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We sincerely doubt that you want to sabotage your financial life. Unfortunately, there are behaviors that might not seem very important to you – or maybe even beneficial – that could be sabotaging your finances without you even being aware of them.
Thomas Corley the author of " Rich Habits: The Daily Success Habits of Wealthy Individuals,” has pointed out that you can't change these behaviors until you're aware of them. So here are five of these money behaviors you need to be aware of so you can stop doing them now.
If you don't track your spending it’s virtually impossible to know where your money is going. One of the biggest differences between wealthy people and low-income people is that the wealthy ones formed the habit early on of tracking their spending so that they always knew where their money was going and could keep control of it. This is especially important if you don't have a lot of money. Smart phone apps like Mint, Cashback, Shape and Expense Manager make tracking your expenses just brain dead simple. Or you could just use a spreadsheet. But if you're just spending aimlessly the odds are you'll never get ahead of the game.
Another way to limit your spending is to ask yourself before you make a purchase is whether it will detour you from your goals. Sometimes this simple question can eliminate the need to budget by making you think about your financial goals and whether that purchase would help you accomplish them.
Watching TV too much
In writing his book, Thomas Corley discovered that 77% of low-income adults said they watched TV for more than an hour a day and 74% reported that they spent more than an hour every day on the Internet. In comparison, 61% of wealthy adults that he interviewed reported that they watched TV less than an hour a day and 63% said they spent less than an hour each day on the Internet.
The harsh truth is that when you're spending time on the Internet or watching TV that's less time you could be doing productive things like building relationships with success-minded people via networking, doing voluntary work or building a side business. For that matter, ditching cable TV will not only give you more time to be productive but will also reduce your monthly bills.
Paying your bills late
The National Foundation for Credit Counseling recently revealed a report that 25% of the adults surveyed said they did not pay their bills on time. It's okay to be a bit late occasionally as this won't wreck your credit. But if it becomes routine you'll be damaging your finances several different ways.
For one thing, when you pay a bill late you're likely to be hit with a costly late fee. In turn this means you will have less money to cover your bills. Also, if you routinely pay your bills late your lenders may hike your interest rates or lower your credit limits. If you're more than 180 days late on a payment it gets worse. Your debt will likely be assigned to a collection agency or debt collector. When you have a debt that goes to collection this will lower your credit score and stay on your credit reports for seven years. In a worst-case scenario your wages could be garnished to pay that debt.
The simple answer to this is to set up automatic payments through your bank or through those companies that are billing you. This will eliminate the possibility you’ll make any late payments.
Paying only your minimum balances
If you are making just the minimum monthly payments on your credit cards it might be because you want to free up money for other expenses. But this is not a good financial move.
When you make just those minimum payments it’s like you're running on a treadmill where there is no end. This will dramatically slow down how long it will take you to pay off that credit card and will mean you'll be paying a lot more in interest. As an example of this, if you have a $5000 balance on a credit card at 16% interest and you make just a minimum monthly payment of $100, it will take you almost 7 years to pay off that debt. And it will cost you more than $3000 in interest.
When you pay just the minimum on a credit card that has a high balance you'll also be damaging your credit score. This is because a high balance increases your debt-to-credit ratio. This ratio accounts for 30% of your credit score. If you could lower your ratio by paying down that high balance you should see a nice boost to your credit score.
What can you do if you have balances on several credit cards? First pay as much as you can on the card with the highest interest rate, which will save you money over time. Alternately, you could do a balance transfer to a card with a lower rate or a 0% interest balance transfer card. This would consolidate all your credit card debts onto one card and you could then do everything possible to pay it down quickly.
Saving for your retirement before building an emergency fund
You've probably been told over and over that you must save for your retirement. But most financial experts say you should first build an emergency fund. Most say you should save the equivalent of six months of your living expenses. This could be tough, especially if you're young and trying to live on a small salary. So instead of six months try to save at least the equivalent of three months of your living expenses.
Why is this important? It's because something unexpected will happen to you – whether it's losing your job, getting sick, being in an automobile accident or having a pipe burst in your house. When something like this happens and you have no emergency fund, you might have to borrow money – which means creating new debt – or withdrawing money from your retirement account. When you do this your retirement account will not only take a hit but you'll have to pay income taxes on whatever amount you withdraw and probably a 10% early withdrawal penalty. You can avoid running up debt or raiding your retirement account to cover an emergency by lowering your retirement contributions and then funneling that money into a savings or money market account. That way when the unexpected occurs, which it will, you’ll be covered.
Beyond this, here's a video featuring Dave Ramsey with important information about saving for retirement.