Live with a bad habit long enough, and it will start to feel normal. Now and then something will remind you it’s not such a good idea, but by that time you’re convinced — for now anyway, you don’t have any other choice.
Unfortunately, “for now” can easily stretch forever, and that’s a costly mistake when it comes to money management.
If your finances aren’t quite in order, a bad habit or two likely comes to mind. But just in case it’s not perfectly clear, you’re playing the financial fool if you are:
1. Living without a budget.
If you’re constantly mystified at where all your money goes, then you probably don’t have a budget, at least not a workable one. By learning the basics of budgeting your money, you can account for every single penny.
Budgets get a bad rap, as people perceive them as something limiting, and nobody likes to be limited. In fact, a budget is your key to financial freedom. A budget allows you to take control of the money you earn and choose to spend it in ways that will ensure you have money left over in the end.
2. Paying late fees.
When you stay behind on your bills month after month, you’re probably happy just to get your payment in before the worst happens… Before the electricity gets turned off, before you get an eviction notice, or before you get reported to the credit bureaus. While these are scenarios you want to avoid at all costs, don’t let these small “victories” distract from the fact that you’re wasting money on late fees.
For instance, if your landlord charges a $25 late fee, that’s $300 a year you’re just throwing away. The same is true of late credit card payments. In addition, the late fees for utilities and phones that could easily add up to $1,000 or more per year on late fees alone.
Rework (or create) your budget and find a way to get those bills paid on time!
3. Living off credit cards.
It’s one thing to carry a credit card balance now and then, and quite another to depend on it.
Paying off your credit card balance every month should be the goal. This enables you to charge utility bills, groceries, and other necessities while avoiding interest fees. This may help you get from one paycheck to the next, while also helping to build your credit.
Of course, there may be times when you need or choose to carry a balance — to cover an unexpected expense or to charge a trip or big purchase you’re committed to paying off quickly. These are not ideal circumstances, as they come with interest fees, but it’s a temporary financial situation.
Where you get into trouble is chronically charging more to your credit cards than you can afford to pay off before the end of the month. You pay only the minimum payment required, racking up a bigger bill month after month, year after year. Living like this, you’ll forever be increasing your debt.
If you have outstanding credit card debt, stop charging your cards and start paying more than the minimum monthly payment.
4. Saving nothing.
When you’re struggling to make ends meet, it seems like there’s nothing left over to save. But you can always save something, even if it’s just $5 a month. No, it won’t go far, but it will build over time and, most importantly, get you into the habit of saving. It will start to feel so good that you’ll likely find it easier to save even more as time goes by.
The point is, if you don’t start somewhere, you’ll never start at all. For some good tips, check out these 3 easy steps to automating your savings.
5. Ignoring your credit reports.
You can do everything else right financially speaking and still end up in a pretty bad spot if you fail to keep an eye on your credit reports.
Just because you’re paying off your balances every month (and always on time) doesn’t mean they’re being reported as such. Creditors and credit bureaus make mistakes.
Then there are the identity thieves who steal personal information and open bogus lines of credit in other people’s names. They max out the card, never pay a cent, and leave you holding the bag.
Your credit reports are free once a year. Request them at AnnualCreditReport.com to ensure that your credit reports are accurate, as they determine your credit scores and are used by lenders to determine your creditworthiness.
6. Accepting bad credit.
Just because you’ve made mistakes with your credit in the past doesn’t mean you have to live with it indefinitely. There are steps you can take now to have negative listings removed from your credit reports, thus improving your credit score.
If you have old credit card debt dragging you down, you should really look into debt validation as soon as you receive the initial notice from a collector. If they cannot prove you owe the debt (which they often cannot), you are not obligated to pay it and they can no longer try and collect.
Taking action against bad credit will improve your credit score and relieve the unnecessary stress associated with debt collection efforts.