November 11, 2014

Quit It!

Credit: Stuart Miles
A lot of my posts aren’t meant to get you to actually do something. Most of them are just supposed to make you think about life and your finances, and occasionally laugh a little. Some of my posts are more of a “call to action,” where it is my hope that you will either continue doing the good practices you are already doing or change potentially troublesome ways and proceed differently. Either way, today’s post is a little different. I’m not going to suggest that you do this or that you do that. Instead, I’m going to share several, common, bad financial habits that I see a lot of and ask you NOT to do them.
  1. Carrying a Credit Card Balance – You should pay off your credit cards each and every month without exception, period. If there is an exception or you’re not at a place where you can pay off all of your credit cards, you really should adjust your lifestyle until you can. The impending doom of credit card debt and its frighteningly high interest rate(s) just aren’t worth it. Use credit cards for your convenience and to earn perks, but not to buy what you will have trouble affording.
  2. Having Too Small of a Rainy Day Fund – Do you really have savings? I’m not just talking about specifically having a savings account – I mean actual savings. If you could not withstand a temporary period of unemployment, you could not afford a used car should something happen to your current mode of transportation, or you would have trouble paying your maximum health insurance deductible, you probably haven’t saved enough. Sure, it’s not fun seeing all of that cash just sitting there, but it does feel good knowing it’s there if you need it, and unless you’re a lot luckier than most, at some point in life, you are going to have a rainy day.
  3. Having No Idea Where It’s Going – Want to try something that can be a little scary? Annualize your take-home pay (your paycheck after taxes, insurance, 401(k) savings, etc.), and then back out your annualized fixed expenses such as your mortgage, car payment, and utilities. What happened to all that’s left? Where did it go? If you can’t speak to where a large part of your remaining income went, that may mean you could have better utilized your cash flow towards savings, investing, and debt reduction as opposed to, well, wherever it went.
  4. Saving for College, Not Retirement – This one leads me to a serious and not so pleasant question: Would you rather your child have to pay for college or have to pay to look after you in retirement? I know the answer is neither, but in some cases, that may not be an option. Saving for a child’s college expenses is an admirable act of love, but it probably should not be done if it jeopardizes your own financial independence. Children could get scholarships, they could be athletes, they could be artists, and they might not even want or need to go to college. Save for both if you can, but please remember that looking after your own retirement is helping your children in the long run, too!
  5. Letting One Spouse Do It All – Unfortunately, I see this time and time again where one spouse is the dominant financial spouse. I’m not necessarily talking the largest “bread winner” here, I’m talking about the situation where one spouse pays all of the bills, balances all of the cash accounts, knows all of the passwords and secret question answers, and keeps all of the files. As long as no one becomes disabled, decides to get a divorce, or dies, having a dominant financial spouse could be fine, but it is a little dangerous. If you have a spouse, I’d encourage you to either split up and alternate some of the duties or at least agree to formally go over your finances once or twice a year. This builds trust, leads to good conversations, and helps make sure the back-up financial quarterback gets some reps should the starting financial quarterback go down.
If you’re reading this post, it’s my hope and belief that you are already not plagued with many of these bad habits, but if you are, quit it! If you know a friend or family member who is plagued with some of these bad habits and think of this post, please share it!

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