Damaging financial behaviors

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I seriously doubt that you want to sabotage your financial life. Unfortunately, there are behaviors that might not seem very important to you….or maybe even beneficial… that could be sabotaging your finances without you even being aware of them. And no way in hell can you change these behaviors if you’re unaware of them. So buckle up, here we go!

Pointless spending

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If you don’t track your spending it’s virtually impossible to know where your money is going! Quite possibly right down the drain! Why aren’t you tracking your spending?! One of the biggest differences between wealthy people and poor people is that the wealthy ones formed the habit early on of tracking their spending so that they always knew where their money was going and could keep control of it. This was a mistake I made for years! In my younger escapades I literally spent my money before I even earned it! Can you relate? Tracking is especially important if you don’t have a lot of money. Smart phone apps like Mint for example make tracking your expenses just brain dead simple. Or you could just use a spreadsheet or pencil and paper! Regardless of the way you do it, IT MUST BE DONE. But if you’re just pointlessly spending the odds are you’ll never get ahead. You’ll be just like a dog chasing it’s tail.

Another way to limit your spending is to ask yourself before you make a purchase whether or not it will take away from your goals. This is a great idea and really works! Sometimes this simple question can eliminate the need to budget by making you think about your financial goals and whether that purchase would help you accomplish them. You do have financial goals, right? Hmmm, you better.

Too much brain destroying television

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I’ve been reading Thomas Corley’s book “Rich Habits Poor Habits” and he found out that 77% of low-income adults said they watched TV for more than an hour a day and 74% reported that they spent more than an hour every day on the Internet. In comparison, 61% of wealthy adults that he interviewed reported that they watched TV less than an hour a day and 63% said they spent less than an hour each day on the Internet.

The blatant truth is that when you’re spending time on the internet or watching TV that’s less time you could be doing productive things like building relationships with success-minded people via networking, doing voluntary work or building a side business. For that matter, ditching cable TV will not only give you more time to be productive but will also reduce your monthly bills! Win win! I recommend cutting the cord quick!

Late payments

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The National Foundation for Credit Counseling recently revealed a report that 25% of the adults surveyed said they did not pay their bills on time. In the past I was guilty of this as well. Thank heavens I finally woke up. In order to maintain a good credit score you must pay your bills on time. It hurts your financial health in several different ways.

For one thing, when you pay a bill late you’re likely to be hit with a costly late fee. In turn this means you will have less money to cover your bills. Imagine that lol. Also, if you routinely pay your bills late your lenders may hike your interest rates or lower your credit limits. If you’re more than 180 days late on a payment it gets worse. Your debt will likely be assigned to a collection agency or debt collector. When you have a debt that goes to collection this will lower your credit score and stay on your credit reports for SEVEN YEARS!

In a worse case scenario your wages could be garnished to pay that debt. NOBODY want a wage garnishment!

The simple answer to this is to set up automatic payments through your bank or through those companies that are billing you. This will eliminate the possibility you’ll make any late payments. Pretty simple, huh?

Only paying the minimums

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If you are making just the minimum monthly payments on your credit cards it might be because you want to free up money for other expenses. But this is not a good financial move.

When you make just those minimum payments it’s like you’re running on a treadmill where there is no end. This will dramatically slow down how long it will take you to pay off that credit card and will mean you’ll be paying a lot more in interest. As an example of this, if you have a $5000 balance on a credit card at 16% interest and you make just a minimum monthly payment of $100, it will take you almost 7 years to pay off that debt. And it will cost you more than $3000 in interest. Wow! That’s $3000 that could be invested or in your emergency fund!

When you pay just the minimum on a credit card that has a high balance you’ll also be damaging your credit score. This is because a high balance increases your debt-to-credit ratio. This ratio accounts for 30% of your credit score. If you could lower your ratio by paying down that high balance you should see a nice boost to your credit score.

What can you do if you have balances on several credit cards? First pay as much as you can on the card with the highest interest rate, which will save you money over time. Alternately, you could do a balance transfer to a card with a lower rate or a 0% interest balance transfer card. This would consolidate all your credit card debts onto one card and you could then do everything possible to pay it down quickly.

Saving for your retirement before building an emergency fund

You’ve probably been told over and over that you must save for your retirement. But most financial experts say you should first build an emergency fund. Most say you should save the equivalent of six months of your living expenses. This could be tough, especially if you’re young and trying to live on a small salary. So instead of six months try to save at least the equivalent of three months of your living expenses. You can always add to it as time goes on.

Why is this important? It’s because something unexpected WILL happen to you – whether it’s losing your job, getting sick, being in an automobile accident or having a pipe burst in your house. When something like this happens and you have no emergency fund, you might have to borrow money – which means creating new debt – or withdrawing money from your retirement account. Trust me, I’ve done all the above! When you do this your retirement account will not only take a hit but you’ll have to pay income taxes on whatever amount you withdraw and probably a 10% early withdrawal penalty. You can avoid running up debt or raiding your retirement account to cover an emergency by lowering your retirement contributions and then funneling that money into a savings or money market account. That way when the unexpected occurs, which it will, you’ll be covered. Once your emergency fund is funded then revamp the retirement plan. I know all this seems overwhelming and it is, but it’s so important. It’s not something that will happen overnight. It will take time and self discipline but I know you’re up for the task. Know how I know? Because you’re reading this article.

Thanks for reading,

Jmeeks7

5 thoughts on “Damaging financial behaviors

  1. Nice! There are all so true. While I do watch tv, technically it’s while I’m doing other productive stuff. That doesn’t count, right?!

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