The good habits we’ve made carry us along almost effortlessly. That’s positive. It lets us focus on the things that need our attention most.
But as you work to pay off debt, save and get your financial life on track, you’ll probably find some old, counterproductive habits undermining your progress. They may have worked once, but now they’re holding you back.
Dropping bad money habits makes it easier to power up your financial life. Money Talks News founder Stacy Johnson explains how in the video below. Come back after you’ve watched it for more tips, ways to drop habits you no longer want and new habits to take their place.
1. Carrying a credit card balance
Carrying a balance on a credit card is like walking down the street with a hole in your wallet and your money leaking out. High interest rates on credit cards make plastic one of the most expensive ways to borrow, right up there with subprime mortgages.
Here’s why: Suppose you decide to pay off a $5,000 balance on a card charging 15 percent interest. It’ll cost you at least $7,000 in interest and take decades if you pay the minimum charge each month.
Think what you would love to do with that $7,000.
Build a better habit: To begin dropping a bad habit, analyze it. Suggests MSN Money:
Asking “who, what, where, when, why and how much” makes it much easier to identify and define new habits for almost any situation.
For example, if debt is your major concern, ask yourself where you are overspending and why. Are there any situations or triggers that tempt or cause you to spend more than you should? Can you limit your exposure to these situations or triggers?
One approach to erasing the card balance is to “snowflake” the debt, devoting every spare penny to getting rid of it. If you have other pressing debts, you’ll need to make a plan for dealing with all of them. Here’s how to kill your debt and write its obituary.
Keep the balance from building again by making it a new habit to pay off the entire bill every month — no exceptions ever.
2. Failing to fund a retirement plan
There are compelling excuses to put off saving for retirement. But none will matter if you reach retirement age with little to nothing saved. And, if you don’t take advantage of your employer’s matching contributions, you’re passing up free money every month.
How much should you save? “Ten percent is the minimum [monthly contribution] for anyone in any situation,” Arlington, Va., financial planner Claire Emory tells Women’s Day.
Build a better habit: Imagine yourself at age 70. Or 80. Picture concrete details — how you’ll look, your surroundings, how you’re spending time and who’s with you. The more real your future self is to you, the more likely you’ll care for her or him today.
Start paying close attention to your retirement savings. If you can’t bring your plan’s monthly contribution up to your goal immediately, increase it by 1 percent a month. Once a year check the performance of your investments and re-balance your portfolio.
Here are three online retirement calculators. Play around to set a goal and start saving aggressively:
- Vanguard’s Retirement nest egg calculator
- The Flexible Retirement Planner
- AARP Retirement Calculator
3. Not shopping for monthly services
If you comparison shopped when signing up for insurance policies and phone, Internet and cable, good for you.
But you may be missing savings if you’re not checking prices again once a year.
I recently saved about $200 a year by bundling all my insurance policies with one insurer. The new auto insurance premium was higher than the old one. But my home insurance dropped a lot.
Build a better habit: Be willing to put some energy into improving your financial life. Once a year spend 30 to 60 minutes price shopping for monthly services. To make it easy, keep a list with each company’s name, your account number and your monthly payment amount.
4. Paying for cable and landline
Cable prices are going nowhere but up. Free and cheaper alternatives make experimenting worthwhile. The question is, will you get out of your rut and try something new?
Build a better habit: Before trying a change, just observe yourself and your habit. Record your viewing habits for a week or two to see how and if you’re using the services. Ditto for your landline.
If you’re able, drop the landline and use mobile phones only. If that seems too radical, refrain from using the service for one month – or a week — while you check out alternatives.
- Drop the premium cable tiers; learn to love basic.
- Find out if you’ll pay less by bundling Internet and phone services with one company.
- Get an all-inclusive mobile plan with unlimited text, data and phone.
- Switch to Skype, Vonage, or another cheap or free Internet phone service. Don’t be scared of the new technology. It’s super easy to use.
- Cut the cable and substitute sources like YouTube, Hulu, Netflix, Redbox and CDs from the public library.
- Try a free Internet service.
- Find lots more tips at “3 Steps to Cut Your Cable Bill 90 Percent.”
5. Ignoring coupons and deal sites
If you aren’t using coupons and checking daily deal sites, you’re spending too much. However, exercise discipline when bargain shopping so you don’t sabotage your good intentions with impulse buys.
