Introduction
A lot of people do not have a Personal Finance strategy. They pay bills, and debt and sometimes manage to save money. Still, many people are short of money before the end of the month and wonder where their money went. If you recognize yourself in this statement, you probably have some of the bad money spending habits described in this post.
You need to define your personal finance strategy to make the most out of your money. This is especially true if you are willing to save a lot of money or pay off debt fast.
In order to get your finances to the next level, you first need to break these 10 bad money spending habits.
Let’s start, shall we?
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1. Wondering where your money is going
This is the very first sign you should have a closer look at your finances and establish a strategy. If you end up asking yourself where your money went every time you check your bank account’s balance, you definitely need to sit down and analyze your spending.
You will probably notice that you spend a lot of money on small expenses. Buying coffee, bottled water, and snacks every day on your way to work will add up at the end of the month.
Spending 8$ a day on these little treats will add up to 160$ per month and 1,920$ at the end of the year! It doesn’t mean you should completely stop this kind of spending, but you should be conscious of it, and if you need to save money, that’s where you need to start.
2. Relying on credit cards
Credit cards often lead to overspending. If you cannot afford to pay for something in cash, you should not buy it. Relying on credit cards is the biggest sign you need to define a strategy to start living within your means.
If you rely on debt, chances are you are not saving money. This behavior is very risky as not saving money can lead to more debt in case of emergencies.
Many people rely on credit cards because they don’t know how to live below their means. If it is your case, your priority should be finding out how to save money. I recently published a post on +50 tips to save money daily.
It will surely help you do so.
3. Forgetting about things you own
This is a simple sign you are overspending. If you clean around or organize your closets and realize you forgot about some things you own, you are definitely overspending.
This actually happened to me a couple of years ago. I was organizing my makeup cupboards and realized that I had over 10 makeup palettes never used because I had forgotten about them.
The same principle applies to clothing. If you can see price tags when looking at your wardrobe, you are overspending and should limit spending in this category.
4. Throwing away food
Food is a necessity. You should be able to eat things you like and should not force you into eating junk food or low-quality food to save money.
Nevertheless, spending too much on food is a waste of money if you end up throwing it away. If you notice that you keep throwing away food every week, you have to act on it and change your behavior.
Meal planning and buying groceries online really helped me stop overspending on food. It is also a great way to save time!
5. Installment payments
Buying things and not paying for them in one payment is proof that you need to start saving money. Installment payments, with or without interest, are just another type of debt.
Not being able to pay for a house or car in one payment is common. Having to ask for installment payments for smaller expenses is proof that you need to review your finances.
6. Sticking to minimum payments
If you are already indebted, you know what minimum payments are. It might seem convenient to get everything you want without paying the full balance now.
By sticking to minimum payments, you pay interest and other fees on a monthly basis. Sticking to minimum payments is a mistake that can cost you a lot of money.
If you cannot pay more than the minimum payment requested, you are probably overspending in other categories and need to improve your finances.
7. Not being able to pay bills
Not being able to pay bills is a major alarming signal to create a personal finance strategy ASAP. If you cannot pay bills, the first thing to do is to ask for installment payments.
Even though you should avoid them, sometimes, you have no other choice. Still, this should remain a temporary workaround. You should either decrease your spending or increase your income as fast as possible to make ends meet and avoid accumulating new debt.
8. Not saving for retirement
We might be young, wild, and free, but it won’t last forever. And guess what? Time will go faster than you imagine.
20 years of retirement, with a normal lifestyle, will cost you $ 1,000,000. If you start saving at age 25, you should be saving 15% of your monthly income. The good news is that this 15% already includes the part paid by your employer.
If you start saving at 35 years old, you will have to save 23% of your monthly income! This is why starting to think about retirement early is so important.
9. Not being able to take insurance
Health insurance should be part of your financial strategy because it brings a lot of security.
Medical treatments can cost so much. If you don’t have insurance, getting sick can cost you a lot of money. In this situation, you should focus on your health and not worry about your finances.
Hence, having insurance or an emergency fund is the only way to avoid getting into debt. Insurance remains the easiest and cheapest way to cope with these important expenses. Not having insurance puts you at greater risk of debt.
10. Having no savings
If you are not able to save any money, you are also putting yourself at risk of debt. Your savings offer you a cushion if you lose your job or cannot work due to illness.
Having 0 savings puts you in a delicate situation. According to a recent study, 21% of working Americans do not save any money, and 69% save less than 10% of their yearly income. Saving money should definitely become your priority if you haven’t started yet!
Final thoughts
By taking control of your personal finances, you will do your future self a favor.
We should be saving money in all circumstances, but with the current pandemic, doing so is more important than ever.
These uncertain times are the perfect occasion to have a closer look at our finances to increase the power of our money.
Are you ready to take your finances to the next level? If so, download the free resource below!