5 Habits That Can Ruin Your Budget
By: FCU Team
Do you find that your money doesn’t go as far as it used to? When the end of the month is near, are you stretching your last few dollars until you reach payday? While a lot of factors play into money problems, like debt and income, one thing sure to cause financial woes is a bad budget.
Keeping your budget stable is possible with good habits, but first you might need to break the bad ones.
An old saying goes that it takes days to form a bad habit, but a lifetime to break it. Fortunately, that’s not quite true. With some practice and vigilance, your bad money habits will become a thing of the past.
Here are some areas where you might be struggling, and what you can do to fix them:
What might be holding your budget back is something pretty simple. Spending too much money from your paycheck could leave you in a bad position as you try to make it to the next payday. Impulse purchases on fancy items such as entertainment or electronics are far too easy to make with online retailers. Purchasing an item can be done with one-click if your credit or debit cards are connected to an online account. The simplicity of online shopping makes the temptation of shopping sprees all the more difficult.
Shopping is OK on occasion, but frequent trips to the store or Amazon will quickly drain your income.
And it doesn’t have to be on fancy items either. Eating out or buying coffee daily, while only $5 to $15 per purchase, can add up quickly. Monthly subscriptions can add up too. Paying each month for services like Netflix, Amazon Prime, Spotify, and others can take up a huge portion of your budget.
Solution: Plan for big purchases like phones, computers, vacations and nice clothing by saving during months you won’t likely have a large expense. You can also save money daily by packing a lunch at home and making coffee at work. Make sure to cancel subscription services and memberships that you pay for but don’t use.
Not Committing To Saving
Savings are an essential part of any budget. Whether it is retirement or a rainy day fund, and ideally you’d have both, not saving money can result in a budget that’s struggling. Unexpected expenses will eventually pop-up no matter what, and you might not have enough to cover it if you use most, or all, of your paycheck once it comes in.
Not to mention, your savings are the key to having financial mobility down the line. If you’re considering buying a home, your savings will likely go towards making the down payment, which can be up to 20% of the home’s sale price. Additionally, part of your savings should be going towards retirement, through either an employer 401K program, an IRA, or a diversified portfolio of investments and deposits. The money you save today will ensure you won’t need to work through your golden years.
Solution: As soon as you get your paycheck, put 5-10% of it into a savings account right away. At the end of the month, whatever money you have remaining should be put into savings as well. Consider opening a Certificate of Deposit, a bond that ensures a guaranteed return on your investment. For retirement, also consider opening an Individual Retirement Account. You can find out more about an IRA, and see if it is a good option for you, by reading this article.
Making Only Minimum Monthly Payments
If you can afford to pay more than the minimum with your credit card payments, then you absolutely should. Credit card payments accrue interest over time, and if you are only paying the minimum due, you’ll find yourself paying for the same items again and again and again.
The best way to tackle credit card debt is to pay it off in full before interest kicks in. Paying right after the close of your statement allows you to pay no interest, while also improving your credit score by establishing your history. Most credit cards have high interest rates, and the money you’d use to pay the interest can be better put towards other things. Paying off your debts in full in a timely manner is also great for your credit score as it keeps your utilization low and gives you a pristine payment history.
Solution: Paying off credit card debt before it can accrue interest. If you already have debt, pay down smaller balances first to get them out of the way, and reach the larger balances once you can pay back more. This is known as the Snowball Method. Another way is known as the Avalanche Method, which is when you pay off high-interest, high-balance debt first and work your way down to smaller balances.
Using an Outdated Budget
When was the last time you created a budget?
Many people are relying on the same budget they made years ago, and are surprised when it no longer works as well as it did when they made it. Money’s value is very fluid and the cost of items can change over time. It is possible you could be putting aside too much or too little for a particular area of your budget, such as groceries or leisure.
The prices of some items vary seasonally. During the summer, utilities and gas prices tend to be higher than they are later in the year. During cold spells in winter months, you may find yourself spending more money heating your home than you normally do during the year. Not adjusting for these changes could result in you spending more than you anticipated.
Solution: Create a budget in a spreadsheet for Spring, Summer, Fall and Winter based on what you think you will spend. You can use Florida Credit Union’s budget calculator tools to help you figure out the amount you need. Keep track of your real expenses during the season and use them to create your next budget. Taking a closer look at your budget every three months, especially if you’d have a big life change such as a move, new job, or marriage, will help you stay on track.
Not Knowing Your Credit Score
Knowing your credit score means knowing where you stand. If you have a low score, all it means is that there’s room for improvement. And a good score means making sure you do what you can to keep it there. Your credit impacts which financial services may be available for you.
Beyond just qualifying for a car loan or renting an apartment, a bad credit score could result in higher interest rates taking up more of your money. If you don’t know your credit score, it’s hard to know where to start with your financial wellness plan.
Solution: Florida Credit Union offers free credit score reviews. Our Member Service Representative will give you tips on what you can do to improve your overall score and how to maintain a thriving one. For more information on the factors that make up your credit score, read our article on What’s In A Credit Score?
If you are struggling with breaking old habits, don’t be ashamed. By following this advice, your budget will have much more room to breathe. If you need a little help getting started, our partners at Balance have tons of resources to put you on the path to financial wellness.