Bad Money Habits
Alexander Pope’s famous quote “To err is human” holds true for our many species driven mistakes. However, when we make a money mistake it seems to sting and leave us feeling shame and remorse.
Although money mistakes are as common as the wind blowing the snow, many money mistakes have easy fixes that will keep your money from blowing away from your bank account and wallet. As the snow settles, your financial situation can also settle. In fact, a key piece of our financial happiness is security.
Nonetheless, I’ve made a few money mistakes myself; however, with some careful planning, I was able to bring my finances back into check and you can too!
It always worries me when I see people spending money they do not have. What’s worse is having no budget at all and not taking the time to plan. In the realm of financial health, planning is key.
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Some money mistakes require some life changes, but others are easy fixes. Check out the seven steps below and start turning your mistakes into a new debt-free, financially healthy life. Leave your shame and remorse as a thing of the past.
7 Common Bad Money Habits and How to Fix Them
#1 Bad Money Habit: No Budget in Place
Not having a budget is by far the worst money mistake. Simply Stated, you cannot make your money work for you if you do not know what is coming in and going out. Creating a budget is a simple 20-minute process; however, many are scared of the information they will find. Yes, it will be an eye-opening experience and you will finally realize you are overspending, but having a budget in place will help you achieve your financial goals.
The main reasons you need a budget:
- determine cash flow
- pay bills on time (no late fees)
- stop relying on credit cards
- get out of debt
- save for an emergency fund
- plan for retirement
- plan for college
Learning how to budget may take some time, but it will be worth it in the long run. You can start by looking at your pay stubs and learning how much you are taking home. Then track your spending for one week. You can start adding your budgeting categories such as home, utilities, food, clothing, transportation, insurance, childcare, debt repayment and any other expenses. Yet, if you have more going out than you have coming in, you need to do some adjusting.
Learn how to budget here and click below to receive a free budget template:
#2 Bad Money Habit: Not saving for an emergency fund
If you are searching for financial advice, this one will always come up. Life is full of ups and downs, hopefully with a lot of fun and love in between. Yet, when the “downs” pop up like a health emergency or a car accident, you want to be ready. An emergency fund will give you security and not having to worry about the “downs” of life will be worth its weight in gold.
Are you having trouble saving for an emergency fund? Even if you can only put $10 out of every paycheck towards your emergency fund you will be better off. You will be prepared and relying on credit cards will be left in the past. If you save $10 per week for the next year, you will have $1040 at the end of the year. You just built yourself a mini-emergency fund. Congrats!
If you are really serious about setting up an emergency fund, I suggest finding a side hustle to earn extra money for a while. For some side hustle ideas check out these posts:
- Side Hustles: Ultimate List of 75 Ways to Earn Extra Money
- How I Earn Extra Money: 7 Best Survey Sites
- Pinecone Research Review
- 25 Ways to Earn Money Fast
- 10 Ways to Earn Money From Your Hobbies
Bad Money Habit #3: Not saving for retirement
My great-grandma lived to be two months shy of 100 and her daughter, my grandmother lived to be 91. Since longevity runs in my family, it would make sense for me to calculate this factor into my retirement plan. If the numbers are hard for you to calculate, sit down and discuss your retirement with a financial planner. You do not have to invest through them, but they can make some recommendations.
If you are young, you want to invest in stocks (riskier with time to recover if the market goes down) and the closer to retirement, move your money to safer options like money-market funds or bonds. Make sure you make a generous estimate of how much money you will need to pay your monthly bills at retirement (hopefully you will have paid off your mortgage, so it will be less than you are paying now) and calculate your estimated time to live (hard to say, but look at your family history). Then start saving!
Check to see if you will receive a pension and how much your social security will be. I recommend you sign up for a social security account online now because of all the security breaches lately. (What’s up Equifax??) You want that account to be in your name when you are ready to apply and not some thief that stole your information.
#4 Bad Money Habit: Not investing
Unfortunately, many people fail to invest their money because of fear. Often people think it is too risky and they are worried about losing money. However, you will never get a pay off if you do not take a risk. There are some stocks that are riskier than others, yet if you want to play it safe, put your money in a trusted mutual fund that has a long track record. (I’m not a financial advisor so I will not give you detailed investing tips, but do your research and find a good one). This is one of the great ways to really get ahead.
