The bad news is: being financially healthy is as important as taking care of your body or family. Good finances can help you prepare for the next step in life, such as buying a house or making an investment. They can break you the same way, by keeping important achievements far away.
You’ll find below ten habits you shouldn’t keep if you’re looking for better financial health. Keep reading to understand better and start the change.
1. Playing victim to a bad financial health
“I just can’t help it, I’ve been in debt for a good part of my adult life.” Many people say similar sentences adopting the stance of a victim to their own financial health. Any psychologist can tell you: once someone decides a situation is hopeless, they won’t put as much effort into solving it as others.
Debt is common, as are financial hardships. Since they happen in almost every household, there’s no reason why you would be the only one with this problem. Start by admitting the problem then looking for a solution.
If you’ve identified this bad financial health habit, there’s a high chance you’ll identify with other items on this list. So keep reading to understand what to change to escape this trap!
2. Lack of financial health planning
Maybe your income is enough to keep your financial health today, but what about the future? In the next few years many events will come to pass, putting kids through college, buying a house, changing your car or even opening your own business.
The greatest mistake you can make is waiting for these great things to happen to decide how you’ll afford everything. Creating a plan for the next few years allows you to know when to save, when to use and when to invest.
Take retirement for example. A Rand Corporation research found out that only 55% of single people have a plan for when that time comes. Which means, almost half of single people don’t have any idea (or savings) for when their retired lives.
3. Not prioritizing certain spendings
As everything in life, spending should have a certain hierarchy. Studies show we spend a lot of our money on nonessential stuff, at least US$18.000 annually. Often, that happens because people don’t prioritize spending that can help them achieve their financial goals.
Focus is a must in the process: know where and how much you can spend on nonessentials (such as services and eating out) and how much to save. That’ll mean a lot of compromise for sure, but the results will be impressive.
Start by charting out your main monthly bills, like water, electricity, internet and housing. Calculate the amount that’s left over from these living expenses and determine proportions for savings, health insurance and other investments. What’s left is the amount you can use on nonessentials for the month.
4. Not keeping track of spending through the month
Your paycheck won’t come for weeks and you’re already running low on money. In these moments we often ask: where did it all go? If you suffer with this question more often than not, it’s a sign you’re getting lost in spending.
For starters, not knowing where you spend makes it harder to know where it’s possible to cut back. Thus, you’ll keep the idea we talked about in the first topic: that you’re a hostage of your financial situation.
An interesting tip is to download a tracking app. That way you’ll be able to record every purchase you make and check out detailed reports of your spending. At first it can look scary, seeing that you’ve wasted a lot of good money on take outs, coffee shops or meaningless services. But it’s sobering to see there’s plenty of places you can save on.
5. Lack of savings for financial health
For this financial health plan to work, you must save. In the long run, saving is the only way to achieve your dreams. We know it’s hard not to be tempted by sales, online shopping and credit card spending.
Financial experts have an important and interesting suggestion: start paying yourself. That means, as soon as you get your salary or wages, separate a part of it in a savings account or investment. That way, you won’t be tempted to spend this hard earned money and will start to work towards your financial dreams.
Just remember not to cheat: if the plan is US$200 a month, don’t find an excuse to take US$50 for shopping thinking you’ll put it back later.
6. No control over credit card spending
Be careful if you’ve been using credit cards on an almost daily basis! Out of control shopping on these cards can lead to some serious damage to financial health. First of all, they leave you with a false impression of how much money you have available.
That way, when the time to pay the bill comes, you end up reaching for your emergency savings or end up with a high interest debt. As long as the same thing keeps happening over and over, it’s hard to keep control of your spending.
Keep your credit card on hand, but just for emergencies!
7. Lack of financial health budget
People who are trying to lose weight will track calories in many ways to make sure they’re eating right. Keeping a budget is its own version of tracking calories for financial health objectives. Making one is a simple matter of math: calculate your expenses and define how much you can spend beyond that monthly.
Remember to set an amount for what’s left of that money for savings and investments. Thinking of the future is always important when you want to figure out the best way to improve your finances.
If needed, hire a financial advisor to help you budget your debts and income in a better way.
8. Impulse buying most of the time
The problem with modern life is you can shop anywhere, anytime. You could’ve been reading a magazine online and an ad for great sports equipment shows up. It claims to be a limited sale and you get your credit card out, acquire the goods and wait. After everything is delivered you realize it wasn’t a good idea, now your credit card debt is higher and you probably didn’t need the product anyway.
It’s a given that things you didn’t plan to buy end up costing more. After all, there’s no research involved, no bargaining for the best option. You just buy it because you can and felt like it. Every once in a while that’s ok, but if it happens too often your financial balance will be off.
Before you realize, the credit card bill we talked about will be almost maxed out and you’ll have no idea why it happened.
9. Overvaluing credit card’s reward program
Many credit cards use their benefits, points or rewards programs to sell. They convince buyers that it’s great to shop using them because you’ll be able to trade points for discounts and cool prizes later. Thus, people end up wasting much more than they need on a card to try and get such benefits.
That’s a huge mistake for your financial health. Credit card companies aren’t generous, the rewards or cashback is just an incentive for you to buy more. Once the time comes to reap what you sow, the reward isn’t even that good.
Pursuing point systems is just going to get you in more and more debt.
10. Shopping for fun
It’s fun to shop and research proves it. When we make purchases our brain’s reward center is activated and we feel good about ourselves, but that feeling doesn’t last. If you’ve ever found yourself at a mall or browsing through an online store in a day you’re particularly sad, you were probably looking for that quick happiness buying will bring.
The low side is that this becomes a habit quickly. Many people use shopping to boost their mood, which is a bad idea when you think about long term consequences.
Sometimes, we don’t even know there’s an emotional link between us and shopping. If you’ve been having a hard time controlling impulse buys, here’s a tip: check your emotional state before you start browsing. Sadness, anger and stress are some of the most common starters of an impulsive shopping spree.
Perhaps, it’s a better idea to use your savings for a therapist who can help you deal with those emotions in a healthy way. Good for your mental health and financial health, isn’t it?
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