Do you know someone who has a well-paid job but always complains they can’t afford to go out whenever you invite them? Conversely, you may know somebody who has a modest income but appears to live a comfortable life and is usually happy to accept your invitation. For whatever reason, some people find managing their finances a challenge too far, whereas others have learned how to stay in control. So what can we learn from this, and what are the bad financial habits to avoid?
Most financial challenges are usually due to poor financial habits rather than a series of unfortunate events.
With good habits, most financial issues can be dealt with. With improper financial habits, even a modest unexpected expense can be devastating.
While there are many negative financial habits one could be guilty of committing, there are a few that can be especially damaging.
These poor financial habits should be avoided:
Not having a budget
Everyone needs to create a budget, and without one, you’re not going to have an accurate picture of your finances. Once you’ve calculated your monthly incomings and outgoings, you will then be able to take steps to make any necessary savings. Budgets set financial limits, and these limits help to prevent financial challenges. Budget planner printables and apps are widely available online to help take out some of the heavy lifting.
Inadequate savings
People who usually avoid financial challenges have consistent saving habits. There should be money available to handle the inevitable financial emergencies. Commit to saving an affordable percentage of your monthly income. Set up a direct debit to pay this into a separate savings account and don’t touch it unless really necessary.
Too much retail therapy
Are you a shopaholic? The more you spend, the less you have to save. Spending too much money makes you vulnerable and more likely to have financial challenges. Excessive spending leads to accumulating debt, which is the ultimate financial curse.
Try and find other activities that don’t cost you anything, such as visiting friends, enjoying scenic walks or taking up a new hobby. Give yourself a monthly spending allowance and don’t go over it.
Too many nights out and other luxuries
Does your overspending also seep into other parts of your life, such as socialising? We all need a bit of fun, but having frequent nights out is expensive. If you’re regularly spending time in bars and restaurants, you will be burning a big hole in your budget. If you have a love of fast food, do yourself a favour and enjoy some good old home cooking instead. It will benefit your pocket and waistline!
When booking your next holiday,y be realistic about what you can afford. Don’t load up more debt!
Regularly getting into debt
Debt is a significant obstacle to financial health and stability. Debt can be cumbersome to eliminate, and most debt comes with expensive terms that make it an especially costly way to spend money.
Debt doesn’t have to be a problem, and many of us will take out some form of loan during our lives. Most of us will require a mortgage if we want to be homeowners. The problem is when you are unable to manage the repayments.
Life is unpredictable, and sometimes it may be necessary to apply for a cash advance in the form of a short-term loan if you don’t have sufficient savings for something like car or home repairs or to cover medical expenses. As long as it’s necessary and you can comfortably afford the repayments, then it can be justified.
However, getting into debt to purchase something you can’t really afford and could do without is a recipe for financial disaster.
Constantly paying penalties, fees and interest
It’s a little-known fact that credit card companies earn more money from late payment fees than from monthly interest. Try and pay off the full amount every month by direct debit so you won’t have to worry about forgetting.
Interest-free loans usually have huge penalties if you don’t pay them off on time. Make sure you’re always aware of any deadlines and that payments are made in good time.
Avoiding bills
No one likes to pay bills. However, don’t avoid or delay paying them. During that time, you’re still spending money that should be going towards paying them. Bills don’t go away, so be sure to pay them in full and on time. If you pay by direct debit, they are often cheaper and allay the risk of any late payment charges.
Raiding your savings, investment and retirement accounts
There may be times when dipping into your savings or other accounts is justified, but be sure it’s for a good reason.
These accounts are for your long-term financial well-being and should only be used in case of an emergency. Yes, two weeks in Ibiza would be nice, but that’s not what this money is for.
Accessing pension pots should never be done without first receiving independent financial advice.
Conclusion
Many of us will have learned the hard way the impact of poor financial planning and the misery that uncontrollable debt can cause. A bad credit history will impact your credit score and could prevent you from getting a mortgage or one on unfavourable terms.
Whatever happens, you don’t want your debts to spiral towards bankruptcy. It’s not the get-out-of-jail-free card that some falsely perceive. It doesn’t necessarily clear all debt, and you may suffer long-term financial restrictions and penalties.
It’s vital to avoid developing poor financial habits and focus on cultivating positive ones instead to give yourself the best chance of achieving a secure financial future.
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