6 Money Habits That Will Drain Your Bank Account
Changing your financial ways could save you a pretty penny
It's all too easy to spend money these days. Conveniences like bank cards, online shopping and auto-pay subscriptions can sometimes lead to careless squandering.
“It reminds me of the old joke, ‘how can I be out of money when I still have more checks?’” says Mitchell Weiss, an executive in residence at the University of Hartford and co-founder of the university’s Center for Personal Financial Responsibility.
But there’s nothing funny about going broke. Improve your financial health by avoiding these six bad money habits.
#1: Spending impulsively
Eighty percent of Americans make impulsive purchases and two-thirds of them later regret it, according to a Harris survey conducted for the National Endowment for Financial Education.
We live in a world of temptation, whether it's food, drink or credit, according to Weiss. “But just because you can doesn’t mean that you should,” he says.
If you find it difficult to avoid making impulse purchases, the University of Kentucky suggests these strategies:
- Don't visit stores or malls unless you absolutely need to make a purchase.
- If you need to make a purchase, don't shop when you’re hungry or depressed.
- Before you go shopping, make a list and stick to it.
- While shopping, stay away from product displays or areas within a store that are most likely to tempt you.
#2: Shopping with plastic
One of the most dangerous financial habits is running up credit card debt, then making interest payments over a long period of time, according to Barbara O'Neill, a professor and specialist in financial resource management at Rutgers Cooperative Extension.
“Research has shown that people spend more with a piece of plastic — a debit or credit card — in their hand,” says O'Neill. “We don't immediately feel the pain of spending money as we do when we take cash out of our wallets.”
#3: Underestimating small costs
Spending $20 once in a while won't break the bank. But spending $20 several times every month could send you to the poorhouse, depending on your income.
Examples of unnecessary services that can add up over time include “cable subscriptions, extended warranties, service contracts for highly reliable items [and] health club memberships,” according to InTouch Credit Union. (Of course, if you actually make good use of that health club membership, it may be worth every penny.)
#4: Ignoring your 401(k)
Many employers will match the contributions you make to your retirement account. Yet one in four employees don't contribute enough to receive all of the matching funds they are entitled to. In 2014, the average employee missed out on $1,336 in employer contributions, according to the investment advisory firm Financial Engines, Inc.
“It is free money and you are leaving it on the table,” says O'Neill.
#5: Not saving for emergencies
In today's volatile economy, your job or business might not be there tomorrow or next year. Don't base your budget on the assumption that you'll always have the same level of income or personal health.
Weiss advises setting aside an “emergency stash” in case the conditions of your life suddenly change. “Budgets are only as good as the resolve of those who do the crafting,” he says. “If your budget is predicated on unchanging current-day circumstances, you could be courting disaster.”
Related: How to Create a Rainy Day Fund
#6: Paying yourself last
You'll never build up a nest egg if the first thing you do with your money is spend it. Instead, practice “Paying Yourself First,” a financial planning concept reminiscent of the old sayings: “out of sight, out of mind” and “you don't miss what you never had,” according to Pennsylvania State University.
The process is simple. Before shopping for clothes, writing a check to the power company or going out for dinner, first set something aside for a rainy day, then forget about it. “I personally have no problem with someone buying a fancy $5 cup of coffee every day, if they want to, but do it after you've put money into savings,” says O'Neill.