Saving money in today’s economy isn’t just wise, it’s necessary. That’s why it’s important to put an end to your bad money habits. Here’s how:
- Bad habit #1: Paying with plastic. This goes for both credit and debit cards. They may be convenient, but chances are you don’t notice how much you’re squandering. Robert Frank, an economist at Cornell University, says the fact is – we spend more when we pay with plastic. However, forking over cash is more concrete than the abstract act of promising to pay for something later. Also, being able to charge something causes people to act spontaneously without thinking through their purchases. So, always pay with cash, and put strict limits on what you can buy. Figure out how much you’ll need for the day, keep that in your wallet, and leave the rest at home – with your plastic.
- Bad money habit #2: Too many visits to the ATM. You only go to your bank’s ATM, so you can avoid fees. You only pull money from your checking account, so you don’t rack up debt. All’s good, right? Not necessarily. Mary Hunt, a financial expert and author of Debt-Proof Living, says neither of these means that you’re spending responsibly. Frequent ATM visits can allow money to leak from your life, undetected, because you often take cash out – but don’t keep track of where the few dollars here and there are going. The fix? Only go to the ATM once a week. Tuck the money into separate envelopes – gas, groceries, entertainment and so on. Spend from the appropriate envelope, and when the money’s gone – no more spending until the next ATM visit next week.
- One last bad money habit you need to break: Being unaware of interest rates: The interest you earn on a savings account, interest you pay on your home equity loan, credit card or student loan. For example, the difference between earning 3% on a $10,000 savings account, versus 1% interest, is almost $2,500 over a 10-year period. That’s what you’ll be throwing down the drain if you don’t pay attention. So, keep tabs on the interest you’re earning and the interest you’re paying. It makes a HUGE difference in your financial well-being.