The New Year is typically reserved for resolutions involving improved health or the quest for a new, better job. When it comes to resolutions in the New Year, it might be time to look at the financial habits you have been maintaining that are bad for your overall fiscal health. There is no time like the present to make changes, and there are no better habits to break in 2017 than those below.
Spending More Than You Earn
One of the easiest financial habits to fall into is reckless spending. The Washington Post states some 18% of Americans spend more money than they earned each month in 2015. This not only makes it difficult to meet your monthly financial obligations such as rent, groceries, and car payments, but makes it near impossible to meet your long-term goals such as sending a child to college or saving for your own retirement.
CNBC notes that not only are the above factors true of those who spend at or above the level of their earnings, it can also lead to another dangerous habit. Those living from paycheck to paycheck often spiral into credit card debt to try and stop the habit. The only real solution is to start living below your means, meeting your higher financial obligations and controlling your mindless spending.
Failing to Set a Budget
It is nearly impossible to meet any goal without having a road map for reaching those landmarks and milestones you set along the way. You cannot successfully reach any financial goal unless you know what your true income is each month, and have a complete understanding of your immediate expenses. These expenses include rent, car payments, utilities, groceries, entertainment, and any debt you need to tackle, for example; student loans and/or credit card debt.
With a budget in hand, you will know exactly how much money you must work with each month and be better prepared to avoid spending money you do not have on items you do not really need.
Using Credit Cards as Free Money
Credit cards might make it easier for you to meet some short-term goals or pay for sudden repairs to an automobile that you were not expecting. Credit cards are far too often treated as free money though, with dangerous consequences for the user. Credit cards are the greatest enabler of bad financial habits and have helped fuel a rise in credit card debt in the United States, with the average household carrying $16,000 in debt.
USA Today notes there are many bad habits linked to credit card use, including but not limited to mindless charging and making minimum payments. It is easy to charge a few things here and there on your credit card as you stand in the checkout line, but overtime those items add up and contribute to bad spending habits overall.
Making minimum payments is perhaps one of the most dangerous aspects of a credit card, because interest rates are extremely high and most individuals who start making only minimum payments continue to do so for years.
If you want to take control of your financial habits, the best thing to do is start fresh in the new year. Set financial goals you can live by each month, and then expand that to a point where you are working on new, stable financial goals each year. 2017 is a new year, and it is time for a new you! For more information, please contact Manhattan Ridge Advisors.