many consumers make what they consider to be “educated guesses” as to whether they can afford putting new expenses on their credit card because they just have to have that new Apple Watch, or just one more chai latte at Starbucks to get them through that afternoon slump. The problem is that people think they will be able to pay off those extra expenses at the end of the month, but they can’t really calculate their future expenses. Maybe there was a medical emergency that left them strapped for cash at the end of the month, leaving them unable to pay off the extra expenses they put on their credit card.

What can be even more challenging is if you’re living paycheck to paycheck, small emergency expenses can cause enough of an impact to make you late on your credit card payments. If you’re late once, then you can easily develop the habit of being late over and over again, until your credit score and amount of debt start hurting. Late payments negatively impact your credit score, and if your score drops low enough, then it can mean higher interest rates for you in the future. (You can see how your credit card debt is affecting your credit by getting your credit scores for free on Credit.com.)

Unless you’re entirely sure you can pay off your credit cards in full every month, you may want to seriously consider not using them. If you already have a high balance, and the temptation is too great to use them, then you can try leaving them at home, so that you can’t spend more on them while you focus on paying down the balances.

  1. Opening New Lines of Credit for Rewards

I’m sure you’ve been at a store making a purchase when the cashier asks if you’d like to sign up for their store credit card to get an additional 10% off your purchase. Or you’re browsing the web late at night and you see a travel rewards credit card that offers 50,000 points, which will pay for your next round-trip if you spend $3,000 in the next three months. Plus, you’ll get 2% cash back on all your purchases…but there’s also an annual fee.

In a lot of cases, credit cards offer huge sign up bonuses that will hook you, but the spending thresholds are high, and you might not be able to pay off the balances, or pay the annual fee, so aside from the sign-up bonus, the card may not be worth it.

Not only that, but opening up new lines of credit causes hard inquiries. The more accounts you try to open, the more this will negatively impact your credit. Eventually you’ll reach a point where you’ll start being denied because applying for many accounts raises red flags. If a sign-up bonus seems too good to pass up, take a moment and really consider whether you’ll actually use the credit card, whether the sign-up bonus and rewards are worth it, and if you’ll be able to pay the balance in full each month.

  1. Not Using a Budget

One of the best habits you can develop with your personal finances is tracking your transactions so that you can very clearly see where you’re spending your money. Not using a budget sets you up for failure. The second you look at your zero (or negative) balance in your bank account, you’ll ask yourself “where did all my money go?” Tracking your expenses will help you understand where you’re spending your money, and how much you’re spending.

Try tracking your expenses for a month – you can use a spreadsheet, or one of many free budgeting programs that are available online. When the month is over, categorize and add up your expenses. There are common categories that people tend to overspend on, including:

  • Groceries
  • Entertainment
  • Eating Out

Once you’re able to figure out where you’re overspending, try making a few goals. Try lowering how much you’re allowed to spend in your problem categories incrementally month by month. It’s ok to allow yourself money to play, but make sure you can afford to do so.

Once you’ve been tracking your expenses and paying attention to your spending habits, you’ll be able to allocate your money wisely, which can save you thousands of dollars.

  1. Impulse Buying

Have you ever heard you should never go grocery stomach on an empty stomach? That’s because you’re more likely to buy things that you don’t really need. When you go to the store, it’s always a good idea to bring a list with you. Stores are laid out to get you to spend more money – from grocery stores to clothing and furniture stores. Unfortunately, this leads to buyer’s remorse. I’m sure we’ve all felt it at one point.

It’s also easy to rationalize buying something you don’t really need when there’s a sale, because maybe, you’ll use it eventually. And then it just gathers dust and you spent good money for no reason. There are things that we want but we should make sure that there is room in our budget for these things, and we want to make sure too that we’ll be putting them to good use.

Impulse buying is something that can cost lots of money. If there’s not room in our budget for something that we don’t really need and we buy it, then that means there isn’t enough money to cover what we actually need. Or worse yet, we charge it to a credit card and can’t pay it at the end of the month.

One way to curb impulse buying if this is a habit that you’re prone to is to carry around cash only when you go out so that you only buy the things that you need. It’s also a good idea to take a step back and ask yourself two important questions: 1) “do I really have to buy this now?” and 2) “can I really afford this?” Once you’re able to stop making those impulse buys you’ll see your savings add up and that it’s easier to manage your finances. Then, when there is actually something that you want, you’ll be able to better afford it.

  1. Using Investment Accounts as Emergency Funds

When a financial emergency comes up, some people raid their investment accounts. Sometimes, it can even become habitual. If you don’t have good credit, it can be difficult to get approved for a loan, and that 401(k) may be the only source you can turn to to take care of your emergency. The tax penalties on withdrawing from retirement accounts can be high, and doing so loses you potential earning power.

As an alternative, you can open a high-yield savings account to be your emergency fund and not touch it unless there’s a true emergency. Some emergencies that can crop up when you least expect it are medical bills, job loss, car repairs, and etc.

One good habit you can get into instead is taking extra money you’ve earned every month and putting it away in your emergency fund. The recommended amount is three to six months-worth of expenses, but if that’s not manageable, set a goal, like $1,000, or even $500. If you manage to cut down on your budget, or you pay off all your credit cards, you can take the extra money you’re saving and put it away in your emergency fund. Any bonuses you get at work can also be contributed. Also, if you have a direct deposit set up on your bank account, have a certain amount each paycheck allocated to your savings account so that you don’t even realize the money isn’t there for you to spend.

Say Hello to More Money

Bad financial habits aren’t always easy to correct. It requires a shift in the way that you think about money. You might have some bad financial habits right now that you can start working on. Pick one and work on it for a month. If you stay focused, you might find that it’s easier to break than it seems. The rewards? More money in your savings and less financial stress. Do it. It’s worth it.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

 

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team