Changing self-defeating personal financial behaviour
Everyone wants some measure of financial success: a comfortable lifestyle, a secure retirement, and discretionary income. You don’t have to win a lottery. Some people actually achieve this goal. I’ve seen it happen myself. Many others do not. And often, they put the blame on everything except where it really belongs – their own bad financial habits. The fact is that it’s possible to join the ranks of the financially secure and successful by changing your financial behaviour. Start changing your mindset now by working to break these bad financial habits.
1. Spending more than you earn
This is probably the worst of the bad personal financial habits, because it guarantees that you’ll never get our of the hole you’ve dug for yourself. I’ve seen this many times over the course of my career as a financial advisor. Living what I call “the credit card lifestyle” where you spend everything you make and then spend more by racking up high interest debt is the surest road to financial ruin. Debt is a lead weight on your ability to save and invest for future goals. It’s also a major stress factor, as those bills pile up and interest adds on interest. Break this bad habit first, and you’ll soon start to untangle your financial knots.
2. Flying by the seat of your pants
Not having any financial goals, objectives, or plans is another major bad financial habit that can easily lead you back to Bad Habit #1. Setting long- and short-term financial goals, whether it’s saving for a down payment on a house, funding a child’s education, buying a new car, or taking a vacation, gives you motivation and an objective to aim for. Setting goals makes it easier to plan weekly, monthly, and annual savings targets, which you work into your overall financial plan. Set goals. Stop flying by the seat of your pants and hoping for the best.
3. Not saving
This bad habit is closely related to Bad Habit #1. If you spend more than you earn, you are obviously not saving anything at all. But then, again, neither are those who blow everything they earn, without necessarily going overboard. And this bad habit is just as common among high income earners as it is for those in lower tax brackets. Setting savings goals – even if they are modest to begin with – is the only way to achieve those financial objectives you’ve set out for yourself. Make saving the habit – even if it’s forced saving through automatic deposits to your savings account with each paycheque. Achieving those savings targets means setting a budget – keeping track of your monthly income and expenses – and cutting and pruning where necessary, sometimes ruthlessly.
4. Letting money collect dust
Even those who have financial plans and a tight grip on their spending are guilty of this bad habit. Funds that accumulate in a bank “savings” account are next to useless in achieving your goals. In fact, it’s worse than useless, because the so-called interest you earn from these types of accounts is less than the rate of inflation. The result is that you’re actually losing purchasing power for every day your money sits idle. Put your money to work by investing it for higher returns. This could be in stocks, bonds, a business or any other productive asset that has the potential to produce a return higher than the inflation rate and mangement expenses combined. Break the complacency habit, shake the dust off your money, and start investing consistently and habitually. Exchange a bad habit for a good one.
5. Ignoring your finances
Ignorance is not bliss. When it comes to money, quite the opposite applies. Not taking at least a rudimentary interest in things financial means that you’re always playing at a disadvantage. Learn about personal finances. Get some basics about investing. Acquire knowledge and skills to help you break those bad financial habits. It won’t even cost you anything – there’s plenty of good information online, and it’s all free. For those with higher net worth or more complex financial situations, fee-for-service financial planners can help you break all the financial bad habits, and ensure you never ignore your finances again.