Everybody has a bad habit…or three. Some people constantly run a few minutes late; others throw their dirty socks on the floor. Bad money habits, though, seem to multiply like rabbits. If you have one, you’re likely to have several. And you have plenty of company.
It’s easy to slide into bad habits with our finances. Being aware of them is the first step. This podcast takes a look at 5 financial habits you should be cultivating and 5 habits to avoid.
At just 1.1 percent in the first quarter of 2019, the personal savings rate among Canadians is among the lowest. Just because everybody’s doing it…well, you know the rest. Here are some of the worst bad money habits and how you can break them starting today.
1. No Financial Goals
“I hope I have enough money to cover my bills.” Sound familiar? Hope is not a strategy. You simply cannot meet your financial goals if you don’t have any. Your goals can be daily, weekly, monthly or yearly, and are likely a combination. They may include how much money you’re going to save, which bills you’re going to pay down, or even how much you’re going to sell, if you work on commission.
One way to set your financial goals is to think about what you want from your life in the next six months, a year, five years, or ten. If your five-year goal is to be debt free and able to travel to the best fishing sites in Canada, determine what you need to do to make that happen.
Make your goals as specific as possible. Write down what you want to achieve and when you expect to achieve it. One of the most important goals is to pay yourself first, i.e., savings. When you have goals, you will find yourself thinking differently the next time you’re tempted to buy something you can’t afford.
2. No Budget
Fifty-three percent of people don’t use a budget which means 53 percent of people probably don’t have a clue where their money goes. Budgets are one of the simplest ways to stop overspending and start saving. If a shiny, new app is what it takes, by all means, use an app. Personal Capital or Mint are both free, highly rated, and relatively easy to use.
Many financial experts believe, however, that you gain more control over your money by doing it yourself the old-fashioned way, using a spreadsheet or just a plain ol’ paper and pencil. The first thing you’ll need to do is track your spending for a month. Include everything, even the quarters you regularly throw in charity collection cans. Now divide the spending into categories. If you have annual fees, include those, as well.
Some amounts are fixed and cannot be easily changed, for example, your mortgage or car payment. Focus your pruning efforts on discretionary items, like food, entertainment, clothing, etc. You could, for example, cut your food budget to beans and greens for every meal. Okay, bad idea, but you get the gist. If you can trim a bit from the discretionary spending, plan to put that money into a savings or retirement account, even if it’s only $25. You won’t miss it.
3. Avoid Checking Your Account Balance
If you have bad money habits, it’s common to feel anxious about looking at your bank balance. But what you don’t know CAN hurt you big time. Failure to look will not increase your balance. Instead, it may put you in danger of the three Os:
- Overdrafts; and
- Overlooking unauthorized charges
You don’t need any of that.
Here’s where an app is helpful, as in your bank’s app. Put it on your phone and check your balance every morning. Not only will you avoid surprises, the knowledge will help you stay on budget. What you don’t know may leave you blissfully unaware in the present moment. In the long-run, however, you will be happier knowing where you stand.
Experts advise that you face anxiety head on. If you check the balance daily, those uneasy feelings will quickly subside as you train your brain that knowing is better than not knowing.
4. Prone to Impulse Purchases
Who designed the stores so you can hardly walk through without tripping over… a brand new ATV? The retailers, of course. Those blingy displays on the way to the cash register and the over-the-top Christmas windows are no mistake.
It’s called the Gruen effect, named after an architect who set out to dazzle the earliest mall browsers with a shopping experience. All you intended to buy was a pair of athletic socks, placed, as they were, on the back wall of the store, and you leave with a kayak.
The advice is to wait 24 hours before you make any unplanned purchase. But just wait. Think. Does this thing fit with your financial goals right now? If you can’t pass up an amazing deal, use your superpower for good by searching, way in advance, for deals on things you actually need.
Get in, get out. Bring cash to pay for the things on your list. You did make a list, didn’t you? Research shows that you may be willing to spend up to twice as much if you use a credit card. Don’t be that guy.
5. Overspend for Convenience
Whether it’s pre-peeled bananas in the grocery store or an Uber ride to the stadium, someone is willing to sell you something that makes your life more convenient. You may feel that you work hard and you deserve a break. You do. But, those day-to-day conveniences may mean that you never get that vacation in Mexico.
If you regularly pay for restaurant lunches, taxis, and overnight deliveries of stuff you didn’t need in the first place, it’s easy to see where you can save. But don’t forget the subtle conveniences.
- Going to your bank ATM vs. using a foreign ATM
- Buying food that is pre-cooked vs. cooking in the kitchen
- Buying “distressed” jeans vs. patching up the old ones
- Driving through for an overpriced coffee vs. carrying a thermal cup from home
- Buying bottled water vs. carrying a water bottle
- Buying a tool vs. borrowing from your neighbor
- Paying to park vs. taking the bus and walking a few blocks
If you only save $25 a week, there’s $100 a month to save or pay down credit card debt…the debt, itself, not just the interest.
Better Habits Starting Now
Regardless of how long you’ve had these bad habits, it’s never too late to make a fresh start. With some goals in place and a bit of diligence, you can change, not only these habits, but your financial future.
It may seem overwhelming, however, on top of job, family and other responsibilities, so, you may want additional guidance to stay on track. Do consider seeking advice from a Licensed Insolvency Trustee to help you determine how to chart a path forward. Give us a call at 1 (888) 371-8900. We can help™