We all have our bad habits. From our overuse of colorful language to our “once too often” indulgence of fast foods, we all have little foibles that we try to curb when a new year comes around. For me, I have financial bad habits to kick in 2020!
And since 2020 is not only the start of a new year but a new decade, many are treating this January as an opportunity to turn a page and affect real, lasting change in their lives.
We all have our own goals in our personal, professional and family lives. There are things to which we aspire just as there are things that we’d rather change about ourselves. Yet one thing we all have in common is that we’d like to enjoy more money and less debt.
Debt is for most an unavoidable reality of household finances, but the bad habits we make can see us spend much longer in its shadow and prevent us from being able to achieve financial freedom.
An extra job or a side hustle is a great way to bring extra money into the home and give you the freedom that comes with more disposable income.
7 Financial Bad Habits To Kick in 2020
But until you fix the financial bad habits that lead to problematic debt in the first place, you can’t expect to unshackle yourself from the restrictions that debt can place upon you and your family. With that in mind, here are some habits to kick in the new year and new decade as you pursue financial freedom and wellbeing…
Failing to draw up an actual household budget
It’s all too tempting to “eyeball” your household’s income and expenditure. Yet there’s virtually always a discrepancy between the calculations that we carry out in our heads and the reality that we see in our bank statements.
This is often because of the little expenses that we fail to account for quickly add up over the space of a month. The candy bar that you bought when you were crashing on your lunch break.
The latte you bought to put a spring in your step on Monday morning. The taxi you got because you didn’t have time to drive around looking for a parking space… it all adds up. And they can make for an unpleasant surprise every time you check your balance at an ATM.
The only way to truly account for your household’s income and expenditure is to use a household budget template and use it to keep track of absolutely everything you buy. Yes, it takes time. Yes, it can be scary at first… but the very act of filling out the budget template will help you to feel empowered and in control.
Moreover, it can help you to reign in those little expenses which can chip away at your household’s cash flow and prolong the issue of debt while leaving you with less meaningful disposable income.
Becoming an ostrich when it comes to your debts (7 Financial Bad Habits To Kick in 2020):
Debt is scary, there’s no getting around it. But the sad truth is that lenders want you to be scared. They want you to bury your head in the sand and leave your debt to the whims of fate.
They know that the less will you exert over your debts, the longer they’ll be able to keep lining their coffers at your expense. The temptation to set your debt repayments to the minimum (more on that shortly) and wait for the debt to go away is understandable… but it’s something that can make debt much harder to escape.
Psychologically speaking, it perpetuates the fear and anxiety surrounding your debt and thus reinforces its control over you. The only way to liberate yourself from debt is to grasp it by the throat and bend it to your will.
Stay proactive when it comes to credit card debt and keep moving the debt to lower interest or interest-free credit card. Credit card companies are falling over themselves to deliver great rates on balance transfers for limited periods.
When that period expires, simply move the debt again to a new card. Sure, you’ll incur a small fee for doing this, but the percentage will pale in comparison to what you will potentially save in interest every month.
When you bury your head in the sand, your debts can become difficult to keep under control, especially when they all come out at different times throughout the month and each has a different rate of interest.
Even with a well-constructed household budget template, it can be difficult to track multiple debts. Debt consolidation, however, can replace all of your existing debts with a single and affordable monthly payment that is not secured against your home. This not only makes your debts easier to manage it even improves your credit rating.
Thus, if you do find yourself needing to take on new debt (although you should always think twice before taking more on) you’ll have access to better deals that won’t see you throw money away on interest.
Minimum repayments… they’re not as great as they first appear
Whenever you take on new debt- whether it’s a large debt like a mortgage or something small like a credit card, the size of your repayments play a large part in your ability to manage that debt.
And when you make the minimum repayment it can not only prolong the debt by years but actually result in more loss of your precious income in the long term.
The lower your repayments the greater proportion of your income is spent on interest. You want your repayments to go towards paying off your debts not making a bigger contribution to your bank manager’s bonus.
Being more stringent in your household budgeting can allow you to make extra payments on your mortgage to get you more equity in your home and help to pay it off faster for a more relaxed retirement. It can also prevent you from wasting money on interest on your credit cards and personal loans.
Falling into the trap of “lifestyle inflation” (7 Financial Bad Habits To Kick in 2020):
It seems as though many of us find ourselves with less disposable income than we had in our younger years, even though we earn significantly more money.
Of course part of that may be because your rent or mortgage is much higher, you now have kids to feed and you now have more sundry expenses like car payments, fuel costs, and the myriad other expenses that make up grownup life.
There is also, however, the component of “lifestyle inflation”. The notion of spending more in direct proportion to your salary. Getting a promotion or pay rise is great… but it means little if all that extra money is going to go towards more takeout and restaurant meals.
Be wary of the “lifestyle inflation” trap.
Impulse spending and “retail therapy”
All around the developed world we have fallen into the dangerous habit of treating shopping as a leisure activity. Stressful day at work? You tell yourself that you need some retail therapy.
At a loose end on a rainy Saturday? You take yourself to the local mall for some impulse spending rather than taking a long walk in the park with your kids.
But the truth is that retail therapy is far from therapeutic. Especially when your credit card bill arrives. In a capitalist, consumer-driven society it’s all-too-common to try and buy our way to happiness. But the giddy thrill of taking home your latest impulse spend is rarely proper compensation for the hangover of debt.
Sticking with your current provider of…. Pretty much anything
We all assume that if we remain loyal to the service providers that they’ll reward us with the best deals and most attractive rates… but that’s almost never the case.
In fact, they’re far more likely to offer their most attractive rates to newcomers because historically it costs them 10 times more to get a new customer on board than to retain an existing customer.
Whether it’s your car insurance, your cable provider, your ISP or your energy provider the only way to get the best rates is to keep a close eye on the market, compare prices and keep changing providers to get the best deals.
What’s more, don’t make the mistake of assuming that you’re stuck with a bad deal until your contract is up. In many cases, service providers of all kinds will happily pay your existing provider’s exit fee so that you can get better deals without the need to wait out your contract.
Paying for services that you never use but can’t seem to let go
We live in the age of the subscription economy. Many of us are subscribed to so many services that it’s very easy to lose track of them. Many of us cut the cable only to spend roughly the same amount of services like Netflix, Hulu, Prime Video, Disney Plus, etc. etc. etc.
We no longer buy CDs but we spend way more on Spotify subscriptions than we ever did on physical music. If you find that your subscription services are getting out of hand, it’s worth taking the time to see which you really use and which you can jettison.
And don’t be afraid to take as many free trials as you like… just be sure to cancel before the free period ends as some companies won’t bother to send you a reminder. Blitz these bad habits and your household can chart a clear path to financial freedom. What are your thoughts on ‘7 Financial Bad Habits To Kick in 2020‘? Do you have anything to add?
Free Printable Monthly Budget Sheet (click HERE or click the picture below to download)