April is Financial Literacy Month. Just as you make New Year’s resolutions to exercise more or lose weight for your physical health, April is the perfect time to make some changes that’ll put you on the track to better financial health.
Here are four bad financial habits, along with some ways you can start changing them.
1. Living Beyond Your Means
Almost half of all Americans are living beyond their means; they spend more than they earn, with nothing left for savings, investments, retirement, or emergencies. As more and more Americans shift into a self-employed or freelancing status, the ability to get the most from the money you make is critical. If you feel that your spending habits are outpacing your ability to earn and save money, one of the best ways to assert control of your finances is with a budget.
A good budget will help you allocate resources for paying bills, save money for important events such as buying a home or retirement, and invest your hard-earned cash regularly. Budgeting is easier than ever now, too, since there are so many great computer programs and mobile apps that do the work for you. You can use simple, affordable budgeting software to help keep your budget on track and make sure you’re living within your means.
2. Too Much Debt
Personal debt is one of the most pressing financial issues facing Americans today. In fact, the average household that carries a balance on their credit cards has nearly $16,000 in credit card debt. Once your debt reaches a certain level, in can be difficult to pay it down faster than the interest expenses add to the balance. High debt balances can lead to high monthly payments, which can make it hard to save, invest, or pay your other monthly bills. If you feel that you’re carrying too much debt, break this bad financial habit as soon as possible.
Make a serious effort to start paying down short-term debt, such as your credit cards. If you feel you can’t deal with your debt on your own, you should consider getting outside help, such as a credit counselor. Many nonprofits offer free credit counseling services, and talking to a debt expert can help you determine the best options for dealing with your current financial situation. Another option you could consider is using debt settlement services. Regardless of how you decide to do it, work hard to get out of debt as soon as possible.
3. Ignoring Your Credit
If you don’t think about your credit rating until you need it, you’re not alone. In 2016, a survey found that over 40% of Americans who attempted to access their credit (for a major purchase or for a new credit card) faced “real or perceived” challenges in using it. Failing to pay attention to your credit rating could leave you unable to make a critical purchase, such as for a new home or automobile. It could also affect your ability to get certain types of jobs. If you’ve always taken a lackadaisical approach to your credit, work hard to break this habit as soon as you can.
You can download a free copy of your credit report every year, once from each bureau. Reading it entirely will help you determine if any major issues or habits are affecting your credit rating, such as unpaid debts or overdue bills. Many online banking services allow you free real-time access to your credit score, too, so you can monitor it regularly. Fluctuations in your score will provide you a signal that something with your finances is amiss; then, you can take action to correct it and keep your credit rating healthy. Finally, you should ensure you understand the various factors that are used to determine your credit rating, such as your bill paying habits, and work hard to ensure that the way you handle your finances doesn’t have a negative impact on your credit.
4. Failing to Prepare for the Unexpected
Most Americans simply don’t have the available cash to handle a financial disaster. Only 40% of Americans have enough money in their savings account to cover an unexpected $1,000 bill, such as a car repair or a trip to the emergency room. Not having the money on hand during an emergency could cause you to rely too much upon credit cards, which will only add to the debt you’re already carrying. If your credit cards are maxed out right now, you may not have any good options to deal with an emergency at all. Therefore, if your savings account is currently sparse, you should definitely work to change this bad habit before the next emergency happens.
One of the best ways to build up an emergency fund is to pay yourself. Determine a specific amount that you can consistently put into a savings account each month and, when you pay your bills, pay yourself as well. If you receive unexpected cash inflows, such as a gift or a bonus at work, commit a portion of that money to the emergency fund, too. Even small amounts will add up over time. As your emergency fund slowly reaches the desired balance, you’ll have peace of mind knowing you’re better prepared to deal with the unexpected.
Even small changes to the way you deal with money can add up and make a huge difference in helping you regain control of your financial situation. Therefore, consider the advice provided here and start ridding yourself of these four bad financial habits today.
April is Financial Literacy Month! Take the chance to really get to know your finances and make sure you’re all set to end your year on a strong financial note.