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5 Financial Habits You Need to Break

Everyone has bad habits when it comes to money. However, some financial habits can hurt you in the long run and possibly lead to financial ruin. Before you go broke, you should identify the financial habits that need to be broken.

  1. Spending more than you make—This is probably the worst financial habit people have. Spending more than you earn will mean you either have to dip into your savings or go into debt. If you have a spending problem, you should look at ways to try to earn more money or cut your spending.

You can make more by finding a side hustle, which will leave you with less time to spend money. Alternatively, reducing your spending might be the easier option. You can look at how much you spend on your needs and wants. Obviously, cutting spending on your wants will be the easy part. Slashing the amount you spend on your needs will be more difficult. There are often deals when you switch wireless or Internet providers, which can save you hundreds of dollars a year. You can use an app such as Flipp to save on groceries and other items. And shop around for the best deals on home and auto insurance.

  1. Trying to keep up with the Joneses—Social media is both good and bad. It’s good to catch up and see what your friends are doing. It’s bad because social media can make the fear of missing out (FOMO) even worse — especially when you see your friends taking trips around the world, their newly renovated home, their brand-new sports car, or their three-course meal at an exclusive restaurant.

Their lives may look more appealing, but you don’t know their financial situation. There’s always the possibility they may be in debt up to their eyeballs. Also, no one shows how unhappy they are or how boring their life is on social media. Just ignore your friends’ posts and stop trying to compete with them.

  1. Not saving money—When attempting to save money, many people try to save whatever’s left over in their bank account at the end of the month. However, that won’t always work, especially if you’re living paycheque to paycheque.

The best way to save is to set up automatic withdrawals from your savings or chequing account. You can build an emergency fund, save for a home, or begin saving for retirement. The money can go into a high-interest savings account, GICs, mutual funds, or exchange-traded funds. The important part is forcing yourself to save automatically.

  1. Making just the minimum payment—The minimum payment on your credit card is typically a flat amount (usually $10) or a percentage of your balance (usually 3%).

If you carry a balance of $2,000 and you only make the minimum payment of $60 a month, it will take you 15 years and three months to pay it off in full if the card’s interest rate is 19.99%. That $2,000 balance will end up being more than twice as much as you originally spent—$4,238.13 to be exact. Make sure when you’re paying off your credit card to stop making additional purchases. Otherwise, it will take a lot longer to get out of debt.

  1. Not following a budget—Creating a budget is easy, but sticking to it is always the hard part.

Many people will try to cut their spending significantly. However, that’s likely not going to work over the long run if you start depriving yourself. Instead, track your spending and see where you can make cuts gradually. You may also find there are certain categories where additional cuts can be made. By easing into the process, you’ll be more successful when budgeting.

The bottom line

Bad financial habits are hard to break. It will take some time and effort to do so, but it will all be worth it in the end when you have your finances under control and more money in your pocket.

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Photo by Manan Chhabra on Unsplash