You might be sabotaging your financial well-being without even knowing it. Behaviors that might seem inconsequential, or perhaps even beneficial, could be preventing you from getting ahead financially.
“Destructive money habits will keep you poor and in debt unless you change them,” said Thomas Corley, author of “Rich Habits: The Daily Success Habits of Wealthy Individuals.” To change these actions, you first must become aware of them, he said. Here are five common money behaviors you should stop now.
1. Watching Too Much TV
During his five-year study of wealthy and low-income individuals for his book, Corley found that more than 77 percent of poor adults admitted they watched more than an hour of TV a day; 74 percent said they spent more than an hour a day on the internet. By contrast, 67 percent of rich adults he interviewed said they watched less than an hour of TV a day and 63 percent spent less than an hour each day on the Internet.
“When you’re wasting your time watching TV, on social media or reading for entertainment, it leaves little time to do productive things like reading to learn, building relationships with other success-minded individuals via networking or volunteering or building a side business,” Corley said.
Not only will ditching cable free up more time to be productive, but you can also save on that monthly bill.
2. Spending Aimlessly
It’s easy to lose sight of where your money is going unless you take the time to monitor your cash flow. Corley said that the wealthy individuals he studied made a habit of tracking their spending in the early days of building their wealth. Most low-income individuals said they did not monitor their spending.
“If you don’t have a lot of money, you need to get into the habit of tracking every penny,” Corley said. You can track your spending with a spreadsheet or even free mobile apps, such as Mint.
Another approach to limit spending might be to ask yourself before making a purchase whether it will take you away from your goals. “This question habit eliminates any need for budgeting or self-discipline by replacing it with awareness that occurs at the point of spending,” said Todd Tresidder, financial coach at FinancialMentor.com.
3. Paying Bills Late
One in four adults do not pay their bills on time, according to a recent National Foundation for Credit Counseling (NFCC) survey. Paying a bill late every now and then won’t wreck your finances. But if that becomes a routine practice because you don’t have a good bill paying system in place, then you’re hurting your financial well-being in several ways.
For starters, you’re getting hit with costly late fees so you’ll have less money to cover your bills. Moreover, routinely paying bills late might prompt your credit issuers to hike your interest rates or lower your credit limit, according to the NFCC.
If you’re more than 180 days late on a payment, your debt typically is assigned to a collection agency or debt collector. Having debt in collections will lower your credit score and will remain on your credit report for seven years, according to the credit monitoring site myFICO. What’s worse, your wages can be garnished to pay the debt you owe.
Set up automatic payments through your financial institution or through the company that is billing you to avoid paying bills late. If you need help, call your bank or service provider to walk you through the process.
4. Shelling Out the Minimum on Your Balance
You might be making minimum monthly credit card payments to free up cash for other expenses, but it’s not an ideal money move.
“Paying the minimum is like running on a treadmill to nowhere. Not only will it dramatically slow down the pace of your payoff, it will mean paying lots more in interest,” said Farnoosh Torabi, financial education partner with Chase Slate. For example, if you had a $5,000 balance on a card with a 16 percent interest, and you made a minimum monthly payment of $100, it would take you nearly seven years to pay off that debt. And you’d pay about $3,300 in interest, according to the credit card payment calculator at FinancialMentor.com.
Also, if you’re paying only the minimum on a card with a high balance, you’re not doing your credit score any favor. “A high debt balance effectively increases your debt-to-credit ratio,” Torabi said. “That ratio makes up 30 percent of your credit score.” So if you’re not lowering that ratio quickly, you shouldn’t expect to see your credit score get a boost any time soon.
If you carry a balance on several cards, pay as much as you can toward the card with the highest interest rate first, then the next highest and so on to reduce the total amount of interest you’ll pay over time. Or take advantage of a zero-rate card or a low-rate balance transfer offer to consolidate your debt onto one credit card. Then pay it down quickly.
5. Saving for Retirement Before an Emergency Fund
It’s been hammered into your head that you must save for retirement. But financial experts say you should build an emergency fund first by setting aside enough cash to cover six months of household expenses in the event of a job layoff or other situation.
About one-third of Americans don’t have any emergency savings, according to a recent survey by NeighborWorks America, a nonprofit community development organization. Without cash reserves, you might be forced to borrow or withdraw money from your retirement account to cover emergencies, said Rich Arzaga, a certified financial planner and founder and CEO of Cornerstone Wealth Management.
In that case, not only will your retirement fund take a hit, but you’ll also have to pay income taxes on the amount you withdraw and possibly a 10 percent early withdrawal penalty if you’re younger than 59 ½. To avoid raiding your retirement account or racking up debt to cover an emergency, consider lowering your retirement contributions, and funnel your money into a savings or money market account.