Most of us have at least one bad habit that we keep fighting, but we also keep losing to. Some of these bad habits are completely harmless; however, there are habits that can cause devastating results.
Some bad money habits negatively impact your finances which might leave you broke even before you enter retirement.
Learning how to break these bad money habits can help you get your finances back on track so you don’t end up depending on your relatives or government programs.
Here are 4 bad money habits that are keeping you from retiring rich:
Bad Habit #1: Not Making (and Underestimating) a Budget
A budget is an amount of fund available for spending, based on a plan for how it will be spent. It is one of the most basic tools you can use when it comes to managing your money.
If you don’t track how much your income is and how much you spend, you’re essentially setting yourself up for financial disaster.
Making a monthly budget is simple but often neglected and underestimated. You start by making a list of all your expenses. Include your fixed expenses like rent or utilities, and variable expenses, like groceries and gas.
It’s important to be as thorough as possible to know exactly what you have to pay out. Once you have the total amount, you’ll know how much you need to put into your budget and how much you can save.
Tracking your daily expenses is a great way to get a clear idea of where your money’s going. You can easily tell if you’re overspending if you’ve got more funds going out than coming in.
If you’re tired of being broke, the first step is to cut out the unnecessary expenses and put your spending under control.
Bad Habit #2: Not Paying Your Debts
Credit cards are useful tools for building your credit history and earning rewards, however, you must know how to use them wisely. Keeping a high interest debt and only paying the minimum each month is like having a flat tire on your way to financial success.
For example, you owe $2,500 on a credit card with an annual percentage rate (APR) of 17 percent. If you only pay the minimum of $50 a month, you’ll need seven years to pay it off.
Not only that, you’ll be losing around $2,000 in interest in the process. If you’ve got multiple cards with big balances, you’ve sentenced yourself to a life in debt unless you start trying to pay it down.
Bad Habit #3: Not Saving
If you don’t have a budget and you’re up to your neck on credit card debt, it’s almost certain that you can’t save any money at all.
If you can’t save, you’ll be leaning on your credit cards or you’ll have to take out a loan in an event of a financial emergency. Having saved a budget for at least three to six months of expenses can go a long way in case you lose your job.
Learning to save takes time. You need to start seeing that every penny you’re able to put away counts. Even if you’re only able to save $25 a week, it will add up to $1,300 a year which can be a significant amount of emergency fund.
Once you get used to building up an emergency fund, it’s time you start looking at the bigger picture when it comes to saving.
If you’re not putting away money for retirement today, you’re only delaying your retirement and sabotaging your goal to retire rich. You need to make sure you’re building your nest egg.
Bad Habit #4: Not Buying Long Term Care Insurance
Long term care insurance (LTCI) is an insurance product that pays for long term care costs of policyholders that are generally not covered by health insurance, Medicare, or Medicaid.
Why consider LTCI? Longtermcare.gov says that, 70% of people aging 65 can expect to rely on some long-term care related services or support.
Most people do not think about the cost of care until they need it and it often happens to people in their retirement. Some people watched as they sold their assets so they can pay for long term care expenses.
LTCI must be viewed as a safety net rather than as a financial investment since it has no monetary return.
There are many ways you could be endangering yourself financially but these are some of the worst money habits you want to get rid of. If you’re determined to retire with a significant amount of assets, maybe it’s time to take control over those bad money habits.