Build a better habit: Tackle bad habits in small bites. Try just one deal or coupon site. Money Talks News deals, for example, has new sales and coupons every day on clothes, shoes, electronics, tools and more.
Try one of these:
- Daily deal message boards like Slickdeals, LivingSocial and Woot for cut-rate prices.
- Grocery store apps that deliver coupons and personalized savings to your computer or smartphone.
- Grocery store receipts often have printed coupons.
- Manufacturers’ websites often have coupons.
6. Playing investing too safe
Safe investing is important. But there’s safe and there’s too safe. Keeping all your money in no-risk accounts means inflation will rob you slowly but surely.
Build a new habit: Don’t break all your bad habits at once. Pick one and focus. Make managing your investments a priority, for instance. Learn your investing style by taking a risk-tolerance quiz like this one from Merrill Lynch Wealth Management. Next, read up on the basics of investing. Then – taking your age and risk tolerance into account — take another look at your investments.
7. Getting hooked on lattes
That $4 latte is killing your budget. One latte a day each workday adds up to $20 a week — $1,040 a year. If you tip a dollar each time you’re spending $1,300 a year. Tip 50 cents? You do the math. There’s surely something you’d rather do with that $1,000.
Build a better habit: Substitute new habits you enjoy for the old ones. A latte is a way of treating yourself, so find treats that don’t bust your budget.
- If you’ve got a morning latte habit, start a new ritual at home that includes making coffee or tea or doing yoga or meditating.
- How about 15 minutes more of sleep since you’re eliminating the coffee shop stop?
- You’d could even spend $600 on a used high-end espresso maker so you and your family and friends can enjoy espresso drinks and still save a bundle.
8. Living without an emergency fund
If you don’t have an emergency fund, your life is a high-wire act with no safety net. Emergencies are inevitable. Life is full of them.
Women’s Day says:
You should have enough socked away (in a money market account, perhaps) to cover three to six months of living expenses — which should be less than three to six months of income, since income includes retirement contributions, taxes and money for unnecessary spending.
Build a better habit: Make a commitment to the change you want. Write it down and put it where you’ll see it and reinforce your resolve. Keep the change at the forefront of your mind and tell yourself continually: “I can do this.”
Commit and watch your savings build:
- By taking on a few hours of extra work each week, whether it’s overtime at work or watching neighbors’ dogs.
- By scheduling a small payment automatically into your savings account each month.
- By paying off debts and diverting those monthly payments into your emergency account.
- By cutting back – or cutting out – restaurant meals.
9. Buying retail
Paying retail markup is like setting a match to a pile of cash. Smart buyers find ways to avoid it.
This remarkable infographic at Edmunds.com shows how quickly a new car loses value. The car’s value drops 8 percent the minute it leaves the dealer’s lot. At the end of the first year, it’s worth 19 percent less. After two years, it’s 31 percent less.
One caution: There are things you should never buy used – pet food, blenders, hats, mattresses, underwear, swimming suits, vacuum cleaners, stuffed animals, tires and software, among them.
Build a better habit: Get out of your comfort zone. If you feel pressure to keep up with your friends or neighbors, ask yourself what that’s costing you. Stay out of malls and brand-name stores except for researching products. Read up on prices online so you know a good price when you see it.
Shop at wholesale clubs and bulk stores, garage sales, consignment stores, thrift stores, online auction sites and classified ads. You’ll find especially good deals on used cars, refurbished electronics, jewelry, furniture, housewares, clothes, tools, books and sports equipment.
10. Using shopping as entertainment
You know people with compulsive shopping habits. Maybe you are one. For some of us, spending creates a high that’s addictive and can severely damage your budget and the financial security of your family. But even if you don’t miss the money, the inability to stop can eat away at you.
Here are a few signs of a shopping habit out of control:
- There’s a pattern – not just an incident or two.
- You buy things you don’t need
- You hide purchases or lie about spending.
- You order things you don’t open or don’t use.
- You wreak havoc on your budget.
See WebMD for more signs.
Build a better habit: Try a spending fast, remove your name from catalog lists, stay out of stores and hang out with friends whose idea of fun doesn’t include shopping.
But if none of these habit busters works and you’re still struggling with your shopping habit, you may need help. Compulsive spending is a tough pattern to break.
Debtors Anonymous is a free, nonprofit 12-step organization based on the principles of Alcoholics Anonymous.
We’d love to hear your ideas and how you’ve been able to change habits. Post your thoughts in the comments area below or at Money Talks News’ Facebook page.