Habits That Lead to Debt
Everyone's personal relationship with money is different, but the habits that lead to debt are similar. At its simplest, spending money without paying attention to where it comes from or where it's going is a sure way to create trouble for yourself. By setting a budget, sticking to it, saving money and living frugally, you can avoid financial pitfalls.
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Not Setting a Budget
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It may not be the most exciting way to spend your time, but sitting down with all your bills and drawing up a realistic monthly budget makes a difference. Even if you don't change how you spend your money, you'll know how you're spending it. That way, you can identify whether there are any changes that you need to make. That $5 stop at the coffee shop every weekday may not seem like much, but you may find it costs more than your phone bill when added up over a month. If you're aware of where your money goes, you'll be in better shape to keep yourself from developing fiscally destructive habits.
Spending Beyond Your Means
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Credit cards are useful for building your credit history, which in turn helps you get home and car loans at reasonable rates. However, when you carry credit card balances and make only minimum payments, you end up paying a lot more for the things you buy. While you may be able to handle the payments at the time that you make those purchases, any emergencies that arise in the future may push your finances to -- or past -- the limit. Additionally, if you have available cash or a debit card but don't use them, this action costs you money if you don't pay your credit card balance in full. The extra money you spend on interest could be better spent or saved.
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Not Saving Any Money
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Personal finance author J.D. Roth says the reason many people don't save money is because they don't prioritize saving money. Bills need to be paid, and you may feel you deserve a little fun money to reward yourself. While those things are true, Roth advises learning to pay yourself first -- otherwise known as putting money in savings. Those savings may take the form of retirement accounts that your employer matches or personal savings accounts that you contribute to each month. Roth suggests scheduling automatic deductions that take place as soon as you are paid, so you don't have to think about it. This tactic prevents you from spending the money instead of saving it.
Buying What You Don't Need
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Everyone needs new shoes, a haircut, clothes and maybe a new car from time to time. However, it's not uncommon to buy these things whether you need them or not, simply because you want them. Occasional rewards or goals are useful motivators, but when impulse buying becomes a habit, it leads directly to less money in your pocket. If you have an emergency expense or your pay rate suddenly decreases or even ceases, you'll wish you had the money you spent on random feel-good purchases. Buy what you need when you need it, and save rewards for special occasions.
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References
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