5 Financial Bad Habits to Cut This Year
When it comes to financial bad habits, the most common are also well known — don’t spend too much, don’t take on unsustainable debt, and avoid living paycheck to paycheck. But what happens once you’ve implemented this advice and still aren’t getting ahead? Here are five overlooked financial bad habits that could be draining your bank account.
Engaging in Emotional Spending
Many people tend to use shopping to cope with stress, sadness, or boredom. Nearly 9 in every 10 Americans are guilty of emotional spending at some point, and this figure has only increased since the pandemic.1 Emotional spending is far more likely to lead to impulse purchases and, ultimately, excessive credit card debt.
To prevent emotional spending, remain mindful of your emotional triggers and focus on finding healthier outlets for any mental turmoil. You might also want to make some rules for yourself. For example, give yourself a 24-hour pause as a cool-down period before making any large or unplanned purchases.
Ignoring Small Expenses
It's easy to dismiss small, recurring expenses as inconsequential. However, daily coffee runs, streaming subscriptions, meal deliveries, and gas station snacks add up over the course of a month. If you don't carefully track your spending, you may be shocked at the amount of money frittered away in dribs and drabs.
So, how do you avoid the slow leak of minor expenses? A potentially useful tool is following a strong budget. By using one of the many software programs or apps that track and categorize all your expenses, no matter how small, you may identify your financial weak spots.
Neglecting Your Financial Education
Personal financial topics aren't generally taught in school, so those whose parents weren't models of fiscal responsibility may enter adulthood without much financial knowledge. If you don't understand basic financial concepts like budgeting, investing, and debt management, it's easy to make uninformed choices. And even once you've mastered the basics, it's important to stay informed about major changes in the stock market, tax code, and general economy.
Procrastinating About Retirement Savings
Procrastination is one of the most common bad habits—financial and otherwise. In particular, many people tend to put off saving for retirement under the false assumption that they have plenty of time to worry about something so far in the future.
The truth is that the earlier you start saving and investing for retirement, the more you may benefit from compound interest. Delaying your retirement savings might mean you must save far more later in life or invest much more aggressively for the same goals.
Frequent, Unplanned Borrowing
Relying on credit cards, payday loans, or other forms of high-interest borrowing to cover everyday expenses is a dangerous habit. Once you take out your first loan, you might find the interest charges often accumulate more quickly than your ability to pay them off. This could send you into a debt spiral you may find difficult to escape.
Building an emergency fund and managing your cash flow effectively could help prevent this problem. One way to avoid this cycle is never to take out a high-interest loan.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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Footnotes
1 Americans' Mental Health and Personal Spending Report 2023
https://www.self.inc/info/mental-health-personal-spending-report/
