Financial insecurity is a growing problem faced by many Americans. In fact, nearly 40 percent of US workers have reported having less than $1,000 in savings and the average household debt is now more than $16,000.
In some instances, people may struggle to pay for unexpected expenses such as a medical emergency, job loss or divorce. Others may have been tempted by payday lending loans, uncontrolled use of credit cards or convenient payment plans, which all contributed to a gradual accumulation of debt.
As the old saying goes, attitude is everything. No matter what your situation is or your goals are, avoiding troublesome financial attitudes and habits can go a long way. Check them out below!
1. Spending Too Much
Overspending is one of the fastest and most common ways an individual can find themselves in financial trouble. Overspenders often have a hard time keeping track of where their money goes and spending money has often become a form of fun and recreation. They also have a hard time differentiating between wants and needs and thrive on immediate gratification.
How to Avoid It: If you’re an overspender, you probably have a difficult time visualizing how much money is going out, compared to your income. To help create a visual of your cash flow, it helps to try writing down a budget and making a list of your purchases. After setting a budget, using cash can be helpful to avoid wasteful or thoughtless purchases. Once the allocated funds are gone, you’ll have to wait until the next pay cycle to make another purchase. It may be tough, but it’ll help reign in spending.
2. Saving Too Little
It can be hard for individuals to realize they are saving too little. While they may recognize that there is no “cushion” in their savings to cover an emergency expense, many may feel like they can rely on their 401(k) if needed. However, unfortunately, the funds in a 401(k) are unavailable to help in an emergency situation without incurring penalties and fees.
How to Avoid it: To help build savings, always make it a practice to “pay yourself first”. Direct depositing a percentage of every paycheck into a separate account set-aside account for long term savings that can also cover unexpected expenses is a great way to start.
3. Carrying Too Much Debt
Individuals who carry too much debt tend to focus the cost of a minimum payment, or only consider their individual installments, opposed to the overall expense. They may also become fixated on deals that promise deferred payments or special deals without paying attention to the overall expense. Those carrying debt will often take actions to consolidate debt to maintain a standard of living.
How to Avoid it: If an individual finds themselves carrying too much debt, they can get back on track by focusing on the overall expense of a purchase including interest. If the overall expense is figured within the individual’s budget, it may become more clear that it is actually unaffordable. They must also not be easily taken by sales that appear to offer “great deals” and take time to read the fine print.
It is also important to note that while these practices can help change current attitudes towards debt, the only way to truly be free of debt is to begin paying it off. A spending plan can help an individual begin the process of allocating the needed funds for monthly debts.
4. Caring Too Little About the Future
Many people are surprised when their budget collapses under the strain of accumulated debt. They may have failed to pay attention to their spending, ignored bills and disregarded the cost of interest and fees. Because they’ve failed to plan ahead, these individuals are often caught off guard when they find themselves in financial emergencies and will delay their ability to reach financial milestones, such as buying a home. Sometimes, these individuals also believe that if there were to find themselves in financial trouble, a family member or friend will help them out.
How to Avoid it: While this attitude can be found in anybody, it is common among adult children still living with their parents, as they often have both and income and relatively minimal expenses. This combination can be make it difficult to focus on properly managing money. If you find yourself struggling to focus on your financial future, setting both long and short-term goals is an effective motivator to begin planning and saving.