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How to Fix Bad Money Habits
Learning how to use money wisely is an essential skill that isn’t always taught to us early in life. Some of us pick up bad money habits on our journey to adulthood. Often, we’re just not being mindful of where our money goes.
We’ve made a list of bad money habits, how to break them, and how to replace them with good habits.
1. Using credit cards to pay for a lifestyle beyond your means – It’s easy to spend wildly with a card; you don’t see the money slip away until you get the monthly bill. If you can’t pay off your credit card balance each month, then at least pay more than the minimum payment. Remember that even if you don’t use the card, the interest charges will compound, increasing your total debt. To break a credit card habit, try using cash or your debit card instead for a few weeks and look at your checking account balance every day. You’ll quickly learn to stop and think twice before making a purchase.
2. Living paycheck to paycheck – If you’re spending as much as you earn, you’ll always be short of funds by the end of the month for your rent and bills, and you’ll never be able to save. So, first, get a clear picture of your essential expenses: your rent, utilities, gas, insurance, groceries. Add them up, then deduct that total from your monthly take-home pay. Ideally, essential expenses should take up only 50% of your income. If it’s more, you’ll need to either find ways to reduce those expenses or increase your income. Of the remaining 50% of your monthly income, use at least 20% to pay down debt and add to savings and use the last 30% for everything else you want.
3. Not saving for an emergency fund or retirement – Life is unpredictable; you can’t always tell when your job may be downsized, or your car needs a major repair. That’s why it’s important to build an emergency savings account that has enough to cover at least 3 months of expenses. Relying on a credit card will only send you further into debt. It’s also important to begin saving for retirement. The younger you are when you start, the more you’ll earn through the magic of compounding interest.
4. Keeping subscriptions you don’t use – If you have an automatic recurring expense, like a gym membership or a streaming service, but you aren’t using them consistently, then why are you paying for them? Review all subscriptions and if you haven’t used them regularly for 3 months, cancel them. Put the money you save into your savings.
5. Not tracking spending - If you’re not tracking your spending, you can’t have a clear understanding of where your money is going. Try tracking one month to get a clear idea of where you are spending your money. Keep a receipt for every purchase, categorize them in a budgeting app or spreadsheet, and add them up. You may discover that buying lunch every day instead of making your own is costing you about $200 every month, money that could be used to pay down a student loan or credit card bill.
It will take some work to change bad money habits to good money habits. As it becomes more familiar, you’ll find the new habits easy and rewarding.
Source: Copyright Credit Union National Association Inc.
We’ve made a list of bad money habits, how to break them, and how to replace them with good habits.
1. Using credit cards to pay for a lifestyle beyond your means – It’s easy to spend wildly with a card; you don’t see the money slip away until you get the monthly bill. If you can’t pay off your credit card balance each month, then at least pay more than the minimum payment. Remember that even if you don’t use the card, the interest charges will compound, increasing your total debt. To break a credit card habit, try using cash or your debit card instead for a few weeks and look at your checking account balance every day. You’ll quickly learn to stop and think twice before making a purchase.
2. Living paycheck to paycheck – If you’re spending as much as you earn, you’ll always be short of funds by the end of the month for your rent and bills, and you’ll never be able to save. So, first, get a clear picture of your essential expenses: your rent, utilities, gas, insurance, groceries. Add them up, then deduct that total from your monthly take-home pay. Ideally, essential expenses should take up only 50% of your income. If it’s more, you’ll need to either find ways to reduce those expenses or increase your income. Of the remaining 50% of your monthly income, use at least 20% to pay down debt and add to savings and use the last 30% for everything else you want.
3. Not saving for an emergency fund or retirement – Life is unpredictable; you can’t always tell when your job may be downsized, or your car needs a major repair. That’s why it’s important to build an emergency savings account that has enough to cover at least 3 months of expenses. Relying on a credit card will only send you further into debt. It’s also important to begin saving for retirement. The younger you are when you start, the more you’ll earn through the magic of compounding interest.
4. Keeping subscriptions you don’t use – If you have an automatic recurring expense, like a gym membership or a streaming service, but you aren’t using them consistently, then why are you paying for them? Review all subscriptions and if you haven’t used them regularly for 3 months, cancel them. Put the money you save into your savings.
5. Not tracking spending - If you’re not tracking your spending, you can’t have a clear understanding of where your money is going. Try tracking one month to get a clear idea of where you are spending your money. Keep a receipt for every purchase, categorize them in a budgeting app or spreadsheet, and add them up. You may discover that buying lunch every day instead of making your own is costing you about $200 every month, money that could be used to pay down a student loan or credit card bill.
It will take some work to change bad money habits to good money habits. As it becomes more familiar, you’ll find the new habits easy and rewarding.
Source: Copyright Credit Union National Association Inc.