Millennials face many financial challenges, especially in today’s inflationary environment. That’s why it’s so important to become financially literate. With a few simple adjustments to your money management, you can set yourself up to pursue your financial goals and work towards being financially confident. Here are seven bad personal finance habits you can replace with healthy habits to improve your financial standing.
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1. Spending above your income
Simply put, spending above your income means that you are spending more money than you are earning. Many people do this by relying heavily on credit cards or even loans with high-interest rates to cover their expenses. This overspending is not sustainable, and this lack of financial awareness will eventually catch up with you.
When you live beyond your means, it is impossible to have money leftover to put towards saving and investing, which will negatively affect your personal financial situation even further.
2. Living a life your earnings can’t cater for
While financial education is important, it is also essential to understand your spending and lifestyle habits and their effect. Having “champagne taste on a beer budget” is a problematic predicament to be in, and there are only really two solutions: you can either increase your income to a level that can support your spending and lifestyle habits, or you can cut back your spending and adjust your lifestyle habits to an affordable level.
3. Not budgeting your expenses
According to a poll from loan-servicing company OppLoans, a staggering 73% of Americans do not regularly follow a budget. While budgeting may not be as necessary for some as others, if you are living paycheck to paycheck and having trouble putting money towards investment accounts, emergency funds, or retirement savings, budgeting may be absolutely necessary. Budgeting will help you allocate your money more appropriately and combat any poor spending habits.
4. Not tracking your expenses
We all know how much our rent or mortgage is. But do you know how much your lesser-known expenses are? How much do you spend on gas? You may know how much you spend on groceries per week, but do you know much you spend on coffee or eating out?
If you decide not to keep track of your expenses, it can be difficult to know how much to budget for, and you may be unable to prioritize essential expenses from ones you can do without.
5. Lacking financial literacy
There are many reasons why financial literacy is important. Effectively budgeting, investing, saving, and understanding credit scores and student loans are all benefits of financial literacy.
Perhaps your parents or school did not teach you as much as you would have liked, but there is a wealth of free resources online for you to learn. As an affordable financial advisor in San Ramon, we strive to educate our clients on the why behind the what in how we service them.
6. Not building an emergency fund
According to a survey conducted by Bankrate, a whopping 56% of Americans cannot cover a $1,000 unexpected expense. Failing to develop an emergency fund is a slippery slope. Just because you can’t pay it does not mean that the expense will go away, and it can lead to drastic measures, such as taking out high-interest loans or racking up credit card debt.
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7. No retirement plan
Retirement can seem far off when you’re in your 20s and 30s. While that may be true, the benefits of starting to plan early are undeniable. Imagine the difference in compound interest alone from starting to save towards retirement at 25 as opposed to 35. Setting a little aside now and keeping it in the back of your mind can help you retire years earlier compared to if you had not.
Preparing for retirement can be daunting, especially if you are just starting. If you need help starting out or simply want a second opinion, our financial planners at Humanity Wealth Advisors bring a wealth of experience to the table and have your best interests at the forefront.
