Money habits are the patterns of behaviour that influence how we manage our finances. Some money habits are beneficial, such as saving, investing, and budgeting. However, some money habits are detrimental, such as overspending, accumulating debt, and ignoring financial goals. If you want to improve your financial situation and achieve your dreams, you must break the bad money habits holding you back.
Here are five money habits you must break before the end of 2023.
1. Not knowing where your money goes
One of the worst money habits is not tracking your income and expenses. If you don’t know where your money goes, you can’t make informed decisions about how to spend it wisely. You might be wasting money on things that don’t add value to your life or missing opportunities to save and invest for the future.
To break this habit, you need to review your bank statements and credit card bills regularly and categorize your spending into different categories, such as housing, food, entertainment, etc.
You can also use apps or tools that can help you track your spending automatically and provide insights into your spending patterns. By knowing where your money goes, you can create a realistic budget that reflects your needs and goals, and stick to it.
2. Paying your bills late
Another bad money habit is paying bills late. This can have serious consequences for your financial health, such as late fees, interest charges, lower credit score, and even legal action. Paying bills late can also cause stress and anxiety, as you worry about the potential repercussions.
To break this habit, you need to set up reminders or alerts for your due dates, and pay your bills as soon as possible. You can also use autopay or direct debit to pay your bills automatically from your bank account or credit card. This way, you can avoid missing payments and save time and hassle.
3. Only making minimum payments on credit cards
Credit cards can be useful tools for building credit and earning rewards, but they can also be traps for debt if not used responsibly. One of the biggest mistakes people make with credit cards is only making the minimum payments each month. This can prolong your debt repayment and cost you a lot of money in interest.
For example, if you have a $5,000 balance on a credit card with a 20% interest rate, and you only pay the minimum of $100 per month, it will take you over 25 years to pay off the debt, and you will end up paying over $14,000 in interest.
To break this habit, you need to pay more than the minimum each month, preferably the full balance, if possible. You can also use strategies such as debt snowball or debt avalanche to pay off your debt faster and save money on interest.
4. Leasing your car
Leasing a car might seem like a good option if you want to drive a new car every few years without paying a large upfront cost. However, leasing a car is actually one of the most expensive ways to own a car. When you lease a car, you are essentially renting it for a fixed period of time, usually two to four years.
You must pay a monthly fee covering depreciation, interest, taxes, and fees during this time. At the end of the lease term, you have to return the car or buy it at a residual value that is often higher than the market value. Leasing a car also includes mileage restrictions, wear and tear, customization, and insurance.
To break this habit, you need to consider buying a car instead of leasing one. Buying a car might require a higher initial payment, but it will save you money in the long run. You will own the car as an asset that you can sell or trade in later. You will also have more freedom and flexibility with your car.
5. Ignoring financial goals
The last money habit you need to break is ignoring financial goals. Financial goals are the specific and measurable outcomes that you want to achieve with your money, such as saving for retirement, buying a house, or starting a business. Financial goals help you stay focused and motivated on your financial journey. They also help you plan and prioritize your spending and saving accordingly. Ignoring financial goals can lead to aimless and impulsive financial decisions that can jeopardize your future.
To break this habit, you need to set SMART (specific, measurable, achievable, relevant, and time-bound) financial goals that align with your values and vision. You also need to track your progress and celebrate your achievements along the way.
Finally, the truth is that breaking bad money habits is not easy, but it is necessary if you want to improve your financial situation and live a better life. By breaking these five money habits before the end of 2023, you can take control of your money and make it work for you. Remember, the sooner you start, the sooner you will see the results.