Debt casts a shadow over your financial outlook. While having some debt is good, in the case of mortgages or making home improvements to improve your property value, other debt can prevent you from reaching your financial goals.
The key is knowing the difference and recognizing when your money habits are holding you back. That’s where a little guidance can make a big difference. With the right strategies, you can shift from just getting by to building long-term financial stability.
Radio personality and financial advisor Dave Ramsey targets five behaviors that keep you in the revolving door of debt. Along with these habits, we'll show you ways to break them.
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1. Living without a budget
A budget is your financial roadmap, directing you to your goals. However, if you don't have one, it can leave you in the dark about spending patterns and prevent you from reaching your goals.
And this is why a budgeting app can come in handy. They're like the non-judgmental best friend who helps you make sense of where your money goes.
You link your bank accounts, and they track your spending for you. You can also set savings and retirement goals. Some apps, like Honeydue, can keep you on the same financial page as your loved ones, which is integral for couples or adults caring for aging parents.
If you're looking to try one out, this option from Quicken is free for the first 30 days.
2. Impulse buying
It's fun to treat yourself; however, if it isn't an occasional treat and more of a regular one, that's money you could be devoting to pay down debt or save.
It's why Ramsey recommends shopping with a plan in mind and cash in hand. Doing this keeps your focus narrowed to the task at hand. What's more, by paying in cash, it forces you to budget your expenses, reducing the likelihood of having the funds for impulse items.
And if you're thinking about buying something a little bigger, wait for 24 hours. Taking a step back helps you assess whether the purchase is essential or a want.
3. Not having emergency savings
Life becomes unpredictable, and with it can come unexpected expenses. When those arise, having an emergency savings account is vital, as it helps you avoid going into further debt.
So, how much emergency savings should you have? Ramsey recommends saving between three to six months of expenses. That way, if a job loss or a high bill comes due, you have the funds to cover you.
And if you're looking for quicker ways to reach this savings goal, consider a high-yield savings account. They earn rates far outpacing inflation, and many come with no account minimums or fees.
Using this Bankrate tool can help you find a savings account fast:
4. Overrelying on credit cards
Credit cards can be great financial tools for saving money on everyday purchases. The best rewards credit cards offer cash back on groceries, dining out, streaming and traveling.
However, if you carry credit card debt, you're losing money. The interest fees alone will eat into your payments, especially if you only make the minimum amount. And every dollar you spend on interest is one dollar less you can invest or save.
If you have credit card debt you can't pay off monthly, consider switching to paying cash for all expenses until you can. Doing this achieves several things: One, you won't add to your credit card debt. Two, it can help you spot areas in your budget you might need to trim to pay off your debt quicker.
Meanwhile, if you're struggling with credit card debt, contact your credit card issuer to tell them about your situation. They could customize a repayment plan that reduces interest rates. The benefit of this approach is that it'll close card use while on the plan, thus giving you a narrower focus on tackling debt.
5. Lifestyle creep
Lifestyle creep is when your income rises, so you decide to spend more. I get it, when you receive that raise, you want to treat yourself. However, as your income rises, you want to resist the temptation to spend more so your future self is in a better financial position.
Here are a few signs you might have lifestyle creep:
- Your income increases, but your savings remain the same
- Your impulse buys become a habit, not an outlier
- A failure to reach your financial goals
If you have lifestyle creep, there are ways to mitigate it quickly. The first is to set up a budget and review all of your expenses, as it can help spot patterns of overspending.
Next, set up automatic transfers from your checking account to a high-yield savings account on paydays. Doing this allows you to earmark money before spending, making you much more likely to reach your savings goals.
You should also get to know your money mindset. This is the belief you have about your money, savings habits and goals. Spending time analyzing the decisions you made can help you chart a course of action that helps you reach your goals and pay off debt quicker.
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