Do bad money habits constrain your financial progress? Many people fall into the same financial behavior patterns year after year. If you sometimes succumb to these financial tendencies, the New Year is as good an occasion as any to alter your behavior:
No. 1 — Living without a budget. You may make enough money that you don’t feel you need to budget. In truth, few of us are really that wealthy. In calculating a budget, you may find opportunities for savings and detect wasteful spending.
No. 2 — Spending more than you make. Living beyond your means, living on margin, whatever you wish to call it, it is a path toward significant debt. Today’s flashy material items may become the garage sale junk of 2025. Yet, the trend continues: a 2012 Federal Reserve Survey of Consumer Finances calculated that just 52 percent of American households earn more money than they spend.
No. 3 — Frivolous spending. Advertisers can make us feel as if we have sudden needs; needs we must respond to via the purchase of a product. Understand what they are. Think twice before spending impulsively.
No. 4 — Saving little or nothing. Good savers build emergency funds, have money to invest and compound, and leave the stress of living paycheck-to-paycheck behind. If you can’t put extra money away, there is another way to get some: a second job. Even working 15-20 hours more per week could make a big difference. The problem is far too common: a CreditDonkey.com survey of 1,105 households last fall found that 41 percent of respondents had less than $500 in savings. In another disturbing detail, 54 percent of the respondents had no savings strategy.
No. 5 — Not using cash often enough. No one can deny that the world runs on credit, but that doesn’t mean your household should. Try paying with cash as often as your budget allows.
No. 6 — Lending money to family and friends. You may know someone who has lent a few thousand to a sister or brother, a few hundred to an old buddy, and so on. Generosity is a virtue but if your friends or relatives can’t learn to budget, why should you bail them out?
No. 7 — Gambling. Remember when people had to go to Atlantic City or Nevada to play blackjack or slots? Today, behemoth casinos are as common as major airports; most metro areas seem to have one or be within an hour’s drive of one. Then again, if you don’t like smoke and crowds, you can always play the lottery. There are many glamorous ways to lose money while having “fun.” The bottom line: losing money is not fun — regardless of the smiling faces on casino billboards
No. 8 — Inadequate financial literacy. Is the financial world boring? To many people, it is. The Wall Street Journal is not exactly Rolling Stone, and The Economist is hardly light reading. You don’t have to start there, however: great, readable and even entertaining websites filled with useful financial information abound. Reading an article each day could help you greatly increase your financial understanding if you feel it is lacking.
No. 9 — Not contributing to IRAs or workplace retirement plans. Even with all the complaints about 401(k)s and the low annual limits on traditional and Roth IRA contributions, these retirement savings vehicles offer you remarkable wealth-building opportunities. The earlier you contribute to them, the better; the more you contribute to them, the more compounding of those assets you may potentially realize.
No. 10 — Going it alone. Those who plan for retirement without the help of professionals leave themselves open to abrupt, emotional investing mistakes and tax and estate planning oversights. Another common tendency is to vastly underestimate the amount of money needed for the future. Few people have the time to amass the knowledge and skill set possessed by a financial services professional with years of experience. Instead of flirting with trial and error, see a professional for insight.
This Month’s Parting Shot: Regardless of what the news media has said, we have not averted any “fiscal cliff.” In fact, we have just piled on more debt. The real question is; how much farther do we kick the can down the road before we discover . . . that we have run out of road?