11 Bad Money Habits and How to Break Them

Some habits are good for you such as exercise brushing your teeth, eating healthy and getting eight hours of sleep (wouldn’t that be nice?)

By doing the same things over and over again may make you feel comfortable and safe.  But when some of your habits actually sabotage your financial well-being it's truly time to turn off the autopilot and actively start making careful decisions about your money and your life.  Below, are patterns that Financial Experts say will wreak total havoc with your bottom line, plus some easy tips for turning over a new financial leaf.

1. Carrying a balance on credit cards.

The average credit card balance in 2011 was $6,576, according to data from CreditKarma.com. With an average interest rate of nearly 17%, you'd rack up more than $1,100 in interest every year. So it's truly wise to live within your means and pay down your credit card debt.  Try the "snowball" plan: Pay the minimum balance on all of your credit cards except the one with the smallest balance.  Put as much money as possible toward that one until it's paid off.  Once that happens, take the money you were throwing at that card and put it toward the next-highest balance.  Keep doing that until every credit card and installment loan is paid off.

2. Using too many credit cards.

By using multiple credit cards, it can be very difficult to rein in your spending.   Unless you are tracking all spending on a spreadsheet, it's harder to be aware of where your money is actually being spent.  At the end of the month you owe more than you expected. Using a lot of cards also may lower your credit score. "According to Tom Quinn, www.Credit.com Credit Score Expert; “consumers may receive less than optimal credit score points if they have a higher number of credit cards with a balance.  So stick to one or two cards with no annual fee and a good cash-back program.”

3. Keeping quiet at raise time.

According to a study from Carnegie Mellon University; “Men are four times as likely as women to ask for a raise”.  If you don't ask, you won't get!  The vast majority of people who do ask get something!  Whether it's a salary increase, higher commissions or more incentives.  The more often you ask for raises (within reason), the more money you will make in the long run.  This translates to more retirement savings, more college savings for your kids and a higher Social Security check, plus other perks.  Even negotiating your salary just once can reap you more money over your lifetime!

4. Contributing too little to your 401(k).

If you're putting only a small percentage of your total income into your Company sponsored 401(k), you are way behind.  10 percent should be the minimum for anyone to contribute.  You really won’t miss that amount.  If you can't swing 10%, at least set aside enough to get the full employer match (if there is one), it means you get free money!  Can't make the leap all at once? Consider bumping up your contribution by 1% every few months or annually until you reach the 10% mark.  It's better to take small steps you can handle than to feel overwhelmed.

5. Spending money without tracking it.

According to survey by Financial Finesse; “more than a third of men and women spend more each month than they make”.  I hear many of my Buyers and Refi Home Owners tell me; “I don't live an extravagant lifestyle”, but after working out a Budget with them they come to realize that they truly spend a large percentage of their disposable income on going out to dinner.  Not that you should not go out, but just not all the time.  Know where your money's going so you can't accurately plan to meet saving and spending goals.  By tracking and paying attention to where your cash flows, you will be more mindful of your purchases, and less prone to fork out dollars for yet another pair of shoes or the latest electronics. Create an account on www.Mint.com and use it to track your day-to-day expenditures by category.

6. Emergency Savings – Don’t be skimpy!

If you lost your job tomorrow, how long would you be able to last on your savings? A month? A week? "An emergency fund is a must," says many financial planners and the MN Home Ownership Center.  You should always have enough funds socked away (in a money market or higher interest bearing accounts) to cover at least three to six months of living expenses.  Remember the BUDGET that I mentioned a few Blogs ago?  Time to take it out, review, revise and re-instate (if you’re not using it!)  This amount should be less than three to six months of income, since your gross income includes retirement contributions, taxes and money for unnecessary spending.

7. Disability Insurance – don’t skip this!

Unfortunately, statistics show your chance of becoming disabled is far greater than your chance of dying before you retire.  You of course have life insurance, right?  If not, I would be happy to recommend some fantastic Agents for you to speak with.  Call me (763.202.8145)!  

Disability Insurance Coverage may be offered through your Employer.  If so, this coverage will be much cheaper than buying it yourself, or it even may be free. Employer sponsored coverage will usually cover 60% of your base salary (not including bonuses or commissions).  Check with your HR Dept to be sure.  You may be able to purchase more coverage, though no policy will replace 100% of your total income.  If you can't get a policy thru work, check with any Professional Associations you belong to, or consider getting a policy that replaces a good part of your earnings should you become unable to work.  Some income would be really better than no income at all!

8. Saving for College over your Retirement.

Putting money aside for your child's college?  Good for you! But if you're doing that instead of growing your retirement savings, you'll really need to work for a long time to make up for it. Some families sacrifice everything to put their children into school.  But remember there are a variety of ways for our children to pay for their college degrees; scholarships, grants, financial aid and even having them get part-time jobs!.  Unfortunately no one offers loans for our Retirement and those longed for golden years.  Plan ahead and put at least 10% of your household gross income into retirement savings before savings the first penny towards college funds.

9.  Buying high/sell low.

When the stock market tanks, it's really very easy to panic.   Unfortunately some people will cash in all their 401(k) stock holdings and put them all into a money market account.  But if you take all your funds out of stocks, you will miss any rebound that happens.  Over the long run, investing an equal amount periodically  is really the smarter option.  Volatility works in your favor.  You will end up buying more stock when the price dips and less stock when the price is high.

10.  Letting only one person handle all the money decisions.

Even today, both Partners in a marriage or significant relationship are not involved in every family money decision.  Again, remember the BUDGET? Sure you do!  But some financial planners and CPAs say that both Partners are less likely to deal with big-picture items such as taxes, debt payments and even investments.  The problem with that is this; what if your significant other is more aggressive with combined assets (money) than you’re comfortable with?  What if they are doing things that you don't agree with?  Consider this statistic; according to a study by the National Endowment for Financial Education and Forbes.com; “one in three adults who have ever combined finances with someone say a partner has financially deceived them”. 

If you are not effectively communicating with each other and checking in regularly on BUDGETING, spending and savings, you are way too vulnerable.  If the other person is the one who mismanages the family finances, you are in a really huge mess if you get divorced, or your spouse/significant other should die, since you won't know how to take over and handle the BUDGET, expenses and cash flow.  Protect yourself by swapping roles (say every 6 months or annually) and having frequent discussions about money.

11. Spending too much on your Mortgage

Have you read the paper lately, or watched the news?  Mortgage Rates are at an all time low.  For over 30 years, rates have not been this low.  Are you in a Mortgage that you are paying over 5% on?  If so you are paying way too much and need to look at refinancing options. 

Are you upside down on your Equity?  Did you buy your home at the Market peak and now it’s worth a lot less?  If so…there are several programs available to help, such as FHA Streamline, HARP and HARP2.0 (FannieMae and FreddieMac).

For all your Mortgage needs…to BUY or REFI.

Enjoy your day!

Waterstone Mortgage

763.202.8145 direct

763.746.9921 office

SGoldman@WaterstoneMortgage.com

www.StevenGoldmanLoans.com