Save more money, work out more often, eat better — a common theme among these popular New Year’s resolutions is creating habits that promise to improve your life.
But on the flip side of each of these goals, there’s a habit to break. You need to stop spending money, sitting around the couch, or eating junk food to achieve these goals.
The thing about bad habits is that you aren’t always aware of when you’re making them. So, let this article be your guide. Don’t let these five bad financial habits hold you back from making positive changes to your finances this year.
1. Living without a Budget
A budget comes with a lot of baggage these days. Its reputation for sucking all the fun out of life can stop some people from making one, even if they need it. And the reality is, everyone could benefit from a budget.
A budget is a spending plan that helps you organize how you spend your money. It helps you spend with intention, prioritizing important bills and goals over unnecessary splurges.
2. Disregarding the Emergency fund
When you make that budget, don’t overlook the value of an emergency fund. These savings give you a cushion to fall back on when things don’t go to plan. After all, you can’t always budget for unexpected expenses.
You should make contributions to this fund every month to help it grow. Eventually, you should save between three and six months of living expenses. This gives you enough cushion to handle several unexpected emergencies, as well as larger issues, like a health issue that prevents you from working.
Your emergency fund may come up short until you hit this target. Finding out what to do in a financial emergency without savings is easy when you go online. You can research and apply for a line of credit online to help bridge the gap between your savings and financial needs.
3. Relying on the Minimum Payment
When it comes to revolving credit (a credit card or line of credit), you have the option to make a minimum payment. It’s a fraction of your outstanding balance, so it’s a lot easier to cover when money is tight.
This fraction may not make a significant dent in your debt, which means you carry over the majority of your balance into a new billing period. At this point, your balance will earn interest.
Carrying over a balance when you don’t have to is a bad idea, not just for all the added interest. It may even affect your credit score if your lender shares your credit utilization.
It also ties up your limit for longer. If an unexpected expense arrives during that time, you may be unable to use these accounts as intended — as a backup to your emergency fund.
If you have the money available in your budget, throw it into your revolving accounts. Pay as much of your balance as possible. The end goal is to bring your balance down to zero by the due date.
Kick the Habit in 2024
Don’t let bad financial habits hold you back in the new year. Draw up a budget, build an emergency fund, and pay off your line of credit — these tips can help you turn over a new financial leaf in 2024.
