We all have a few bad spending habits: That morning latte or the latest release from big-name brands like Apple or Nike. And while overspending here and there won’t ruin you, wrong financial moves can have a lasting, frustrating impact.
At a minimum, poor money management can leave you struggling to keep up with your expenses and make it more challenging to reach your financial goals. At worst, bad financial
habits can leave you vulnerable to emergencies like the sudden loss of a job or medical expenses.
The better your everyday spending habits, the faster you can reach your financial goals. Whether saving up for retirement or just building up your “rainy day” fund, recognizing your bad
spending habits can help you make better choices and get back on track.
These are some of the most common spending habits that can hurt you in the long run—and tips to fix them.
Over-indulging in “Retail Therapy”
Sometimes, if you’ve had a bad day, it can be easy to impulse buy something to soothe your stress. Or it could be the opposite: You just got a raise, and you head straight to the mall.
While spending money on things that bring you joy is not inherently wrong, it can be detrimental to your financial health if you let it get out of hand. Suppose you find yourself heading to Amazon every time you’ve had a bad day. In that case, it’s time to dig deeper into your shopping habits and find alternative ways to cope with uncomfortable feelings.
How to Fix It: Stick to a Budget
Creating a budget is an excellent start to building better money habits. Your budget is a plan for spending your money appropriately and a record of how much you spend each month.
As you’re setting up or adjusting your budget, allow yourself an allowance for “fun spending”—clothing, new gadgets, concert tickets, or whatever else brings you joy. Then stick to it.
Using Credit Cards for the Points
Rewards credit cards can be helpful at times, depending on your lifestyle. But they can also come with a higher annual percentage rate or an annual fee, which may make them more expensive to use.
How to Fix It: Research the Right Credit Card For You
Using a credit card responsibly is a great way to develop a healthy credit score (which can help you with other financial goals down the line). And if you’re a person who likes to pay off their credit card each month (which we highly encourage, see below) then using a rewards card can be a tool to earn cash back or save money through rewards redemptions. So choose a credit card that makes the most sense with your lifestyle and has as low of an APR as possible. For example, if you’re a business person regularly traveling by air, signing up for a rewards card with your preferred airline makes good sense. But if you only travel once a year, you may want to consider whether the APR or the reward points are worth it.
Relying on Lines of Credit
Credit cards and other “buy now, pay later” schemes can get you into financial trouble if you aren’t careful. Credit card debt can be one of the most expensive bad money habits—and if you’re frequently living above your means, it can be a tough habit to break.
The problem is the interest that accumulates when you don’t pay off your credit card balance on time. The more you put off the payment (or only pay the minimum amount required), the higher the interest becomes. Soon, what you owe has doubled or tripled, putting you deeper and deeper into debt.
How to Fix It: Prioritize Paying Off Your Credit Card Bill
One of the easiest ways to stay out of credit card debt is to pay off your credit card balance every month. You can use a similar approach to setting a budget: Calculate the amount of
money you can pay off each month and stick to it!
If you are already underwater in credit card debt, it might feel overwhelming to try and pay the card off each month. Don’t stress—there are other ways to pay off credit card debt. For example, you might consider transferring the balance of your current card to a lower-rate card. Some credit cards, like those offered at Trailhead, offer lower rates for balance transfers. And if you want to discuss other debt consolidation options, you can reach out to a Trailhead Member Service Officer for a hand!
A simple spending habit that can help is always paying off your credit card balance in full and on time every month. Use your budget to determine how much you can comfortably pay off each month, and stick to it!
Shopping for Status
It can be easy to get sucked into spending money on the latest trends, whether that’s the newest smartphone or styles worn by the hottest celebrities. With the constant barrage of marketing on social media encouraging you to “run, not walk” to buy into the latest internet craze, it can be hard to resist spending money for clout or to avoid FOMO (the fear of missing out).
Shopping for status is often a pointless endeavor. Trends are finicky, and they come and go like the weather. There will always be someone who has more expensive things than you.
How to Fix It: Decide What Matters
Now is the time to get clear on what matters most to you. Is it essential to garner people’s approval, to appear hip and edgy, or ahead of the curve? Is that worth sacrificing your financial future over?
Thinking before you spend doesn’t mean you can’t have nice things or that you can’t spend money for the pleasure of the purchase—but keep it in perspective. Will it bring you fulfillment, or will it leave you feeling empty?
Skipping on Saving
The key to financial health is to prepare for anything life may throw at you. The best way to do that is to tuck away a little bit of money every month as an emergency stash, just in case the unexpected happens.
People who may already be in debt may find this habit challenging. It might feel like every dollar is going toward getting out of a financial hole. But saving today can help you avoid falling deeper into debt later.
This also includes opening and contributing to a retirement account. While retirement may seem like a long way off, it’s never too soon to start preparing for the post-work life of your dreams.
How to Fix It: Automate Your Savings
The easiest way to save money is to create a recurring automated deposit into a savings account (preferably a high-yield savings account that pays interest). You can set up an automatic deposit from your checking account or a direct deposit to a savings account from every paycheck. If you work for a company that offers a 401(k) option, take advantage of it. Like your savings account, automate your 401(k) contributions so you don’t have to think about it.
Adjusting your financial habits can feel overwhelming, but you don’t have to make these changes alone. Trailhead Credit Union’s team of financial experts is standing by to help you better understand your financial challenges and realize dreams for your future. Head to our Trailhead Difference page to see how we can best support your financial goals and make better money choices.