5 Bad Budgeting Habits You Must Stop Now!

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What are the 5 most common bad habits people engage in when it come to budgeting? Find out here. Click to read. Improving your money habits might be one of the hardest things you do in life.

There are so many things to consider, so many things to get right.

Earning, saving, investing, budgeting.

All of these skills need to be learned and practiced (sometimes over the course of years before you master them).

Even after you learn them you need to review them again and again to make sure you are doing the right things to reach your financial goals.

And even still, you may make mistakes (God knows I’ve made them all).

The good news is mistakes are ok as long as we learn from them.

It is when we continue to make the same mistakes over and over again that we begin to build bad habits.

If you are having a hard time reaching your personal finance goals, perhaps you are engaging in some bad habits that are holding you back.

Personally, I’ve been guilty of doing every one of the five habits I’m going to discuss at some point in the past.

Now that I am aware of them I know exactly what to avoid to keep my bank account how I like it…FULL!

Continue reading to discover the 5 bad budgeting habits you must stop now.

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 #1. Spending Money Before You Get It

Do you spend your income tax refund in July?

This may sound like a silly question to you but believe it or not many people do it!

If you paid for your vacation this past summer on a credit card and can’t pay down the balance until you get your income tax refund then you are guilty of spending money before you get it.

Spending this way is dangerous because of the risk involved.

When you spend money before you get it (such as using credit cards to buy things you want but can’t afford at the time), it’s like asking for trouble — see Murphy’s Law.

On the flip side, building good money habits (i.e. saving money to pay for large expenses in cash) reduces risk from your financial situation (which allows you to sleep better at night).

#2. Emotional Spending

Emotional spending occurs when you buy things you don’t need due to feeling sad, depressed, happy, bored, lonely, etc.

Sometimes people find that they but things that they don’t even want as a result of the above emotions.

There is nothing wrong with buying yourself non-necessities from time to time but when these purchases begin to impact your ability to pay off debt or save money then you might be an emotional spender.

Emotional spending is one of the most dangerous of the bad habits because

One way to curb your emotional spending is to find replacement activities to do instead of shopping when you feel the urge (like exercising, calling a friend, reading a book or interesting article or organizing something).

#3. Using Your Credit Card For EVERYTHING

Reward points are tempting and there are some people out there who swear by them.

If you are one of those people then I already know that there is no way in hell I can convince you that using your credit card for everything is actually a bad habit and I’m not going to try.

For the majority of us who have not invested the time to learn how to become expert credit card hackers…I say to you credit cards will do you more harm than good.

Studies have shown that people who spend using credit cards tend to spend more money than people who make purchases with cash (see an excellent summary of credit card studies by NerdWallet).

#4. Not Accounting For Irregular Expenses

I will be honest, it took me YEARS to master a strategy that works for me when it comes to addressing irregular expenses in my budget.

Irregular expenses are those payments that are due periodically but not often enough to include in your monthly budget (like car registration, semi-annual auto insurance, and other expenses that are billed once or twice a year).

For a really long time whenever an irregular expense came up I would either (a) pay for it using my credit card – because I didn’t have the money in the bank to cover the expense or I would (b) pay for the expense using my cash and then have to use my credit card to get through the rest of the month.

Talk about bad money habits!

I don’t know why it was so difficult for me to get irregular expenses right, but this is what finally worked for me:

First, I opened up a separate Capital One 360 savings account (referral link-use to get $25-$50 bonus) and named it “Irregular Expenses”.

Next, I budgeted $100/month to start for irregular expenses on my monthly budget.

Then, I set up monthly automatic transfers from my Capital One 360 checking account to my irregular expenses account for the $100 that I budgeted.

Finally, whenever I was hit with an irregular expense I paid for it out of the special account.

Problem SOLVED!

#5. Not Making Room In Your Budget For FUN

Maybe it’s just me but when my budget is all business and no fun, I get demoralized…FAST!

Budgeting should not feel like a punishment.

It should feel like an awesome tool to help you reach your financial goals so you can live a life you LOVE.

Make sure you include a line item in your budget for fun, entertainment whatever you want to call it.

This might be one of the most important line items on your budget as it will keep you motivated on your personal finance journey when things get rough.

What are some important budgeting habits you’ve discovered on your own personal finance journey?

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