Do bad money habits constrain your financial progress? Many people fall into the same financial behavior patterns year after year. If you sometimes succumb to these financial tendencies, a new year offers as good an occasion as any to alter your behavior.
Lending money to family and friends. You might know someone who has lent a few thousand dollars to a sister or brother or a few hundred dollars to an old buddy. Generosity is a virtue, but personal loans can easily transform into personal financial losses for the lender. If you must loan money to a family member or friend, mention that you will charge interest and set a repayment plan with deadlines. Better yet, don’t do it at all.
Spending more than you make. Living beyond your means, living on margin or whatever you wish to call it constitutes a path toward significant debt. Wealth is seldom made by buying possessions. Today’s flashy material items could become the garage sale junk of 2025. Yet, the trend continues: A 2012 Federal Reserve survey of consumer finances calculated that just 52 percent of American households earn more money than they spend.
Saving little or nothing. Savvy savers build emergency funds, have money to invest and leave the stress of living paycheck-to-paycheck behind. If you can’t put extra money away, there’s way to get some: a second job. Even working 15 to 20 hours more a week could make a big difference. The problem is far too common: A CreditDonkey.com survey of 1,105 households found that 41 percent of respondents had less than $500 in savings. What’s more, 54 percent of respondents had no savings strategy.
Living without a budget. You might make enough money you don’t feel you need to budget. In truth, few of us are really that wealthy. In calculating a budget, you could find opportunities for savings and detect wasteful spending.
Frivolous spending. Advertisers can make us feel as if we have sudden needs — needs we must respond to, needs that can only be met through the purchase of a product. Think twice before spending impulsively.
Not using cash often enough. No one can deny the world runs on credit, but that doesn’t mean your household should. Pay with cash as often as your budget allows.
Gambling. Remember when people had to go to Atlantic City or Nevada to play blackjack or slots? Today, behemoth casinos are as common as major airports. Most metro areas seem to have one or be within an hour’s drive of one. If you don’t like smoke and crowds, you can always play the lottery. There are many glamorous ways to lose money while having “fun.” The bottom line: losing money isn’t fun. All it takes is willpower to stop gambling. If an addiction has overruled your willpower, seek help.
Inadequate financial literacy. Is the financial world boring? To many people it is. The Wall Street Journal isn’t exactly Rolling Stone and The Economist is hardly light reading. You don’t have to start there, however: Great, readable and even entertaining websites filled with useful financial information abound. Reading an article per day on these websites could help you greatly increase your financial understanding if you feel it’s lacking.
Not contributing to IRAs or workplace retirement plans. Even with all the complaints about 401(k)s and the low annual limits on traditional and Roth IRA contributions, these retirement savings vehicles offer remarkable wealth-building opportunities. The earlier you contribute to them, the better. The more you contribute to them, the more compounding of those invested assets you could potentially realize.
Do-it-yourself retirement planning. Those who plan for retirement without the help of professionals leave themselves open to abrupt, emotional investing mistakes and tax and estate planning oversights. Another common tendency is to vastly underestimate the amount of money needed for the future. Few people have the time to amass the knowledge and skill set possessed by a financial services professional with years of experience. Instead of flirting with trial and error, see a professional for insight.