10 Bad Habits That Are Killing Your Finances
We are all guilty of at least a few. Put these tips to task and reverse your financial bad habits.
Americans have already forgotten the lessons of the Great Recession, judging by the Consumer Financial Literacy survey. When the recession began, 57 percent of Americans were spending less money than the year before. By 2014, this had dropped to 29 percent. Sixty-one percent don't have a budget, 16 percent retire without enough savings, and 16 percent have no emergency savings. Before you find yourself in a financial emergency, make sure you're not making any of these common mistakes that could kill your finances.
1. Not Having Financial Goals
Nearly half of American households do little or no financial goal-setting or planning, a Consumer Federation of America survey found. Not planning gives you no idea how much you need to earn or save or whether you're overspending. Instead, set concrete goals such as saving for retirement or repaying debt.
2. Not Having a Budget
Tracie Forbes went on emotional credit card shopping sprees until she had to spend nine years recovering from bankruptcy. To avoid this mess, experts recommend a "50/20/30" budgeting rule. Put 50 percent of your monthly income toward necessary expenses such as rent, 20 percent toward savings and repaying debt, and 30 percent toward discretionary expenses such as entertainment.
3. Not Budgeting Discretionary Expenses
In 2014, the average consumer spent $804.42 on holiday gifts, the National Retail Federation reported. Expenses such as gifts, eating out, and going to movies add up. Factor such items into your discretionary budget.
4. Not Saving
G.E. Miller was working over 50 hours a week and earning $30,000 a year without saving anything. After trimming his budget, he was able to eventually save 85 percent of his income. The average person only saves 4 percent of their income. Start developing a savings plan so you don't find yourself stuck in the cycle Miller was in.
5. Not Building Emergency Savings
Sixteen percent of Americans have nothing saved for emergencies. Bank of America recommends saving up six months to a year of expenses in case of job loss or other emergencies. Set an initial goal of accumulating $1,000 before pursuing any other savings or debt repayment goals. Then as you pay off debts, continue building your emergency savings.
6. Not Protecting Yourself Against Identity Theft
Last year identity theft affected 7 percent of residents aged 16 or over, according to Department of Justice statistics cited by LifeLock's blog. Out-of-pocket loss averaged $3,000. To avoid becoming the next victim, follow best practices for protecting your devices and passwords, and use resources such as LifeLock's site to keep up with the latest cybersecurity news.
7. Not Saving for Retirement
Karen O'Quinn had to start a new career after working in corporate America most of her life, and now has no retirement savings. Over half of Americans 55 or over have nothing saved for retirement, according to the GAO. The Labor Department provides a guide to retirement planning basics. Ideally, invest 10 to 20 percent of your monthly income in retirement savings, but if you can't afford this, start with 1 or 2 percent and work toward 5 percent.
8. Not Contributing to Your Employer's Savings Plan
Sixty-eight percent of Americans are not participating in their employer's sponsored retirement plan, according to the New School's Schwartz Center for Economic Policy Analysis. Before pursuing any other savings strategies, find out what kind of retirement plan your employer might already be offering. If you're self-employed, Kiplinger provides some retirement savings tips.
9. Spending too Much on Credit
Americans will end 2015 with an average household debt of $7,813, the highest level since the Great Recession, CardHub projects. Emotional buying, fed by manipulative marketing and social pressure, is fueling out-of-control spending habits. If you've been running up credit card debt, start bringing your monthly purchase levels back within a sustainable budget.
10. Not Paying Down Debt
Over half of Americans labor under the misconception that as long as they pay their bills on time, high credit card balances will help their score on their credit reports, a BankRate Money Pulse survey found. High balances can actually contribute to financial denial for credit card lines, loans, and mortgages. FICO recommends keeping your balance within 10 to 20 percent of your limit.
Roy Rasmussen, co-author of "Publishing for Publicity," is a freelance copywriter who helps small businesses get more customers and make more sales. His specialty is helping experts reach their target market with a focused sales message. His most recent projects include books on cloud computing, small business management, sales, and business coaching. For more information, visit www.publishingforpublicity.com