10 Ways to Break Bad Money Habits

10 Ways to Break Bad Money Habits

Most of us have plans in every aspect of our life. We want to buy a new house, new car, trip around the world and many more. Yet so many of us spend carelessly and impulsively, spending all we have right now, without considering to save or invest for the future. Looking back in 2008, all of us reflected on where our money went every time there were money coming in. And it may seems that you are making enough money but it just slips away from you, maybe it’s time to wake up and break some BAD money habits.

1.  First of all, do have a budget. Many people live without one – and that includes many affluent people including our government. This may take few minutes of your time daily but this habit could change your future positively. Simply write in a notebook or encode in an excel or in your iPod/Ipad, your budget for a day/week/month and simply track down your expenses, including credit card expenses, small or big purchases, put detail as much as possible. This habit will make you more conscious and aware on your spending, distinguishing those from essentials or needs from wants or desires. 

2. Distinguish necessities/needs from wants/desires. Ask this question; is it a want or a need? Why don’t you come back next week or next month to see if you really want that product? Don’t be an impulse buyer. Yeah, it is easy to swipe that deadly weapon (credit card!) but come to think of the monthly amortizations. Marketing and advertising nowadays leaves many consumers unable to tell the difference between a want or a need. They run up debts to buy what they want, rather than what they need. How many of them understand that by borrowing they are actually spending away future earnings.

3. Carrying a balance on credit cards. Now that you have distinguished your needs and decided to use your credit card to acquire those needs. And here comes the credit card statement, you do not have enough cash to pay for it and leaving a balance on due date. Be a responsible credit cardholder, leaving a balance for example, amounting to P10,000 which is charged by the credit card companies by an average of 3.5% a month or 42% a year!!!, which if compounded for three years, your debt will amount to P28,632.88. This amount does include the 5% penalty if you fail to pay the minimum amount due every month. Indeed, a deadly weapon. (FYI, bank savings account earns only 1% per year)

4. Not having an insurance. A single accident can wipe out your savings account. Most people are allergic to insurance agents but mind you, life insurance is essential especially when you have a family and you do not have enough savings to support your family when something bad happens to you. Remember Typhoon “Ondoy”? Damaged cars and houses, luckily for those people who got insurances for their properties. There are a lot of cheap term life insurances out there. Ask and be prepared.


5. Not matching employer’s contribution to retirement. One of the biggest mistakes that lots and lots of people make, especially young people, is not investing in their employer’s retirement plan at least up to the point where they get the employer’s match. By not doing that they’re leaving additional income on the table. FYI, contributions on these retirement plans are part of your net worth, increase your net worth and prepare for your retirement as early as possible if you want to retire as soon as possible also.

  
6. Know the difference between good & bad debt. Do you know the difference? Robert Kiyosaki, author of "Rich Dad, Poor Dad", defined these two types of debt, a bad debt is a debt you incur on a disposable item or a durable good that will depreciate or will take cash from your pocket. It is a debt on something that has no potential to gain value. You want to avoid as many bad debts as you can. Of course, there is also good debt – for example, a mortgage, a business loan or a student loan, sari-sari store loan or even a tricycle loan. These are so-called “investment debts” that can potentially create value down the road and bring gains, income and cash on your pocket.

7. Educate yourself, be financially literate. No, it is not the same of academic literacy which you learn from school. Some people are very cavalier when it comes to spending and saving money. Others are convinced that they will never be able to build wealth, so they spend their days addressing short-term financial needs and give no thought to the wealth and income they will need in maturity.  In both cases, the root problem is a lack of education. Those who spend money like water don’t understand its value; those who shun financial planning and investing don’t understand its potential. People with greater degrees of financial educationtend to be more rational when it comes to financial decisions. (Not always, but often.)

8. Not managing your investments. You do have investments but don’t get too emotional about your investments. Don’t drag your life down when the market go down. Your investments may lose value, but not you. You can re-create your investments, you are the creator of it.

9. Spending and spending, saving “what’s left.” Again, please pay yourself first, you are the one who earned for that money, pay yourself first, set aside your savings, and then spend the residual. Live within the budget. Invest the excess.

10. Set financial goals and do something about it. When people educate themselves about money – the ways to potentially make it, the ways to plan to protect it – they start to see how the financial world “works” and they tend to explore their own financial potential. This exploration may lead them to meet with a financial advisor or planners. That conversation can inspire them to set and plan for specific objectives, and get a relationship going – a shared commitment to wealth building.  If you haven’t had such a conversation, today is as good as any day for that to happen.

Hope these tips will help you. Feel free to comment or ask. Thanks for reading! =)