Bad Habits

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Some Financial Bad Habits to Overcome Today!

Most of us have some bad habits with regards to money. Presented below are some of them that can be overcome today for better overall financial health.

We tend to spend more via credit cards than affordable

The interest rate on a majority of credit cards tends to be 15 percent or more. Thus, cardholders who carry credit card balances from one month to another will see their debt pile up fast and increased payments of interest to the credit card companies. Most end up being in a vicious cycle of debt owed to credit card providers; and they often find their habit of excess expenditure on credit cards really difficult to break.

Most consumers take an educated guess whether they can repay for new purchases before putting such purchases on their credit cards. The major problem with this habit is the fact that consumers may be able to repay such new expenses the next month, but they really do not take into account the future expenditures when taking a decision of putting a new purchase onto their credit card. The following month may bring in an unexpected medical emergency and they may pay off that expense and thus be unable to make the credit card payment.

Credit card holders who are not sure whether they can repay the entire amount charged on their cards every month should try and stop using them. Those with high balances on their cards who are unable to resist the temptation of using it for new purchases may leave their cards at home. This will prevent them from spending more and allow them to repay the credit card balances.

People who are living from one paycheck to another often find that even minor unexpected expenses can derail their regular payments and result in later payments of their credit card bills. Once a person makes a late payment of credit card bill, then it turns into a habit of regular later bill payments and eventually increases the overall debt burden and damages the credit score. It is important to note that a bad credit score can cause the credit card companies to hike the interest rates on the credit cards, which further increases the debt owed.

Most of us engage in Impulse purchases

When we are at a store, we usually end up buying things that we really do not need. It is advisable to always make a list of things that you need to buy before visiting a store. All kinds of stores merchandise their wares in such a way that is designed to make you spend more, whether it be on clothing, grocery, furniture, etc.

Impulse purchases often end up costing a lot of money. If we buy something that is not budgeted for, then we do not have adequate money for things that we had budgeted for. This may cause us to charge the necessary items on the credit card, often resulting in unwanted credit card debt.

We tend to rationalize purchases that we make during a sale as being something that we may use later. However, such items usually lie somewhere in storage, gathering dust; thus, we spent money unnecessarily. There are many things that we may want, but we have to ensure that they are within the budget. Also, before buying such unbudgeted things, we have to ensure that we will be using them.

We can stop impulse purchases by carrying only cash to make necessary budgeted purchases. You can also question the need and affordability of any new un-budgeted item that you want to buy. After the habit of impulse buying stops, you will end up saving lots of money and improve your financial health.

Not keeping a budget of income and expenses

A good way to improve your financial health is by keeping a track of all your transactions. This will allow you to see all the places where you spend your money. If you do not use a budget for expenses, then you are setting yourself up financial failure. The bewilderment that you experience when you see just a few dollars in your bank account will dissipate once you start using a budget as it will help track your expenses as well as the amount of money that you are spending at each place.

You can write down the expenses or track them on a spreadsheet. Some broad categories of expenses include entertainment, groceries, and dining out, etc. After you figure out (with the help of a budget) the categories where you overspend, you can slowly try to decrease the expenses on specific categories, every month. Eventually you will end up saving pot loads of money and show enhanced personal finances.

Do not open new lines of credits to gain rewards

We continuously encounter new credit card offers, whether at stores or over the internet, about extra 10 percent discount with the use of store credit cards; about 2 percent cash back on all purchases; and about travel reward points on credit cards if a certain amount is spent on the credit card over the following few months.

In many instances, the signing up bonuses for such new credit cards are really huge and enticing, including high spending limits. However, all such cards may come with an annual fee. Also, the high thresholds on spending may cause us to overspend and leave us with debt balance that we cannot afford to repay. Thus, such credit cards, despite the sign-up rewards, may not be worth it in the long term.

It may also be noted that the opening of new lines of credit is marked by hard credit inquiries. Increased opening of new credit accounts has an adverse impact on the credit score. Consumers need to analyze the rewards offered by credit cards against factors like affordability to repay the balances, the need for a new card, and the effect on credit history, etc., before signing up.

Do not use investment accounts for emergency funds

A lot of us tend to delve into our investment accounts when some emergency expense crops up. For some people, this may become a habit. Loans may not get approved for people with bad credit and raiding their investment accounts, like 401(k), may be their only choice during emergencies. It may however be noted that withdrawals from 401(k) accounts can attract heavy tax penalties.

People can open up a savings account with high interest to save money for emergencies. Do not touch such an account, till there is some sudden expense. A few emergency expenses can include car repairs, job loss, and medical expenses, etc.

You can take a small amount of money every month from your income and save it in the savings account. You may alternatively set up an auto debit of a specific amount from your salary bank account to the emergency savings account every month. This will ensure that you make deposits to the savings account each month without fail. You may also put in a part of the bonuses that you may receive into the emergency fund. Additionally, any savings that you make by following the above listed steps can be put into the emergency savings account.

It is neither that easy nor that difficult to overcome bad financial habits. In order to ensure that you follow through, you may select one bad money habit at a time and correct it. Once rectified, you may move to the next one. Eventually, you will have less stress, more savings, and better financial health.

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