Bad financial habits not only sabotage your savings – but they could also sabotage your chances of getting a home loan approved. Financial Planning really helps you get on track, but you might need to address some bad habits to stay on track.
Check out these five bad financial habits and how to fix them, to improve the health of your savings, your ability to get a home loan, and to keep your financial plan on course. (Spoiler alert: there is no mention of giving up the lattes.)
1. Using debt to pay for ‘nice-to-haves’ or bargains
Relatively easy access to credit, along with interest-free hire purchases and interest-free periods on credit cards can lead to more impulsive shopping, because you think you are saving money. However, if you don’t pay off the debt within the interest-free period, then the “bargain” you just scored can rapidly turn into just one more debt you need to pay off.
Before buying that nice-to-have or bargain item, make sure you factor the repayments into your budget, to ensure that you can pay it off before any extra costs kick in.
2. Not having a budget
A budget is the backbone of any good financial plan. While budgeting may seem like a boring word, not having a budget means you might not have good oversight of your finances.
While you can’t predict exactly how much you will spend on everything (such as your power bill which will vary each month), you can accurately account for your fixed costs (rent or mortgage payments), and more importantly, put a lid on those other discretionary and variable costs.
How much do you spend on your groceries each week – or even every day, as you dash out to buy a bottle of milk, and end up spending $40? By having an amount budgeted each week or fortnight for groceries, and sticking to it, you should quickly see a difference in your savings.
3. Not saving
The longer you put off saving – either for your retirement or a rainy day (or ideally both) – the more you need to put aside regularly.
You’ve probably already heard about the power of compounding interest. Basically, you can earn interest on money that you have put aside, which is then added to your balance and earns even more interest. If, for example, you have an account containing $1,000, and you are earning interest at 10%, you will earn $100 in interest. This makes the total sum $1,100, which then in turn earns interest at 10%, giving you an extra $110, and so on.
The sooner you start, the better off you’ll likely be – so even if you can only put aside a small amount, why not start now?
4. Casual frittering
Do your economical family days at the beach usually turn into an expensive café-supplied lunch? Be aware of the additional costs you accumulate when you don’t plan ahead for family outings, road travel or other social occasions; don’t forget to factor the cost of social activities into your budget.
It is probably still cheaper to go to the supermarket and pick up a french stick and fillings, and bottle your own water, than it is to buy prepared sandwiches and drinks from a café.
5. Not keeping the ‘wants’ under control
Tempted to buy yet another pair of jandals for summer? Consider whether you really need these ‘wants’. Reducing the amount of money you spend on ‘upgrades’ or ‘keeping up with the Joneses’ will give you more money to spend on things that are important to you – or save, so that you can pay for those unexpected car repairs without stressing the finances.
By making a budget and sticking to it as much as possible, naturally you will reduce the frittering. But you will also find you have more money saved for a rainy day, or (why not?) those genuine must-have items. Coupled with a solid financial plan, you’ll find that you reach your bigger goals in no time.
Interested in having a Financial Plan to keep you on track?
Cole Murray offers a range of personalised Financial Plans to help you save money and get the most out of your day-to-day life. Let us help you secure your future today!
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