Bad habits are easy to form, but they are usually pretty hard to break. If you’ve recognized that you’ve got a bad habit, though, you are on your way to ridding yourself of it.
It’s especially easy to develop bad habits when it comes to money. Unfortunately, bad financial habits can cause some serious damage if left unchecked.
Here are five bad money habits to watch out for. Breaking these habits or avoiding them altogether will greatly benefit your wallet.
- Maxing out your credit cards. Although we have high maximum limits on those precious pieces of plastic, maxing them out is the last thing you want to do. Credit is meant to be a useful tool in making large purchases and in building credit. If you start noticing that you can’t afford to pay off your entire balance each month, then you are using your credit card ineffectively. Although paying off the minimum each month seems like a good idea, when you account for compounding interest, it makes little sense.
- Paying too much for you cable and cell phone bills. For both your cable and cell phone, you should only pay for what you need. Many people are overpaying because they don’t realize how much data they are actually using or which channels they never watch. Track what you use and you’ll find areas where you can decrease your monthly costs. Additionally, don’t assume bundling your services is best: Often it doesn’t save you any money. Do the math and make sure you are getting the most cost-effective plan.
- Buying equipment instead of renting. Instead of purchasing a power washer or chainsaw for that one DIY project that you plan to finish over the weekend, rent the equipment from your local Home Depot or other home improvement store for a fraction of the cost. If you are using this item for a short-term project, you are better off renting. Who wants to store a power washer in the garage, anyway?
- Not contributing to your 401k. Especially when you first start working, you feel like you have no spare cash to contribute to a retirement plan. While this may be true, many people develop a habit of not contributing to their 401k ever and thereby miss out on building their nest egg. If your employer has any type of matching benefits, take full advantage of them. You may not want to contribute more than what they match, but at least max out your benefits—it is essentially free money!
- “Saving” credit rewards. If people are using credit cards the right way, they are getting some kind of rewards back. The downfall is that some people feel the need to stockpile these rewards and save them up for a big payout one day. According to a study from Colloquy.com, the average consumer doesn’t redeem over a third of credit rewards because of this. Rewards often have expiration dates, so don’t waste them by holding out too long. In the end, you really aren’t benefiting from saving up your rewards: You’re better off applying your saving skills to your cash.
The list can potentially go on and on. The idea is to be aware that all of us at one point will make mistakes regarding our finances. However, with the right tips and lessons about money you can have the peace of mind of knowing how to make the best decisions regarding your personal finances.