Avoid These Money Habits
When it comes to personal financial matters, our habits can make or break us. Good habits such as living within our means while adhering to a clearly written, realistic and manageable monthly budget can lay the foundation toward financial well-being and peace of mind.
Bad habits, on the other hand, such as living beyond our means while accumulating excessive debt will often lead to financial problems and stress. Bad financial habits can damage our credit score and profile, impede our ability to save, and prevent us from living the life we want.
Therefore, just as in other areas of life, staying away from developing the wrong habits can go a long way toward achieving and maintaining financial wellness. But what are some of these negative money habits that we should guard ourselves against from developing? Let’s take a closer look.
Credit Card Interest Expense
Not all credit card debt is bad. In fact, credit cards can be a highly useful tool for an individual getting started with building a credit score and profile. Establishing a track record of consistent timely repayment of credit card debt on a monthly basis helps an individual demonstrate to subsequent potential lenders that he or she is creditworthy.
However, when credit cards are used irresponsibly to purchase goods and experiences that are truly beyond the cardholder’s means, that’s the beginning of forming a bad money habit.
With credit card interest rates frequently hovering at 14.9% or higher, and with the average for balance carrying households (41.2% of American households) checking in at $9,333 as of September 2019, many Americans already have the bad money habit of wasting over $1,000 annually on credit card interest.
The trick to managing credit card debt is to not let too much of it rollover from month-to-month, incurring interest expense along the way. Paying off credit card debt quickly and efficiently is central toward achieving long-term financial goals of saving and investing for the future.
If you are currently struggling with an onerous pile of credit card debt, there are numerous articles on this website related to debt relief options that include debt settlement, debt management plans and debt consolidation loans.
You can also contact us here at United Settlement and one of our experienced debt relief professionals will speak with you about the various debt relief options that would make the most sense for you given your specific financial situation.
Maxing Out Credit Cards
Another unhealthy money habit related to credit cards involves using too much of the available credit line, or “maxing out” a card. The problem here is that the credit utilization ratio is a significant contributing factor toward the calculation of a FICO credit score.
The credit utilization ratio represents the percentage of available credit that is actually borrowed, and this singular component contributes approximately 30% to the total calculation of a credit score. FICO prefers to see this percentage under 25%, so maxing out credit cards shoots this percentage a lot higher and weakens a credit score.
While it is possible to “kick the can” by applying for additional credit cards and credit line extensions that can improve the ratio, eventually this tactic will run out of steam – either through utilization of the additional available credit or by getting rejected for further credit line extensions.
Regardless, the greater interest expense generated through maxing out credit lines is enough reason on its own to avoid utilizing such a high percentage of one’s available credit.
Credit cards that offer rewards such as cashback on purchases or airline miles can be useful when used for everyday purchases and recurring bills – if you already have the good habit in place of paying off your balance in full at the end of the month.
This is when rewards programs actually benefit the cardholder. However, all too many cardholders get fixated on the benefits of a rewards program that in the best case (5% cashback on select purchases) are still far less than the prevailing credit card APR, which frequently will be 14.9% or higher.
The interest expense associated with carrying a balance over from month-to-month – not to mention any annual fees associated with the card or late fees that may be incurred along the way – can easily outweigh any benefits granted through a rewards program. A little common sense can go a long way here.
Wasting money on needless expenses – especially those related to personal financial matters – represents another bad money habit that should be avoided. At the top of the list come bank fees (minimum account balance monthly maintenance charges, ATM fees, overdraft fees, etc.), late fees on monthly bills (credit cards, rent, mortgage payment, utilities, etc.) and credit card interest (mentioned again here for emphasis).
If these weren’t bad enough, many people also have the bad habit of wasting money on everyday items such as bottled water, high-priced coffee, regular lunches out during the workweek, excessive restaurant meals, an unused gym membership, an overpriced cable television package…and by no means is this list exhaustive.
We can add unnecessary newspaper and magazine subscriptions, regular excessive dry cleaning, a satellite radio subscription, wasted food that winds up in the trash…all of these have less expensive substitutes or can be eliminated altogether – with the end result of helping the individual save more money on an ongoing basis.
Lying to Your Spouse About Money
Last but not least, you should always be honest with your spouse about money matters. Marriage is a partnership, and though money should never become the overriding them of your marriage, it is important to work together and use finances constructively in building a secure and happy life together.
Therefore, neither spouse should start the habit of lying about money, as this can easily lead to problems in the relationship, especially since money can be a highly sensitive issue for many couples. Develop the habit of holding regular monthly money discussions with your spouse during which clear short-term and long-term goals are discussed and monitored, as well as the two of you devising and monitoring a clearly written monthly budget that delineates all forms of cash inflows and expenses.
Having clear, calm, regular discussions with your spouse regarding money helps keep the two of you on-track together with your shared financial goals while preventing either of you from lying, which is never a good idea if you want your relationship to remain strong and healthy.
About The Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.
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