Avoid These 5 Bad Money Habits
Everyone has a few bad habits. However, some habits are worse than others. When it comes to spending and saving money, there are a few bad habits that you’ll definitely need to watch out for. All of these behaviours may not seem like much, but they can seriously hurt you financially. Having more than one of these bad habits can put you on the path to financial difficulty.
Here are five bad money habits that everyone should try to break.
Paying the Minimum Balance
It’s tempting to only pay off the minimum balance on your credit card each month. After all, in many cases it’s only ten or twenty dollars, right?
The bad news is that by paying only the minimum balance each month, you’ll end up spending a very large amount of money on interest before the loan is paid off. It will also take you a very, very long time before you’re free of the debt.
For example: if you owe $2000 on a credit card that has a 20% annual interest rate, it will take you more than 15 years to pay off the debt and you’ll end up paying around $2200 in interest. As you can see, you’ll pay more in interest than the cost of the original loan!
Whenever possible, pay more than the minimum balance. Even if you can only afford a few extra dollars, you’ll find that it helps in the long run.
Getting Pay Day Loans
Pay day loans are another type of loan that comes with incredibly high interest rates and charges. In Ontario, pay day loan companies are able to charge up to $21 to borrow $100 for two weeks.
That’s 21% interest in two weeks. Over a year, that adds up to 546% in interest!
Pay day loans are a very risky form of borrowing. If you’re not able to pay back the loan in two weeks (and many people are not) the costs start adding up.
Instead of a pay day loan, look for other types of loans such as a car title loan or another type of secured loan if you need money.
Not Following a Budget
When you don’t follow a budget, you’re more prone to impulse purchases, and those can add up. A pack of gum here and there likely won’t break the bank, but too many purchases without a budget will.
If you’re not budgeting, you might spend an extra $50 at the grocery store because you went shopping while you were hungry and ended up buying a little extra.
Another problem here is that you might even end up buying things that you already have at home, which is a waste of money. This can happen if you’re not following a budget and a list.
Now assume that, during that same week, you stopped for coffee a few times without thinking about it. That could cost you an extra $10. Then assume you saw a new pair of pants on sale and you bought those as well. Maybe those pants cost you $40.
As you can see, you’re now up to $100 in “extra” spending that you didn’t assume you’d spend. You might be able to survive these extra expenses once or twice, but over time they will add up.
Create a budget and stick to it. Don’t make any purchases that aren’t in your budget. This will allow you to save money and avoid heading into debt.
Not Noticing Fees
How much does your bank charge you each month? How much does it cost to use an ATM from a different bank? How much is an overdraft fee? If you don’t know these numbers, you could end up in trouble.
Bank fees may not be large amounts for most people, but $10 here and $5 there adds up.
This is money that just disappears from your account every month and it doesn’t have to. $10 each month adds up to $120 each year. You’d probably rather have the $120, right?
Speak to your bank and ask them what can be done to reduce or eliminate your fees. If they’re not willing to work with you, switch to a bank with lower or no fees.
Not Saving for an Emergency
You never know when you’ll need some extra money. Your car might break down or your roof might start leaking. You might lose your job. If you don’t have any savings, these incidents can cause serious problems. You don’t want to go into debt because your air conditioner stopped working.
Many people think that they can’t afford to save money but the reality is that they can’t afford not to. Without savings, even a small unexpected expense can cause big problems.
Even if you can only save a small amount each month, it’s worth it. Set a goal for how much you want to put aside each month and stick to it. When you need that money in the future, you’ll be glad it’s there!
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