How to Break These 3 Bad Financial Habits

By the end of the year, all of our resolutions to be better and save more money are usually broken. Emergencies, parties, and unexpected surprises all conspire to drain our willpower and our bank accounts, if we’re not careful.

Throughout the year, it’s easy to fall into bad financial habits because they’re just so easy. Want to go on that camping trip? It will only be a short, weekend-long trip, and camping is cheaper than staying at a motel, right? Until you get back ho

3 Bad Financial Habits You Need to Break This Year

me and realize that $100+ camping trip could have been used for those replacement tires you need.

Luckily, breaking bad financial habits is easier than you may think. It takes anywhere from 21 to 66 days to form a new habit, which means you can start now and, by January 1, be that much closer to replacing those bad financial habits with something good. Read on to see how you can break these 3 bad financial habits and start the new year off right!

Bad Financial Habits

1. Not Saving

One of the worst financial habits you can fall into is forgetting to pay yourself, and unfortunately, it’s one of the easiest traps to fall into. After all, you have to pay bills first, then you have to pay for groceries, and things for the house (like soap and toilet paper), and then you go out to lunch, and then you realize you have nothing left over at the end of the month.

If this sounds specific to you, that’s because it happened to me. I always paid myself last, saying that I “needed” to buy this and that. I always had a justification for everything I bought. I finally had to get tough with myself (and loved ones, sorry for the grumpiness!) to control my spending and make savings for myself.

How to Break This Habit

At the beginning, you may have to turn to drastic measures like a no-spending week or month in order to get your savings on track. Obviously, if you have to buy toilet paper, do it, but try to plan ahead. Once you’ve committed to your no-spending week or month, try not to spend anything extra for at least a week.

After instituting a month of no spending, I was pleasantly surprised by how much I had left over. My salary isn’t large, and I have a lot of student loan debt, but I found I have about $400 extra each month in savings if I don’t spend on anything frivolously. You’ll likely find that instituting a no-spending week or month to be very beneficial to your savings account, once you really cut out spending mindlessly.

We all know how important it is to have an emergency savings account and savings for retirement. More importantly, seeing your savings account grow gives you a sense of certainty in this uncertain world. With a savings account, you know that if anything catastrophic happened, like a lost job or car accident, you’re at least able to pay your bills and not lose your house/apartment. The next time you pull out a card or cash for that lunch, consider that $10 or $15 going into your bank account and having 10-20 years to grow, then ask yourself if your lunch is really that important.

2. Making Minimum Payments

If you carry debt, you likely log in once or twice a month, check on your bills, then pay the monthly minimum on whatever you owe. You’re still paying on time, and not accumulating any penalties, and you know there is a set time when your debt will be repaid. Also, you likely can’t pay off the entire debt right now, so why throw huge amounts of money at your debt when you have other priorities (like saving) to pay for?

While paying the minimum on your debt may make sense for you financially right now, because you don’t have “extra” money to pay down debt, it’s in your best interest to pay more than the minimum each time you tackle your debt. By only making the minimum payments, you’ll end up paying more in interest over the long run. You could end up paying double (or more!) what your initial payment was, depending on how long it takes you to pay off your deb and how high your interest rate is.

How to Break This Habit

While it logically makes sense that you can’t pay off debt any faster because you have to save for emergencies, pay bills, etc., the truth is, if you’re not making a dent in your debt, you’ll end up paying more than you ever borrowed. All this money that could have gone to savings (or fun!) is being swallowed by interest payments that you could have avoided if you paid more than the minimum.

Obviously, the best way to break this habit is to never charge anything to your credit card that you can’t pay off that month. This way, you never end up paying interest in the first place, because your balance never carries over and accumulates interest charges. If that’s not possible, your goal is to make more than your minimum payment each month.

One of the best ways to pay off your debt faster and not fall into the bad habit of minimum payments is to pay your debt twice a month. Most people time debt repayment to their twice-a-month payment schedule, if you’re paid twice a month at your job. Even if you’re only paid once a month, try to get into the habit of paying the minimum, twice a month. This will double your typical payment, helping you to pay off you debt sooner than just by paying it in one installment each month.

Every time you get a bigger windfall, such as a rebate, refund, bonus, or surprise inheritance, put this toward your debt until you have it paid off. Once your debt is paid off, you can put the payments you were putting toward your debt into investing in your savings!

3. Not Rewarding Yourself

Saving for an emergency or for retirement is definitely a reward in itself, but sometimes saving regularly over a long period of time can get boring. If you’re never enjoying your hobbies, family, or occasionally splurging on yourself, it makes it easier for you to just regularly splurge. You want to “reward yourself”, after all, so instead of saving it for something you really care about, you just mindlessly make purchases here and there. This reduces how much you end up saving, then you feel guilty for “wasting” money.

How to Break This Habit

Create a savings jar or account for things that matter to you. They don’t have to be huge, expensive things, like a trip to London or Disneyworld (although they can be, if that motivates you!) They can be smaller things, like that camping trip or a new kayak.

Whatever it is, make sure part of your savings goes toward rewarding yourself for being so diligent. All work and no fun isn’t a very good way to live your life, and you want to enjoy your time with family throughout the year. With a dedicated savings goal, you won’t be tempted to spend on frivolous things.

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What are your bad financial habits, and how have you broken them? If you haven’t broken them yet, how do you plan on working on them in the new year?

Comments

Brian @DebtDiscipline says

November 12, 2015 at 3:53 am

We lived beyond our means for years. We broke that habit once we got organized with a budget. agreed it’s important to have a little “fun money” in your budget to help keep you motivated.

- Melissa says
  
  November 12, 2015 at 7:09 pm
  
  Brian, I’m so glad you see the importance of fun money, too! In moderation, it’s so worth it to have some fun money to spend. You can go on a nicer date, finally see a movie, go camping, etc.
  
Tyler says

November 17, 2015 at 5:10 am

What a great article, it’s so true that NOT SAVING is huge with just about everyone. I think it’s funny that people are so used to just spending and then when they want to go on a huge trip they are able to save the money in a matter of months to do so. To me why not save some of that money all the time and then when you want to go on a trip you don’t have to sacrifice so much for a short time because you only sacrificed a little all the time.

- Melissa says
  
  November 17, 2015 at 6:48 pm
  
  Exactly! Also, you won’t have to stress during your trip, worrying about how much everything costs and how much into debt you’re going. Saving throughout the year relieves a lot of that type of stress.
  
Simon N says

December 4, 2015 at 6:34 pm

Well damn, I never realized that not rewarding myself was a habit that needed breaking. I’ll get right on that! 😉

Bad Financial Habits

1. Not Saving

How to Break This Habit

2. Making Minimum Payments

How to Break This Habit

3. Not Rewarding Yourself

How to Break This Habit

Track All Your Accounts With Personal Capital

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