Learn how to break bad spending habits for long-term financial health
Everyone has a few bad habits. Some habits (like biting your nails when you’re nervous) are relatively harmless, while others (like smoking) can harm both your short-term and long-term health.
The same is true with spending habits — while some cause only minor setbacks, others can chip away at major savings goals like retirement or buying your first home. Let’s take a look at a few of the most common bad spending habits Americans fall into, as well as a few budgeting and money management tips to help you combat them.
In this article:
1. Impulse buying
Is your closet overflowing with items that you’ve worn only once? Are you receiving packages in the mail that you don’t remember ordering? If so, you might be an impulse buyer.
Impulse buying refers to making purchases on a whim, often driven by immediate desires or emotions rather than rational decision-making. It typically involves buying items you hadn’t planned to purchase or don’t genuinely need.
To curb impulse buying, implement strategies such as budgeting, practicing mindful spending, making shopping lists, waiting before making a purchase, and avoiding tempting environments or online platforms when you’re feeling impulsive urges. Developing awareness of your emotional triggers and consciously evaluating the necessity and value of each purchase can also help break the cycle of impulse buying.
This also applies to the general concept of retail therapy. Everyone loves the rush of buying a new gadget, video game, or item of clothing, and there’s nothing wrong with treating yourself with the occasional splurge. However, if you’re using shopping as a way to make yourself feel good every time you feel hurt, upset, or angry, you could be engaging in harmful retail therapy.
To combat retail therapy habits, start by knowing and recognizing your triggers. The next time you feel the urge to spend, grab a notebook and write down the emotions that you’re feeling and why you want to go shopping. Over time, you’ll be able to recognize patterns in your behavior and engage in alternative stress relief methods.
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2. Living beyond your means
Similar to the above, but on a larger scale, living beyond your means refers to a financial situation where your expenses exceed your income or financial resources. That means spending more money than you earn, relying on credit cards, loans, or borrowing from others to build a lifestyle that is not sustainable in the long term. Some signs that you might be living beyond your means include the following.
- Overspending: You might be living a lifestyle that requires a higher income or financial resources than you currently have. Overspending can be driven by desires to keep up with others, societal pressure, or a lack of financial discipline.
- Relying on credit: Living beyond your means often leads to debt accumulation. You may use credit cards to cover daily expenses, bank loans to finance big purchases, or loans from others to bridge the gap between income and expenses.
- Lack of savings: There is little or no room for savings when you’re living beyond your means. This lack of savings can leave you vulnerable to financial emergencies and limit your ability to achieve long-term financial goals such as retirement planning.
- Financial stress and instability: Living beyond your means can create a constant state of financial stress and instability. It becomes challenging to meet financial obligations, and you might find yourself in a cycle of struggling to make ends meet.
Combatting living beyond your means starts by assessing the amount you can reasonably spend each month and doing everything you can to stick to your budget.
Create a realistic budget that accurately reflects your income and expenses. Track your spending and ensure that your expenses align with your income. Prioritize essential expenses and allocate funds for savings and debt repayment.
3. Racking up credit card debt
Related to the above, but worthy of its own specific category.
A little bit of controlled debt is nothing to be afraid of. In fact, using a credit card can actually boost your credit score, so long as you make your monthly payments on time. However, overuse that leads to uncontrolled credit card debt is one of the most serious bad financial habits you can have.
If you have credit card debt, you aren’t only sacrificing your peace of mind as you worry about debt — it can also put your long-term goals in jeopardy as well. Credit card companies usually require a minimum monthly payment, typically a small percentage of the total balance. But credit card debt typically carries high interest rates, often ranging from 15% to 30% or more.
While making minimum payments keeps the account in good standing, it prolongs the debt repayment period, as most of the payment goes toward interest charges rather than reducing the principal balance. If you only make minimum payments on your credit card debt, the interest charges can quickly accumulate, making it difficult to pay off the balance in a timely manner. This may create a cycle of debt that’s difficult to escape.
High credit card debt can also negatively impact your credit score. Credit utilization, which is the ratio of your credit card balances to your credit limits, is an important factor in determining your credit score. When your credit utilization is high (when you’re using most or all of your credit), it can lower your credit score and make it more challenging to access favorable interest rates or obtain loans in the future.
The first step you should take is to pay more than the minimum monthly payment whenever possible. This will accelerate the debt repayment process. Paying more reduces the principal balance and minimizes the interest charges.
If you have multiple credit cards with balances, prioritize paying off the card with the highest interest rate first. This approach saves you money on interest charges and helps you quickly eliminate the costliest debt.
If you have more serious credit card debt, you aren’t alone; Americans have a combined total of almost $1 trillion in credit card debt, according to the Fed. The good news is there are many tried-and-true solutions for eliminating debt. Although they’re not pain-free, solutions may include working with creditors, consolidating debt, or filing for bankruptcy.
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4. Ignoring financial goals
Financial goals provide a sense of purpose and direction for your life and your money. They help you prioritize your spending, saving, and investing decisions. Financial goals can be as simple as making a budget or paying off debt.
They also might be long-term goals like saving for retirement, college, a downpayment on a home, or a startup fee for a new business. Without clear goals, it’s easy to lose focus and make haphazard financial choices that don’t match up with your vision for your future.
To combat a lack of clear financial goals, start by taking stock of your current assets. Take time to reflect on your financial aspirations and identify what matters most to you. Set specific, measurable, achievable, relevant, and time-bound (SMART) goals that align with your values and priorities.
Once you’ve established financial goals, prioritize them based on their importance and urgency. This will help you allocate your financial resources effectively and make informed decisions. Create a budget that aligns with your goals and helps you track your income and expenses to be sure that you’re making progress. Even if you can’t afford to invest every week or every paycheck, reaching your financial goals starts with a solid plan to do so.
How can Haven Life help with future planning?
What’s money for in the first place? For many of us, it’s a means of taking care of those we love — whether that’s by taking care of the little things (groceries, new clothes for school) or the big ones (housing, tuition).
If someone depends on you to pay for things, a life insurance policy can provide financial protection for that loved one. In exchange for a regular premium, a life insurance policy will pay out a lump sum death benefit to your chosen beneficiary in the event that you die during coverage.
Fun to think about? No. Essential to plan for? Absolutely.
Term life insurance is one of the most affordable types of life insurance. Learn more by starting with a free online life insurance quote today. Depriving yourself of peace of mind is one bad habit that’s easy to break out of.
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
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