Being financially literate means you have a good grasp on your finances, as well as what are considered positive financial habits. Maybe you contribute to your retirement savings accounts regularly, keep an emergency savings fund on hand and work hard to pay down debt because you understand the consequences of accruing interest.
On the other hand, there are some common behaviors that may seem small, but can significantly impact financial wellness over your lifetime. From avoiding opening a bill to splurging on your nights out, most of us are guilty of a few bad financial habits.
Below we’re discussing how you can identify your own costly hang-ups and work through them to create a strong foundation of positive financial decision-making now and through retirement.
4 Common Money Mistakes
There are a few common scenarios we tend to fall into time and time again with our money.
Mistake #1:Getting Comfortable with "Normal"
So much of managing your finances is accepting what you consider to be "normal". Thoughts such as "it's normal for me to have $3K in my checking account" or "it's normal for me to have $5K of outstanding credit card balances" are thoughts that can hold you back. If you think it is normal to carry bad debt or low account balances, you are giving yourself permission to continue those habits.
Mistake #2: You Don’t Plan for the Future
The earlier you start saving, the harder your money will work for you in preparing for retirement. It can be tough to think (or care) about retirement in your 20s and 30s, but putting a small (but consistent) amount in retirement savings every month through your early adult years could mean thousands more you’ll have to withdraw in your 60s and 70s.
Mistake #3: You Aren’t Prioritizing Properly
One of the hardest things to do when it comes to improving financial wellness is to strike a balance between your needs and wants of today with the financial security of your future. When you’ve got your own retirement to think about, aging parents and kids headed off to college - how do you know what to spend and where?
I often ask my clients what money means to them and the most common answers are things like "security", "freedom", and "options". Reframe the conversation from "I want to spend less money today so I have more money when I'm 60" to "By saving money today, I am creating more security for my future". In doing so, the act of saving becomes more tangible and priorities are more obvious.
Mistake #4:Penny Wise and Pound Foolish
I have this listed as #4 but it is the #1 problem I see with the way most people spend. People will drive around town looking for the cheapest gas but they bought the gas-guzzling SUV in the first place. Or people skimp on their health insurance coverage to save on premiums only to have much larger medical bills in the future because of it.
Another flavor of this is I've heard many people justify their pound foolishness with penny wisdom such as "I want to buy a vacation home and I think I can because I have been couponing lately". I think we've heard this before with "stop buying avocado toast an you can buy a home". Yeah, it doesn't work like that in either instance.
Conquering Bad Behaviors
Conquering bad (or unproductive) financial behaviors takes persistence and self-discipline. There’s no quick fix, and you should expect changes to be gradual. Below are a few of our tips for conquering bad behaviors that may be affecting your financial wellness.
Tip #1: Challenge Your Perception of Normal
If you have worked all year to get your bank account to a certain level that you are comfortable with, set a new goal for next year that is even higher. If you have paid down debt to a comfortable level, look to do so even further in the future. Accepting the status quo is what prevents the accumulation of wealth and fuels lifestyle creep.
Tip #2: Don’t Let Financial Paperwork Pile Up
Avoiding a bill or bank statement doesn’t make it go away - but it does increase the chance of incurring late fees and penalty charges. If you aren’t already, get organized with your statements and other financial paperwork. Work on conquering any anxiety you may have surrounding unpaid bills or bank balances and remember that ignoring them won’t make them go away.
Tip #3: Create an Emergency Fund
By creating and contributing to a savings account regularly, you can save your future self headache and financial worry. Remember to boost your emergency savings. In fact, adding to your savings account should be a top priority in your monthly budget.
Tip #4: Review Your Spending
And I don't mean bu****** (budgeting is a dirty word to me)!!! Look at how much of your spending goes to each category and you'll probably find some alarming things.
Maybe your car costs 10% of your annual budget between the loan, gas, insurance, repairs, and parking costs (if any). Or you're spending loads of money going out to new bars and restaurants and could do with some cutting back (and learning how to cook in!). There are often plenty of ways to adjust your spending to be more pound wise and penny foolish which is preferable to the inverse.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.