Bad money habits can make your debt situation worse. There’s no exaggerating that. In fact, it’s probably these bad habits that got you in a tough credit situation in the first place. So if you want to improve your financial position this year, you have to work on your debts.
By working on your debts, you need to do more than just pay it all off. You have to learn how to use credit properly. Because we can’t deny that using credit, in the society that we live in, is actually very beneficial. But if you choose to use it recklessly, you’ll get all the disadvantages instead of the benefits.
Unfortunately, a lot of Americans have abused the use of credit. At this point, most people blame the coronavirus pandemic for that. But if we’re being honest, we’ve been abusing credit way before that. We’ve been pushing our use of credit to the limit. And the pandemic just made it worse because most of us had no choice but to rely on credit to meet necessary financial obligations.
In fact, one survey revealed that 62% of Americans lived paycheck to paycheck in September. This is a huge increase from the 49% before the pandemic. When you’re living this way, you’re one emergency away from borrowing money. This is no wonder that a lot of people are struggling with debt right now.
While it’s not entirely clear if bad money habits caused Americans to live this way. But it’s not impossible that it did. This is why you should make an effort to improve your money habits.
4 bad money habits making your financial situation worse
Before you can improve your bad money habits, you have to get to know what these are first. Take a look at your financial situation. How much money is coming in? What are you spending each month?
It’ll be easier if you track your financial movements for a month. Download an app on your phone or go old school and use a pen and paper. Every time you spend on something or you receive money from work or a gift, take note of it. At the end of the month, you can look at your list to analyze your spending habits.
This month-long financial transaction will reveal a lot about your financial habits. Getting to know what these are will help you understand what needs to change. Maybe you can start improving your bad money habits while paying off debt.
So what are the habits that you should be on the lookout for?
Living beyond your means
When you’re living beyond your means, you are spending way more than what you’re earning. How do you think you pay for the difference? With debt! Some of those who have savings dip into it. But if you don’t stop doing this, you’ll dry up your savings. What happens then? You’ll start using debt.
How do you know if you’re living beyond your means? Take a look at your financial activities for a month. Add up all the expenses and compare them with your income. Can you cover all the expenses you made? Make sure you don’t forget any annual or quarterly expenses while you’re doing this. Consider these as a part of your lifestyle expenses. If the expenses are beyond what you’re earning each month, then you have a problem that you need to correct immediately.
Failing to save for an emergency fund
Here’s the truth. A lot of people who got into a huge amount of debt weren’t prepared for the unexpected. They were probably living from paycheck to paycheck. They were living within their means – but they didn’t save enough for emergency situations.
So when one of them got sick or the car broke down and needed immediate repair, what did they do? They relied on credit. In most cases, they relied on their credit cards. Usually, they are unable to pay the balance in full at the end of the month. That means they have to deal with the high-interest rate of their cards. That’ll make things worse. The longer it takes for this debt to be paid, the higher the interest you have to pay.
The thing is, this can easily be avoided if you’re just prepared to pay for these unexpected events. Because let’s face it – these unexpected events will always happen. So it’s better to always be prepared.
Relying on credit cards
Did you know that 37% of households rely on their credit cards to pay for their bills? What’s scary is they seem resigned to just dealing with the aftermath. They aren’t doing it because they planned it and it’s part of their budget. They are doing it out of necessity – because it seems like they don’t have a choice. That’s what it seems like if you read the report.
If you’re using your credit card to pay for basic necessities and you’re not sure how you’ll pay it back, that’s one of the bad money habits that you have to break. Otherwise, you’ll end up adding so much more to your debt problems.
Making excuses and blaming others
This is a mindset that fuels a lot of bad decisions. So if you have the attitude of making excuses or blaming others for your bad money habits, then you have a lot of work before you. You have to get rid of this mentality and feel more responsible for how you use your money and credit. Because unless you make yourself responsible for your actions, you won’t be careful. You won’t find the initiative to change your bad habits. And that’s just going to make things worse for you.
Tips to correct your bad money habits
Now that you know the bad money habits that you should be avoiding, what’s next? You need to find a way to correct it. That’s how you keep yourself from making your debt problems worse while improving your overall financial situation in the process.
Here are tips to help you do that.
Always have a financial goal
Start by always setting a financial goal. If you really want to improve your finances, start setting goals. The great thing about always having goals is it will guide all your money-related decisions. If you really want to reach your financial goals, you have to make sure you’re making the right choices when it comes to the use of your money. You’ll hesitate spending too much because you know that you’re trying to reach something. As you try to be more conscious of your spending choices, you’ll start to develop the right habits that’ll help you manage your finances better.
Live below your means
If you want to keep yourself from making your debt problems worse, you need to change this. Instead of living beyond your means, you have to live below your means. Some people think it’s enough to live within their means. But if you really want to improve your financial situation, then you have to do better. You have to live BELOW your means. This is how you get the extra money to boost your finances.
Be a smart spender
Finally, you have to get serious about becoming a smart spender. Your debts and financial situation are heavily reliant on how you choose to spend your money. If you spend too much, you’ll end up in debt. That can compromise your financial future. It doesn’t matter how much money you earn. If you don’t know how to make the right decisions about it, you’ll end up compromising your finances.