Are you 18, still in school, and have no job? Pretty easy to understand why your bank account is empty. (But continue reading anyway so you find out what money habits to avoid as soon as your bank account has something in it.)
If you’re a little older, having a job as well as a life and you still have no money, you might have toxic money habits – ways you earn and spend your money that have a dramatically negative impact on your financial future.
You may not even realize your habits are toxic or that you’re setting yourself up for financial disaster in the future. Habits are hard to break, however the first step to change is always to realize there’s a problem.
Detrimental Money Habits That Ruin Your Financial Future
Retail Therapy
Kevin McEnerney from McEnerney Tax Advisory Group hits the nail squarely on the head with this thought: “Emotional spending is toxic for your financial future. You might also call this ‘retail therapy.’ It’s important to first be aware of what’s happening, then set ground rules for yourself. Buy items only from a wish list you’ve made at a time free from distractions, anxiety or sadness.”
Spending Without having a Plan
“Spending all your income can really hurt your ability to retire early or on time. Make sure you create a budget,” recommends McEnerney.
Actually, EVERYONE recommends developing a budget. Dave Ramsey calls it giving every dollar a name.
If you don’t inform your money where it’s going and what it’s going to do for you, it will find its very own thing to do, and somehow it never finds its way into your retirement account.
When asked about toxic money habits, Tammy Johnston from The Financial Guides said, “Not setting up and using a REAL BUDGET. Most people have no idea what it actually costs them to run their lives for a year and end up getting surprised by expenses that they knew were coming but neglected to plan for.”
A financial budget doesn’t only include things like expenses that arise during the month, like groceries or utilities, but also expenses which are paid annually, like car or home insurance. Take the yearly bill, divide by 12, and account for that once-a-year expense every month so there’s money there for pay it when it’s due.
Ostrich Syndrome
There is a popular myth that ostriches bury their head in the sand to avoid predators – that they are so stupid they think if they can’t see the predator, the predator can’t see them. This really is completely false, but popular myths are hardly ever based in fact, and “bury your head in the sand” is a common term meaning if you ignore your problems, they will go away.
But over in The Real World, that doesn’t happen. Another toxic money habit is to ignore issues you don’t want to deal with. Johnston adds that, “Avoiding talking about money with your significant other causes all sorts of problems and is the number one reason why the biggest part of my job is marriage counseling. Some couples actively avoid the subject, others just don’t make the time for it. This keeps you from working as a team to move forward and can get you into a lot of financial trouble.”
Along the same lines Johnston continues: “Not looking over their bills, credit card statements, and bank statements. It is not uncommon for me to find at least $200 a month that the average family is bleeding, but they don’t even know it because they never examine their bills. Charges they thought were stopped, unnecessary fees, and my personal favorite ‘creditor insurance’ that is as valuable as used toilet paper.”
Along similar lines, Claudia Pennington from Two Cup House adds, “I truly think the most toxic money habit is not knowing what one’s most toxic money habit is. Before 2015, we had no idea that we spent thousands of dollars on dining out, and it was crushing our ability to pay off debt and save for retirement. If we had not identified this, our most toxic money habit, we would have continued living paycheck to paycheck and never retired.”
Paying Yourself Last
“A toxic money habit is not paying yourself first. Rather than paying yourself first to ensure you have money to save and invest for your future, you may choose to pay yourself last. You may want to pay all your bills, buy any necessities, and have a little fun first. The problem with that is that you may find yourself out of money by the time you are ready to save. When you pay yourself first, you ensure you are saving for your future and you learn to live below your means. Make it into a game. By making it fun instead of a chore, you will enjoy it more and want to continue,” says Dwayne Graves, a Business and Finance Mentor.
Not Knowing Opportunity Cost
“Every purchase can either be a potential investment or the money saved can be a potential investment. Every penny you put into good investments can be worth dollars in the future.
“Yes, there is time and place to spend money just for fun. But those times should be well thought out. In the long run, you will enjoy having money to spend in retirement more so than when young. When you are young, you have a whole world of free activities that are fun, hopefully educational, increase your fitness, etc.
“One of the worst money habits is to spend money in the company of losers. Avoid negative, loser situations and people. Develop friendships with people who are working to get ahead in life and put a premium on using their money wisely. You can spend a fortune just hanging out with people who have no concept of a responsible life or any vision for the future. You can spend more money for one drink at a bar than the cost of a good bottle of wine that you can share with your friends in the back yard,” advises Beverly Solomon of Beverly Solomon Design.
Business Dictionary defines “opportunity cost” as, “A benefit, profit, or worth of something that must be given up to obtain or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision comes with an associated opportunity cost.”
Every dollar you spend could also be spent another way. Buying a brand spanking new something today not only costs you the $X you purchased it for, but the exponential $X that you will be giving up by not buying a less expensive something and investing the rest of the money to potentially make even more money.
Being without an Emergency Fund
“People who do not have an emergency fund are at the greatest risk of harming their financial future. When you do not have that extra cash sitting there and an emergency happens, you will be forced to turn to debt every time. Mounting debt reduces your retirement savings and puts pressure on you financially. Financial pressure causes people to make more bad decisions and continues this toxic cycle of having no savings and turning to debt every time a problem arises,” says Paul Moyer of Saving Freak.
Not long ago, the National Foundation for Credit Counseling released final results of a survey they had conducted about emergency funds. Their findings showed that only 36% of Americans have enough money an emergency fund to cover a $1,000 unexpected expense.
Turn those numbers around, and you have 64% of Americans NOT being able to easily cover a $1,000 expense.
What’s your insurance deductible should you get into a car accident that was your fault? How about your home owner’s policy deductible if something would happen to/at your house?
Don’t let life drag you along. Come up with a plan – a realistic plan – for how you would like to live your life, figure out how to accomplish your goals, and then MAKE IT HAPPEN.
A time tested investment has always been purchasing real estate. Nick & Cindy Davis can assist you in finding REAL Investment Properties here in the Tampa Bay and Surrounding areas. We are always just a call to 813-300-7116 or click here away