By: Peggy Knobbe
Everyone has bad habits, and all of them are hard to break. Smoking, biting your nails, eating junk food, the list goes on and on, but breaking the bad money habits sooner rather than later may be the most beneficial to your retirement.
It is very easy to make mistakes with your money, even the most educated will make bad money decisions from time to time. Many people find themselves buying goods they don’t really need on credit and then forgetting to save for retirement.
Here are a couple of ways to break those bad money habits.
- Understand the difference between good and bad debt: Bad debt is debt you incur on items that will depreciate in value, something that has no potential to make money. Good debts are the debts that can potentially create value, such as a home mortgage, a business loan or student loan. But, just because a mortgage is considered a good debt, doesn’t mean you should take the largest loan possible.
- Educate yourself: You have to educate yourself, because in school nobody teaches you how to manage your money. Many people avoid talking about their finances because they truly don’t understand them. Talk to your financial advisor, read books and magazines, but know that the financial markets are constantly changing, things are changing so fast you have to try to keep up so you have to continue to educate yourself as much as possible.
- Make a budget: Most people live without a budget, don’t stress, you do not have to create a complex spreadsheet. Simply draw a line on a sheet of paper, on the left write down all the money you have coming in; employment income, social security, pension, etc. then on the right side write down where you are spending money. Trust me, this list can get long, mortgage, car loan, cell phone, insurance, groceries, utilities, dining, entertainment, clothing, etc… This list will show you how much money you are spending on the essentials and how much of your income is actually going out to pay for frivolous expenses. Most will find that they are spending between $200 and $700 a month on things they don’t really need. You will need to decide between needs and wants. Do I really need the new IPhone or do I just want it? Once you find that found money you can use that to help pay down debt or save for retirement.
- Lastly, Set financial goals: Once you educate yourself about money you see how the financial world really works, you will start to explore your own financial potential. Have a conversation with your family and financial advisor to figure out how much to save and what to do with those savings. Should you save to buy a house, or put more money aside for retirement? What about your children’s college expenses? It is best to have multiple goals, but if push comes to shove, you can always finance a college degree, but you cannot finance your retirement.
Breaking you bad spending habit will take time and won’t be easy, so don’t get discouraged, you can change if you try.
Please feel free to contact Wamhoff Financial Planning and Accounting at 636-573-1212 with any questions or to set up an appointment.