7 bad money habits to break

A mistake can harm us and an unexpected boost can help us, but it’s our everyday habits — the things we do over and over again — that can make a big difference to our finances.

Tired of making the same mistakes? Here’s how to deal with some common bad financial habits.

Spending without a budget

This financial mantra is common sense: the way to get ahead is to spend less than you earn. However, many people don’t know how much they’ve got coming in or, worse yet, going out. Overspending on a regular basis can heap up the debt load, and unanticipated expenses like a hefty car repair bill can quickly become a debt burden. Impulse spending can also get out of hand when there’s no clear financial picture.

How to break it: Have a plan for your spending. If you don’t yet have a budget, experts note the best place to start is figuring out your household income and tracking your spending. Not only will you see potential places to cut back, you’ll also have the foundation for your future spending plan. Try to get everyone in the household involved so there’s consistency and cooperation.

If you have a budget, take a few minutes to review it and make sure you’ve got some contingencies built in. Things like car repairs, home maintenance and pet health bills shouldn’t be a surprise. Instead, include them in the relevant category or make some room in your emergency fund.

Donating without a plan

Sure, it’s for a good cause — but generosity can lead to trouble. Spontaneous donations during the “season of giving” can make holiday budgets even tighter, and many people unknowingly give to scams or don’t realize how much of their money is going to administrative costs and professional fundraisers. Worse yet, you could be overlooking causes that are close to your heart.

How to break it: Make donations a regular part of your budget throughout the year. Even if you wait until the holiday season to make your gifts, set aside that cash every month so you’ll have it ready. You don’t have to avoid those cash donation boxes or kids selling chocolate bars — but add them to your plan so you can avoid spontaneous spending. (Many people keep a change purse on hand for just this purpose.)

Also, give some thought to where your money is going. Stick to organizations you know and trust, and do a little research before you donate. Find out if the charity is legally registered and, if possible, how it plans to use your cash. (For more information, see Good cause or costly scam? and Develop a family giving plan.)

Paying everyone else first

For many people, saving is something that happens at the end of the month after other financial obligations are taken care of. Unfortunately, that often means savings goals big and small get short-changed. When you factor in compound interest, that’s a lot of lost cash through the years.

How to break it: There’s something to be said for paying yourself first. Experts warn to make savings a priority akin to other financial obligations — especially where your emergency fund and retirement plan are concerned. Build your budget to include your savings goals, and “hide” the money from yourself with an automatic transfer to a savings account or RRSP with each pay cheque. At the end of the month, you can still top up your savings with any leftovers.

Running your portfolio on autopilot

We’re often told to think long-term when it comes to our investments, but “set it and forget it” isn’t what experts had in mind. Interest rate hikes, the introduction of the HST in British Columbia and Ontario and the recession should have us rethinking our savings and investments. Even a difference of one percent or two can add up in the long run, and management fees can eat into earnings.

How to break it: Check on your savings and investments frequently — and make it a new habit to keep tabs on how your money is working for you. Keep an eye on your financial statements and read through any policy change notifications to stay up-to-date. If needed, seek out a second opinion from an expert or two to make sure your plans are staying on track.

Out of control organization

Piling papers on your desktop or stuffing receipts in a drawer isn’t a sound organizational strategy, and it’s all too easy for paperwork to get out of control. As a result, many people can’t put their hands on important documents when they need them without some hassle and stress — or keep track of documents that could save money, like a warranty or rebate.

How to break it: It’s time to clean your financial house and come up with a system that you’ll stick with. You don’t have to be a frequent filer — develop a workable filing system and set aside a little time each week to sort through your box or drawer. Make sure you can easily access essential documents like insurance policies.

Another helpful step: Create a spreadsheet or summary of your accounts, investments and expenses so you’ll have a record in case of an emergency. An updated home inventory and list of important contacts can also come in handy. (For more tips, see 8 steps to get financially organized.)

Paying unnecessary fees

Overdue bills or library books? Roaming charges from your cell phone? Penalties for pulling out of an investment too early, or changing your travel plans too late? While there are many fees we can’t avoid, paying a little more attention can save paying for unnecessary fees and charges.

Break the habit: Learn what fees are lurking and how to avoid them. Read the fine print and take note of any important dates and penalties. Highlight them if you need to, and post a reminder on your calendar or bulletin board, whether electronic or otherwise. If you’re not in the habit of paying your bills right away, automate the process and give yourself a grace period of a few days for the transaction to go through.

Also, look for products and services that avoid fees. For instance, if overdue library books or movie rentals are a regular occurrence, go digital instead — the borrowed content won’t need to be returned, it will simply stop working when your time is up.

Dodging difficult conversations

Whether it’s with your spouse, parents or children, discussing money can be a potential minefield. Some people end up having the same fights over and over, while others simply give up discussing the important issues because they inevitably lead to fights. In either case, money problems aren’t getting solved and family members may not be on the same page when it comes to long-term savings goals and spending habits.

Break the habit: They’re difficult, but discussions about money are a necessity. Try carving out some time in the schedule on a regular basis to “touch base” — and add a little structure to smooth the way.

For instance, set a date to sit down and discuss finances rather than talking “on the fly”. Emotions will be calmer, there will be plenty of time and everyone will have a chance to do a little prep work first. You could make a list of topics or set an agenda, and agree to some general rules about conduct — like taking a five minute break if things get too personal. The structure doesn’t have to be formal: the goal is to provide a framework for discussion and to make a sit-down talk a regular event. (For more tips, see Stop the money fight and Conduct a financial fire drill.)

What financial habits have you had to break? Share your tips with our readers in the comments!

Additional source: MSN Money

Photo ©iStockphoto.com/ DNY59

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