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Have you ever wondered why, despite your best efforts, you can’t seem to get a firm grip on your finances?
Those money habits we’ve all picked up are the culprits.
From daily spending to credit card swiping online, recognizing these bad money habits is crucial to staying financially healthy.
But knowing and recognizing isn’t enough.
You need to take action.
Let’s dive right into the common bad money habits, one at a time!
1. Skipping the Budget
When you don’t have a budget, you don’t know your actual financial situation.
You may unknowingly overspend, leading to unwanted debt, especially on your credit cards. Without a grasp on your outflows, you’ll miss out on your financial goals and be unable to handle even a minor unexpected expense. Thus potentially leading to bankruptcy.
Thus, this is right at the top of the list of money habits to break in 2024.
Action Steps:
Begin by listing out your monthly income and all expenses.
Be thorough in noting every expenditure, no matter how small. This process will not only highlight where you’re spending unnecessarily and where you can cut back but also show areas you may need to look into. Then, give every dollar a role, whether it’s for paying the bills, savings, or some leisurely spending.
And as life evolves, so should your budget.
With today’s technology, many budgeting tools and apps are ready to assist and quickly get you started.
In short, there’s no excuse not to know how to budget money in today’s world.
2. Not Investing Your Money
One of the most common bad money habits people unknowingly have is piling up savings and not allocating portions of them to investing.
Remember when things were cheaper a few years ago?
That’s the impact of inflation.
So, while saving is essential, investing is equally crucial. Investing allows your money to grow, potentially outpacing inflation and accelerating toward your goals. When you start investing early, you give every invested dollar the potential to earn more, and that’s the beauty of compounding interest.
Action Steps:
Don’t just hoard – invest!
Understand your comfort level with risk, starting with safer investments.
The aim is to protect your money by saving and grow your wealth by investing wisely.
3. Letting Debts Pile Up
Taking on debt without a clear plan or repayment capability will result in disastrous financial outcomes.
If you only make the minimum payments, you’re stretching out the repayment timeline, increasing your total cost and negatively impacting your credit score.
This is one of the most detrimental money habits you must break in 2024.
Action Steps:
Recognize bad spending habits that contribute to mounting debt and make efforts to curb them. Create clear repayment strategies and remain committed to them. You can use the avalanche or the snowball method to pay off your debts.
- Avalanche Method: First, focus on high-interest debt to reduce the overall interest paid over time while making minimum payments on the rest.
- Snowball Method: Focus on the smallest debts and work your way up while making minimum payments on the rest.
4. Ignoring Your Credit Score
Your credit score is crucial to your financial future.
It reflects your financial discipline and reliability. It significantly impacts various aspects of your life, from securing loans to renting an apartment. A low score can severely restrict your options and lead to unfavorable terms, while a high score will open up doors to favorable terms.
Hence, adopting and sticking to good financial habits is essential to building up and maintaining a good score.
Action Steps:
- Paying your bills on time is vital to keep your credit score in good shape, as late payments can hurt your credit score.
- Keep a close watch on your credit card balances and aim to keep the utilization rate as low as possible.
- Think carefully before opening new credit accounts because unnecessary new accounts and inquiries can lower your score, too.
- Check your credit report regularly for errors. If you find any, take action quickly to correct them.
5. Letting Your Emotions Dictate Financial Decisions
Our emotions are powerful, influencing many of our decisions, including financial ones.
It’s easy to resort to retail therapy after a rough day. However, emotional decision-making can lead to long-term financial repercussions.
The key is not to detach from emotions but to be aware of their influence.
Action Steps:
Start by recognizing when you’re about to make an emotionally charged financial decision.
Is it the online ads? Discounted sales? Perhaps you had a bad day at work or an argument with your partner?
When emotions run high, it’s a good practice to step back. Maybe even sleep on the decision for a day or two. Always take a moment to think and question it before proceeding. These will help you prevent unnecessary spending and buyer’s remorse.
6. Not Being Proactive for Life’s Major Events
Life is filled with memorable moments that can also bring significant expenses.
Imagine the joy of a wedding or the arrival of a new baby.
Such milestones, while beautiful, often come with prices that can put us into significant debt. Failing to prepare financially not only risks going into debt but also adds stress to what should be happy events.
Action Steps:
Begin by mapping out potential significant events in the next few years.
Maybe you’re planning a family or considering buying a home. Calculate the numbers, even if it’s just a ballpark figure. Then, start saving or investing specifically for these events. Also, regularly review your budget and adjust for any changes in your goals or circumstances.
This ensures you’ll be well-prepared for the future.
By planning ahead, you can enjoy life’s significant moments without the weight of financial stress, making them all the more memorable.
7. Delaying Your Retirement Planning
Delaying your retirement planning means missing out on potential financial gains due to compounding interest.
“I’ll handle it later” often becomes a source of regret when “later” suddenly isn’t that far off anymore.
According to a survey by Bankrate, respondents’ most common financial regret is not saving for retirement earlier.
Action Steps:
Begin your retirement preparation now.
Start allocating a portion of your monthly income to it, even if it’s a tiny percentage. Let compounding interest do its work and watch it grow.
Then, review and adjust your contributions as your situation changes. Prioritizing your retirement now can ensure a comfortable and secure future for you and your partner.
8. Not Building an Emergency Fund
Life is unpredictable.
Without an emergency fund, unexpected events like car repairs, medical emergencies, or sudden job losses can destabilize your family’s finances.
And the immediate consequences?
You’ll have to dig deep into your savings, accumulate high-interest debt (credit cards), or face severe financial hardships.
If you currently do not have an emergency fund, this should be near the top of your list of money habits to break in 2024.
Action Steps:
Start building an emergency fund, no matter how modest.
While saving up to three to six months’ worth of living expenses is ideal, even a small amount can make a difference in unexpected, challenging times.
Next, automate your savings and always revisit and adjust based on your financial situation.
Building this emergency fund will protect you and your family and provide peace of mind during life’s unexpected twists.
9. Relying On a Single Income Source
There’s nothing wrong with having just a job and getting a paycheck for the next couple of decades of your life.
However, it is risky. Unanticipated job changes, job losses, or unforeseen expenses can put you in a difficult spot if you have only one income source.
Thankfully, the digital age offers many avenues to build and diversify your income sources.
Action Steps:
Identify your strengths. Explore platforms (e.g., Fiverr and Upwork) and start small. Dedicate a few hours weekly, and double down as you gain confidence and clients.
Lastly, always strive to hone your existing skills or acquire new ones.
10. Neglecting to Insure Yourself and Your Loved Ones
Life, as we all know, can surprise us.
An unexpected health crisis or a sudden accident can strike us. And without insurance, you’ll be facing a financial storm. It’s like being caught in a downpour without an umbrella; you will get drenched.
And the financial cost?
Drained savings lead to new debt, and all your financial goals will be pushed back. This impact affects not just you but also the ones you cherish.
Action Steps:
- Take a proactive approach.
- Assess your risks – health, life, property, and others.
- Do your homework; research and compare options.
Even basic coverage can offer some peace of mind and financial protection. Review your policies regularly as life’s circumstances change.
Turning the Page on Tattered Money Tales
So, have you identified which money habits you need to break in 2024?
I understand changing long-established habits, especially about your money, is challenging and takes time.
Be patient and keep going.
You will not regret the actions you’ve taken. It will feel incredible once you start making better decisions with your money and seeing its effects. The better your money habits, the better your financial health will be.
Want a better financial future?
Break your money habits today and see the positive changes unfold!