Reasons people do not invest:
- afraid of losing money
- think it is too hard
- don’t have extra money
- keep putting it off
Main reasons you should invest now:
- compound interest (here is a more detailed post on what compound interest is by Investopedia)
- make money
- dividend stocks pay
- get ahead financially
- low risk if investing in a trusted company
- interest paid is way more than any bank (but don’t use your emergency fund)
If you have been unsure as to where you should start investing, check out M1 Finance. It is an easy-to-use platform perfect for beginning investors. You can invest money, borrow, or spend with this easy-to-use app. M1 Finance also saves you money because you are not paying fees to a wealth management firm so you will have more to invest.
#5 Bad Money Habit: No Insurance
Insurance can be a HUGE cost and in today’s economy and having an employer offers that insurance is fortunate because this is not the norm anymore.
I was blessed to have good insurance my entire life. My Dad worked for the State and after graduating college I switched over to my own amazing teacher insurance. I realized I was spoiled when schools started facing financial troubles of their own and our insurance was downsized. For the first time in my life had to pay a premium. Gone were the days of free insurance as a fringe benefit and never paying a co-pay plus $2 prescriptions. You really don’t know what you’ve got until it’s gone. My husband works for a hospital and his insurance was not even as good as mine.
After my insurance got downgraded and I ended up putting my teaching career on pause so I could raise my babies, I switched over to my husband’s insurance. We are still lucky we have insurance because if you are self-employed or your employer doesn’t offer it, it can be a huge burden. However, I believe the cost of not having insurance will amount to WAY more than what you are paying. Case in point, my son broke his arm last summer and the cast was $500 alone, and that is not including x-rays and other fees. We still had to pay around $200 out of pocket but imagine if we did not have insurance. These things add up and you never know what kind of medical concerns you will encounter throughout your life. It is best to take heed of the old boy scouts saying and always be prepared.
#6 Bad Money Habit: Loaning money
Remember the old campaigns of the ’80s and 90’s – showing my age – that taught us to ward off drugs? “JUST SAY NO!” was the common theme. The same holds true for loaning people money. Loaning friends or family members money truly puts a strain on your relationship. Furthermore, most of us cannot afford to loan money.
To prove my point, let’s say you have $5000 in the bank but you may also have a $200,000 debt on a mortgage – but the $5000 is your emergency fund. You cannot afford to part with that money. There is a high chance the person you loan the money to will never pay you back. You are now stuck rebuilding your emergency fund and -WHAM!- an emergency strikes. Unfortunately, you are now in need of a loan and what do you reach for? The good ol’ credit card, of course. Instead of paying down bt, you are digging yourself in.
If you are worried about family members asking for money, do not let them know you have that extra money saved. Your money is your business. Also, forget co-signing a loan. You will only be putting yourself and your credit on the line and it is just as bad as taking the loan out yourself.
#7 Bad Money Habit: Not Having a Will and Trust
Gulp! I’m guilty of this one. My husband and I have set a goal to get our will and estate in order this year in case anything ever happened to both of us. We have money saved in our retirement, savings, and investments and we do not want our kids to have to fight for these things if something unfortunate were to happen. (update – We finally got our will and trust together so we are covered!)
A Will spells out exactly who gets what and speeds up the probate process. Having a will in place allows your estate to go to whom you intended and is a legally binding document you can change at any time while you are still alive – A birth or death may be a reason you would want to change your will. You can also put in place who you want to raise your children. When you have a will and trust all of the accounts are taken care of and your family members do not have to sit in front of a judge or mediator to help decide your wishes upon death. It makes sense to take care of this now while we are all (knock on wood) able-bodied and healthy.
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Bad Money Habits Conclusion:
Have you made any of these money mistakes above? I know I have but by carefully planning a budget and planning ahead, I have set my financial troubles to rest. Make sure you use my free budget planner and begin to pay down debt. It is also crucial that you spend less than you earn and take a look at tackling your debt.
Retirement may seem far away but time flies and planning ahead is key. The earlier you start to save for retirement the better.
If you have money to loan, consider it a gift. If you have any debt, you DO not have money to loan so just say NO! Especially if the person is expecting you to tap into your emergency fund.
Start saving for your emergency fund and slowly build your back up plan so you do not need to worry about relying on credit cards.
Make sure you have enough insurance and you are covered in case of an accident or health scare. Plan your estate now because you never know what will happen.
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As always – Take Care
Have you made any of these money mistakes? Leave me a comment. I would love to hear from you!