Like brushing your teeth or getting enough sleep, the first step to developing effective money habits is breaking the bad ones. For National Thrift Day, many Americans will think more about their savings and how they can save more money. A great way to start is to recognize your bad money habits and commit to a plan to break them.
Here are nine of the most common bad money habits and how you can get rid of them.
1. Not having specific savings goals
Setting specific savings goals is important not only to know how much you need to save, but also to give you a tangible reason to save.
If you don’t have specific savings goals, you may not be deliberately thinking about how much you should be saving and what strategies you need to adopt to reach those goals. Breaking out of this habit will help set the stage for all other saving habits – and it’s an easy starting point.
Take the time now to write down your goals, including short-term goals, like a vacation or down payment on a house, and long-term goals, like retirement. You will want to factor these goals into your budget with an end date target. Then you can set aside a certain amount of money each month to achieve those goals within your desired time frame.
2. Overspending on non-essentials
There are several ways to spend on non-essential expenses that accumulate over the course of a month. Then, before you know it, you’ve already spent way more than you planned on those discretionary items you don’t really need.
If you shop often, consider this strategy to help you overcome the habit: The next time you see a non-essential item you want to buy, write it down on a piece of paper or the note app from your phone and wait a few days before buying. this. After that time has passed, you may find that you no longer want the item and you can save what you would have spent on it.
Also, try to make a shopping list before you go out to buy things. You can customize the shopping list to make sure you get everything you need and stay within your budget. It could keep your eyes from wandering to other desires and remind you not to spend too much.
3. Let debt pile up
In September 2022, the average American had $96,371 in debt, according to data from Experian. It has become a norm for consumers to accumulate large debts and then bear the burden of trying to pay them off slowly over time.
Personal loan debt, student loan debt, and credit card debt are some of the factors that could contribute to your overall debt. If you let these balances build up and only pay the minimum each month, you’ll end up paying more interest over time and delay your ability to overcome debt and start saving more.
To get out of debt, first make a list of all the debts you have, their annual interest rates, and when their payments are due. Then you can start working on a plan to find more room in your budget to make payments for those debts. You may want to prioritize those with the highest interest rates first, according to the avalanche method, or those with the smallest balances first, according to the snowball method.
If you have federal student debt, consider getting some or all of it. Applications for federal student loan forgiveness will open sometime before Dec. 31, 2022, according to the U.S. Department of Education.
4. Not planning ahead with a budget
Without a budget, you don’t track spending, progress on savings goals, or what you have available to spend money on. A budget is, quite simply, your guide to your own money – without it, it’s easier to fall into negative spending habits.
When planning a budget, be sure to consider wants, needs, and savings. According to the 50/30/20 rule, a common budgeting tactic, 50% of your income should be spent on needs, 30% on wants, and 20% on savings. It may be a good idea to even slightly underestimate your monthly income, so that you have a little more flexibility in your spending and don’t feel limited at the end of the month.
5. Wait to save until you’ve already spent your paycheck
Even when following a budget, it’s easy to overlook savings and end up spending more than you planned. A common bad saving habit is depositing money into your savings account at the end of the month after spending on your wants and needs. This can allow you to save only the small remnants of your monthly income and allow you to reduce those savings while they are still very accessible.
To combat this habit, put part of your respective savings into a savings account as soon as the paycheck is deposited. Savings accounts usually only allow a limited number of certain transactions each month, so you’ll be less inclined to break into those savings and spend your saved money.
6. Not having an emergency fund
According to a June 2022 Bankrate survey, 58% of Americans are concerned about the amount of their emergency savings. Many may not be contributing to an emergency fund at all or have ended up prioritizing other savings goals, leaving little in their emergency fund.
Although inflation makes budgets tight, it’s still important to make room for emergency savings. These savings allow you to cover unexpected expenses and avoid further debt by paying for these expenses with a credit card or loan.
To start building an emergency savings fund, see where you can make minor changes in different categories of your budget to store more, and also save any windfalls (like a tax refund). Consider keeping your emergency savings in an online bank account, as these accounts tend to have much higher returns than traditional savings accounts.
7. Rely on cash advances
While cash advances may be necessary in some cases to make ends meet, relying on them too often can lead to an endless cycle of debt. Cash advances can include advance payday loans, overdraft protection, or buy-it-now, pay-later (BNPL) services. They all have one thing in common: allowing you to spend money that you don’t currently have.
Cash advances can make it seem like you’re spending money for free, but they all require you to eventually repay the advance, and you could end up struggling to do so, racking up debt and financial stress. . They also often come with expensive fees. Overdraft fees, for example, average $29.80 per transaction, according to the most recent Bankrate bank account survey.
Instead of relying on cash advances, consider other ways to make room for expenses. Establishing an emergency fund or taking a side gig are two ways to account for new expenses. If you frequently overspend on your account, you can turn off overdraft protection to stop incurring overdraft fees.
8. Not Paying Attention to Savings Account Rates
You may not realize how much interest rates fluctuate on savings accounts, but the gap between the lowest and highest savings rates is getting wider and wider. Today, some of the highest paying accounts have annual percentage yields (APY) of nearly 3%, while many large traditional banks still offer only 0.01% APY on their savings accounts. .
According to a recent survey by Capital One, 48% of respondents don’t know what the interest rate on their savings account is. If you don’t know the rate on your own savings account, you probably don’t know what other financial institutions are offering on their accounts — and what you might miss.
Additionally, if you have multiple savings accounts, paying attention to how each of their savings rates varies will help you determine where to keep more of your savings to maximize the return you get on your savings balance. ‘saving.
9. Use Off-Network ATMs
One of the most common types of bank fees that eat into consumers’ wallets are ATM fees, which include out-of-network fees and surcharges from your bank. The average combined fee for using an out-of-network ATM is $4.66, the highest since 2019, according to Bankrate’s latest current account survey.
If you’re not careful with fees, they can really add up over time. Suppose you withdraw money from an out-of-network ATM twice a month. At the average fee amount, this would rack up over $100 in ATM fees in a year.
You can avoid receiving these fees by avoiding out-of-network ATMs. Try checking the bank’s website or the ATM locator in your mobile banking app to find out where network ATMs are nearby. You can also consider switching to a checking account that reimburses ATM fees.