7 dysfunctional financial habits
Our financial habits and daily actions, related to money management, shape our financial reality. The more aware we are of them, the more control we'll have over our money and the faster we'll reach our financial goals. The first step is to identify our dysfunctional behavior patterns, and below are presented 7 of the most common of them:
1. We are not fully aware of our financial situation
There's no way we're going to meet our financial goals, if we don't have a clear idea of where we are right now. If we don't know how much and what kind of loans we have, what are our monthly payments on them and what is the remaining principal, then we fall into that category. This is also true if we do not monitor our financial situation and how it changes every month.
2. We take loans, just because we can afford the monthly payments on them
Nowadays, taking out a loan seems like a completely normal thing. A common situation is a person of 40 years to have a mortgage loan, car lease, several commodity credits, consumer loan to repair the apartment and several credit cards.
But let's imagine for a moment our monthly budget without any debt in it. How much money will be left at our disposal, if all we have to pay is housing costs, food, clothes, bills and some fun. If we didn't have car payments, installments on consumer loans and credit cards, what our disposable income would be, which we can save and invest?
3. We have only one source of income
In the light, in which we live, only one source of income, to rely on, is no longer enough. If it happens like that, that we lose it, it can lead to a crisis in our finances and life. The best strategy is to actively develop additional sources of income, even if they are not big, which will provide us with peace of mind and a basic income, if we lose our main source of income. We can buy investments, to pay us dividends, to buy real estate, which will bring us rental income, or to develop other sources, that bring us passive income.
4. We don't save and we don't have an emergency fund
If we do not have funds saved in an emergency fund and an unexpected unpleasant event or crisis situation occurs, we will have to take out a loan and enter the debt spiral. After all, we will pay a much larger amount due to the lack of planning.
5. We spend more than we earn
Do we buy expensive clothes or gadgets just to demonstrate status to our office colleagues or friends? Do we have friends who always want us to go to an expensive restaurant?, let's go shopping, to go on expensive vacations or stay in expensive hotels? Better to refuse these activities and explain, that we are working towards achieving important financial goals for us. A lot of it, what we see in others is not real - often people buy things for themselves, who cannot afford it and go into debt, and they have no savings and investments.
6. We don't invest or prepare financially for our future
We keep putting off investing and telling ourselves, that we will start investing, when we have higher incomes. The truth is, that the power of investing is in setting aside small amounts, for a long period of time. The sooner we start investing, the greater will be the compound interest effect for us. If we start investing on 20 age of 500 BGN per month (at 10% profitability), when we are on 65 years you will have 4.5 million BGN, while if we start when we are at 40 years, that on 65 years we will only have 617 thousands of BGN.
7. We spend impulsively, without planning
If we don't have a budget and don't plan our expenses, then we are most likely to give in to impulse purchases, we buy things, which we do not need, and we don't know where our money goes at the end of the month. The budget gives us perspective and forces us to determine our priorities in advance, directing our money only to the things that are important to us.
Our daily financial habits have an effect, which accumulates over time. They determine what our financial situation will be - whether we will live in stress and anxiety, that the money will not be enough for us, or we will have financial peace of mind, that we have taken care of our financial future. Therefore, it is important to recognize bad financial habits and take steps, to transform them into beneficial behaviors.