Bad habits have a very negative impact on your life and they can destroy your life. It can become a reason for loss of respect, relationships and can harm you. The effects of bad habits can be very severe and painful. If you are caught with the bad habit of wrong cash management, you will have financial losses by paying extra interest and do not have money for emergency expenses. Bad money management habits can block your credit limit and affect your credit score. It ultimately affects your borrowing capacity; you will not get new loans or credit cards if your history is affected.
Here in this article, we provide you with bad money habits to avoid right away.
- Spending too much money
- No emergency funds
- Credit card mismanagement
- No Future savings
- No budget
1. Spending too much money
Generally, it is observed that once a person gets their salary they tend to spend all their money and do not have anything left to manage during their month-end expenses. You might have spent a lot of money on nonessential items getting attracted towards discounts and offers. Spending too much on dining in restaurants, on luxuries rather than necessities should be avoided.
Spending more on luxuries can leave you without money on essential expenses such as mortgage payments, house rent, credit card bills, loan payments, your retirement money, and other expenses. Some other expenses remain as monthly recurring expenses, these expenses are unavoidable such as your living expenses.
These expenses cannot be eliminated and there are no alternatives to these. To live a decent life you need to have these expenses. If you spend too much money on unnecessary expenses in the first week of getting your salary you cannot manage the rest.
How to overcome this habit?
The first important thing is to have control over yourself and other things can follow. There are few steps you can take to overcome this habit. Always make payments with cash. It has been observed by the researchers that paying with cash causes more pain than paying with credit or debit cards. People who spend with cash spend less compared to those who spend with credit or debit cards.
Avoid eating at restaurants and ordering food online daily; Make food at home instead of spending money outside. Home-cooked food can not only reduce expenses, it is healthy and safe.
Start thinking before purchase; follow this principle to reduce overspending. Search for alternatives for the items you are spending. Think if it is necessary to purchase and answer questions such as, Is it worth purchasing the product now or postpone the expense to a future date?
Do not buy just because the company is providing offers on sales and discounts. Review your memberships and subscriptions. If you are not making the best use of membership or subscriptions, cancel them. Eliminating memberships can reduce your unwanted expenses.
2. No Emergency funds
Emergency expenses are unplanned, they can come up at any time and you cannot anticipate them. These expenses can be anything from health care to a broken window or a flat tire or guests at your home. If you are not planning to have emergency funds these expenses can have a direct impact on your monthly budget expenses. Having no emergency funds can put you in difficult financial situations. You will not be able to pay essential expenses such as rent or living expenses as you have already spent your money on emergency funds.
How to overcome the habit?
Keep money separately for your emergency expenses. Maintaining emergency funds is a good option. Every month contribute towards this emergency fund and do not use money from this account for your day-to-day expenses. Use money from the fund account only during emergencies and if you do not incur any emergency expenses let the fund amount grow it will create a good corpus in the future.
Make deposits into the emergency fund consistently and it should become a habit. Start with depositing AED 25 a week or more and gradually increase to AED 75 or more a week into your emergency fund. By consistently depositing money into your emergency fund you can be prepared for emergency expenses any time in the future.
Related- Importance of emergency fund in the UAE
3. Credit Card Mismanagement
It has been observed that mismanagement of credit cards will lead to a debt trap. First-time card users tend to spend more than their actual needs. Out-of-control spending habits with credit cards can lead to serious problems. Do not spend more than 30% of your credit card limit. Many card users get tempted by discounts, offers and fall prey to companies. The following are the results of credit card mismanagement.
- Paying high interest on credit card debt
- Damaging credit score
- Risk of not getting additional credit or new loans.
- Bankruptcy filing
- Loss of money by paying high-interest charges
How to overcome the habit?
Create your monthly budget and spend only that much. Always pay more than the minimum payment on a credit card. Follow a credit diet and control your spending and put a strict limit on how much you are allowed to spend. Avoid one-click purchases and remove your credit card data from the vendor’s portal. Each time you make a purchase you should be manually entering card information. By doing this you can reduce impulsive spending.
4. No Future savings
Having no savings can be a burden when you actually need money. If you want to buy a home or want your children to go for higher education in advanced institutes or plan your retirement you should have saved funds in your account. Having a long-term plan and decades of savings can help you build a good corpus amount. The following are the problems of not having savings in your account.
- Unable to buy home
- Failure to pay for children higher education
- Working during retirement age
- Unable to meet unplanned expenses
- Increase in debt
How to overcome the habit?
First, save and then spend; Always follow this principle. If you are unable to save from your salary, set up an automatic saving account. You can give instructions to the banker to auto-debit a certain amount each month and contribute towards a savings account. You can also ask the bank to set up a recurring deposit. Every month a certain amount will be deposited towards a recurring deposit. The funds saved in recurring deposits will have a higher interest rate than a savings account. The auto-debit facility will definitely work in creating good savings for you. Plan for your retirement fund and contribute towards the fund amount. By adding money regularly to your retirement fund you are securing your future. Once you retire the retirement fund amount will be available and you can withdraw from the account.
Click here to know Why fixed deposits are safest investment option?
5. No Budget
Having no budget and spending your earnings will definitely lead to serious financial problems in the long run. Having a budget and not following the budget will also have the same effect as not having the budget. You will earn, spend more and you will not know where you are going with the income. A budget will help you to know where you are going.
How to overcome the habit?
Create a budget and be committed to following the budget. Find the best possible budget that works for you. Check your bank records and analyze your expenses where you are spending money. Your previous month’s expenses will form a base and help you to know where you are spending more and less. Prepare a budget and you will know where you have to spend correctly each month. Monitor your earning and spending, create a track in an excel sheet this will help you to know your exact financial status.
Take away
Bad financial habits can be changed and the first step towards change is to identify which habits are working against you. If you realize which habit is working against you, then it will be easy to target and change your bad habit. You should replace your bad habit with financially rewarding good habits. If you are changing your bad financial habits into good financial habits then you will be having a financially rewarding life.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
