Sometimes it’s easier to decide what not to do than what to do. Maybe that’s why so many people have trouble coming up with New Year’s resolutions. Pledging to follow a brand new plan or lifestyle can be a little intimidating, to say the least. It might be more effective to focus on a few specific bad habits that you want to kick. If you’re ready to accomplish more with your money in 2011, here are 7 bad financial habits to get rid of as soon as possible:
7 Bad Financial Habits to Kick
Bad Financial Habit #1: Ignoring Your Cash Flow
One of the best ways to take control of your money is to understand how it flows into and out of your life. That sounds simple, right? Well, apparently it isn’t because close to 60% of Americans don’t track their income and expenses! Either the majority of us are too lazy to create and monitor a spending plan or we really don’t want to know how we spend money, or both. The obvious problem with being clueless about how you spend money is that you’re not likely to accomplish important financial goals. So become your own spending detective and figure out where you can cut expenses and save more for your future.
By the way, I’m giving away two free chapters from my new book, Money Girl’s Smart Moves to Grow Rich, for a limited time. One of them (chapter 2, Creating a Financial Plan) covers what you need to know to assess your current financial situation and tells you exactly how to create a spending plan step-by-step. Be sure to download your copy of both chapters at SmartMovesToGrowRich.com.
Bad Financial Habit #2: Making Impulsive Purchases
Everywhere you turn there’s an opportunity to spend money. I learned a long time ago that the best way to stop making impulsive purchases is to stay out of stores—both online and offline. The more sales, discounts, specials, and buy-one-get-one offers you see, the more likely you are to buy something you don’t really need. When you’re tempted to make an impulsive purchase, don’t do it—wait 24 hours and reevaluate. In most cases, you’ll realize that you can live without the item and that you’re not half as excited about the purchase as you were in the heat of the shopping moment.
Bad Financial Habit #3: Using Credit Cards for Purchases You Can’t Pay Off
A credit card can be a fantastic financial tool—when used responsibly. It takes a lot of maturity and self-control to use credit cards only for purchases that you can pay off in full every month. If you can’t pay cash for something then you shouldn’t purchase it with a credit card either. Make it a rule to use credit cards for the convenience, rewards, and purchase protections that they offer—not to finance a lifestyle that you can’t afford.
Bad Financial Habit #4: Forgetting an Emergency Fund
I get frequent e-mails from Money Girl podcast listeners who need advice about how to get out of a financial jam, like losing their job or being unable to work due to do a medical crisis. In most cases, they wouldn’t be in a jam if they had an emergency fund to fall back on. Don’t wait until it’s too late to learn this important lesson. Start putting aside enough money each month so you can accumulate at least 3 months’ worth of your living expenses by this time next year.
Bad Financial Habit #5: Procrastinating Saving for Retirement
Many young people don’t think they earn enough to save for retirement. I’ll really sock money away when I start earning more. Oh, that’s a good one. I used the same excuse when I was in my 20s. Middle-aged people have their excuses, too—like I need to save for the kids’ college first and then I’ll focus on retirement. And older folks might procrastinate by saying it’s just too late now to save enough for retirement. Whatever your age or stage in life, you’re the only one who’s in charge of your financial success or failure. If you’re not saving at least 15% of your income for the future, get started right now!
Bad Financial Habit #6: Turning Down 401(k) Matching Funds
Why people turn down free money from their employer is a complete mystery to me. Getting matching funds for your 401(k) or 403(b) contributions is like getting a raise for doing nothing! If you’re not taking advantage of employer matching, make it a priority to contribute enough to max out the match and let your employer help you finance a cushy retirement.
Bad Financial Habit #7: Being Content with Unimpressive Bank Accounts
Upgrading your bank accounts is a simple way to earn more interest on the money you already have. Search for free online checking and savings accounts, where you’ll find fee-free banking accounts that pay higher interest than most banks. You may have to follow requirements like getting e-statements or using a debit card for a certain number of transactions each month, but it’s well worth it!
Small financial changes can lead to really big results—but you have to start somewhere. Think about what you want to accomplish in 10, 20, or 40 years from now and let your goals stir your soul and inspire you to take action today. If you get enthused to kick just a few of these bad financial habits this year, you’ll create a wealthier, more comfortable future for yourself and your family.