Managing your finances involves a series of routine actions or behaviors done repetitively. How you manage your finances are ultimately shaped by lessons you’ve been taught and experiences you’ve gone through. You develop a relationship with money that helps you to make informed decisions in life. When good habits and relationships are formed with your finances, it will reflect positively, however, when poor habits are formed it can create an uphill battle with debt.
The Good Habits
Below is a look at good financial habits you want to develop or maintain:
· Having a Backup Plan (Emergency Preparedness)
Though the goal is to develop good financial habits, the truth is, sometimes your best efforts just aren’t enough. A great financial habit to develop is being prepared for financial emergencies. Whether they apply for installment loans online to handle minor emergencies or they have an emergency savings fund that they can reach access when things are tight, these are both economically wise decisions for getting out of instant emergencies fast.
· Living Within Your Means (Budgeting)
One of the biggest problems families in America face today is living beyond their means. Excessive spending money and using charge cards to afford things their paychecks can’t cover result in high amounts of debt, ruined credit, and a lessened quality of life. Those who live within their means have mastered the art of budgeting. They have established a clear understanding of how much their household expenses are in comparison to their income and have learned to live on only what they can really afford.
· Planning for the Future (Saving)
Sometimes it can be hard to plan for the future when you’re trying to survive in the now, but it is extremely important. A good financial habit to develop is saving. Whether saving towards retirement, a future trip, a house, or a rainy-day, those who know how to manage their money well know the importance of tucking some away for the future.
The Poor Habits
Now, let’s review some poor financial habits you’re going to want to revise your financial habits right away:
· Spending More Than You Earn (Overspending)
It can be tempting to want to afford the nicer things in life but living beyond your means will land you in a lot of debt. Those who find that they’re “robbing Peter to pay Paul”, those who use credit cards to complete most purchases, and those who have taken out more loans than they can afford to repay on time are all examples of people living beyond their means.
· Skipping Bills
It is important to make sure that you’re paying bills on the date they’re due. While it may not seem like a big deal if you pay a few days later, it can really add up. Those who skip bills often incur a late fee and a negative mark on their credit report until the bill is paid. It is best to pay the bill when it is due or contact the service provider to negotiate a new date.
· Paying the Minimum
Though paying the minimum on a credit card bill may be all that’s required to keep it from tarnishing your credit report or tacking on a late fee, it is not the best financial habit to have. The longer it takes you to pay down your credit card balance, the more you’ve paid in interest for your purchases. Even if you can’t pay the entire balance when it’s due, keeping the credit utilization percentage below 30%.
The key to minimizing debt, reducing stress, and living a financially prosperous life is to learn how to manage your money wisely. If you’re guilty of any of the above-mentioned poor habits, it is best to stop those practices. Start developing new good financial habits like saving, budgeting, and planning for emergencies to get your finances back on track.