How you manage money is often linked to what habits you have. If, let’s say, you tend to over-eat, chances are you over-spend on fast food. Similarly, money habits decide how well, or badly, you manage money.
Here are 8 money habits that you might not even realize you have but are eroding your finances.
Habit #1: Spending more than what you earn
This is the worst habit that hurts your financial well-being, when you constantly go beyond your means.
When money spent exceeds income at the end of the month, you are overspending.
Cure: Start monitoring your spending habit.
Take a hard look at your expenses and separate them into 2 categories – need based and want based. Cut out what you do not absolutely need. Start preparing budgets to get your spending under control.
If you have only need based spending, and you are forced to spend more than you earn (through loans or credit card debt), you need to focus on increasing your income.
Habit #2: Postponing financial decisions for a tomorrow that never comes
How many times have you convinced yourself, “I will start investments from next month” only to push it back every month because you did not save money?
Postponing good financial decisions is worse than making bad ones.
With time, since money earns returns, and generates additional income for you, the earlier you start, the more you accumulate.
Cure: The best time to invest is when you have the money. The longer you delay investment, the lower your final corpus.
Habit #3: Going into debt for wants rather than needs
It is a competitive world where you care about how you are perceived. Often lifestyle based purchases that fulfil ego-driven functions, such as a luxury handbag or an expensive phone, force you into unnecessary debt.
If your wants, for whatever reasons, are regularly pushing you to debt, you have a habit that needs to go. Paying an EMI to fund a 1 lakh TV (that you couldn’t afford in the first place) is not financial prudence.
Cure: Debt is for essential and strategic purchases. Going into manageable debt to buy a house or plot or apartment or your children’s education is all right. It’s not OK when it’s taken to fund your luxury lifestyle.
Habit #4: Gambling rather than investing
Many people tend to dabble in the stock market without fully understanding what they are doing. Perhaps you got a tip that a particular stock is a good bet, or your colleague told you that Options are a great way to make money.
However, if you are putting your savings into investments you don’t understand, or where you don’t understand the risk, and are just speculating, you are gambling and not investing. You will be surprised to know how many educated professionals make such uneducated moves.
Cure: Investments should be based on your goals.
Stay away from investment options that seem too good to be true. Prudent disciplined investing works to grow wealth; there are no shortcuts.
Habit #5: Not saving regularly
A lot of people save or at least try to save. Unfortunately, most of us can’t do this regularly. This is common if you tend to spend first and save what remains. Prioritizing your expenses before your savings, makes saving an iffy affair.
Cure: Decide on how much you can save regularly and set aside your savings as soon as you get your pay cheque. This will ensure that saving becomes a habit rather than spending.
Habit #6: Being too risk-averse
You might think that not taking risks is good. It makes you wary of bad investments. However, if risk aversion is preventing you from investing in slightly risky but essential investments then it is nothing but a bad habit.
Do you think equity investing is bad because of volatility and risk? You might want to give it a second thought. Risk aversion is natural but it shouldn’t hold you back.
Cure: Not taking risks is not the same as understanding risk. Most expert investors understand risk rather than avoid it. If you hope to beat inflation and grow wealth, taking some risk is necessary.
Again, what matters is the risk profile of your investment goals rather than your own risk profile. You can invest in safer options like Bank FD, but expect lower-than-inflation returns. So ask yourself, what is the risk profile of your goals?
Habit #7: Paying your dues after the due date
If you constantly keep making late payments against your credit card bills or utility bills, you are simply increasing your expenses. In case of credit cards, late payments could potentially drive you broke, thanks to the hefty interest rates charged.
Cure: Always pay your bills on time to avoid late payment charges. Whenever possible, set up auto debits for your bill to ensure you don’t miss out to pay them.
Habit #8: Indulging in habits that are financially taxing
Smoking, binge drinking, and eating out too often are habits that come with a significant financial burden.
Smokers might end up spending as much as Rs. 50-100, extra every day. In a year that comes to around Rs 18,000-Rs 36,000. You might dismiss these expenses as small. But over time, they add up to significant amounts.
Cure: If you have a habit that has a questionable impact on your health, you are not only increasing your health risks but also, spending unnecessary amounts of money sustaining such habits.