7 Bad Money Habits To Break So That You Can Increase Your Investing Potential
You’re probably one of those folks who ranks financial security high on your list of “must-haves”. You know financial success comes with learning as much as you can about money management, good financial habits, and avoiding the pitfalls of impulse spending. You know that true financial freedom comes from having cash flow, and you know passive income is the way for you to achieve your dreams that will enable you to live a life by design, right?
But you also are aware that in order to build true wealth long term you have to start learning how to save more of what you earn. Pretty straightforward, right? Unfortunately, when people have old habits that are impeding their ability to save extra cash at the end of the month, then saving to invest for some people is just a pipe dream.
Here’s The Good News
The good news is that there are a lot of ways to break this cycle and learn solid financial literacy that will improve both your spending and your saving habits to help you meet your future financial goals.
Let’s first take a look and recognize what habits need to be changed to help you become successful. This honest look at your habits around money is essential if you are going to make significant changes and improve your investing potential.
Let’s dive into the 7 most common habits we see people do that are impeding their ability to live life to the fullest. Full disclosure here, I’m not a personal finance expert or a financial advisor of any kind, but these habits that we’re about to discuss are tried and true ways to start making better financial decisions.
1. Your spending habits exceed your income
Here is a common bad money habit: You get into a situation most every month where you spend a bit more than you earn. To bridge that gap you start to put expenses on your credit card.
When you rely on credit to make ends meet, habitually, you will be faced with fees and a high-interest-rate credit card balance that never seems to get paid down. This is a bad habit around personal finances. Credit cards, that aren’t paid off each month, can rob you of your financial future, and the retirement you deserve and have always dreamed of. This bad money habit absolutely will hinder your ability to save for investments.
Your first step should be to assess your spending habits and see if they align with your long-term financial goals. You will want to see what your annual spending has been in comparison to the balances you have had in your bank account over the year.
Ways you can start implementing better money habits and start hitting your goals
- Learn how to cut costs and reduce (or eliminate altogether) impulse purchases. For example, is there a way you can cut your utility bills, and cable bills or maybe reduce your car payments with a less expensive but equally reliable mode of transportation?
- Keep your credit card bills down. One way to do this is to avoid using your highest interest rate credit card. Or better yet call all of your credit card companies and see if they will lower your interest rate. Make sure you have a credit card that rewards you will airline miles or some other perk, and try to use only one main card or make very small purchases (a tank of gas) on others and pay them off each month to build your credit. Just remember, the interest payments you pay on the debt you accrue are costing you your future.
- Look for ways to start saving. Tighten your household budget and find discounts and coupons wherever it makes sense. There is “free money” out there you just have to start learning ways to cultivate it. Anytime you want to do something fun, go to a museum, a movie, a concert, or a trip, look for ways you can save as much as you can on those expenditures. And of course, use coupons whenever possible when you’re shopping. All of these little efforts make a big difference in the long run.
- Find ways to earn more. Could you take on a side hustle or a part-time job that will help you pay off your debt quicker so that you can start putting that extra money toward earning passive income from your investments?
By making the short-term sacrifices now, you will be able to make a positive impact on your long-term financial security. Eventually, you will find yourself practicing good money habits rather than allowing the old money habits to dictate how you live your life.
2. You don’t have an emergency fund
Did you know you should have an emergency savings account that is separate from your other accounts with a specified amount of funds?
Unexpected expenses can derail a sound financial plan quickly if there are no emergency savings in place.
Your emergency fund should have at least three months of expenses in reserves. Six months of reserves are ideal. This allows you to have a budgeting tool to be ready when the unexpected occurs so that you don’t find the need to rack up credit card debt again.
Once you have your emergency fund in place, there is no need to keep feeding it. Just be sure to keep an eye on the balance and keep it topped up for those unexpected expenses.
3. You know to save money, but how much money?
A rule of thumb is to save 20% of your income. This amount may not be enough or might be too much given your financial goals and current situation.
Before you start putting aside 20% of your net earnings as savings, you should assess how you can curb or eliminate any of your bad money habits first. Start by reviewing what your net income is and realistically what your living expenses are and work to make the proper adjustments.
Then it’s time to make a budget once you know what your expenses will realistically be. You still want to live a full life while you’re achieving your financial goals, so only you can determine whether that is truly feasible.
You calculate a reasonable savings goal that you can live with or a percentage of your income, then reduce expenditures anywhere and everywhere that you can while increasing your revenue until you reach your goal.
Another good money habit is to set up automatic deposits into your savings account for a set amount each month that will be deducted as soon as your paycheck hits your bank account. That way there you don’t have to worry about being tempted to cut corners on your commitment to boosting your savings. Setting up this type of automation is a great way to achieve your goals.
4. You’re overlooking money-saving tax breaks
A good financial advisor can assess your financial situation and can guide you on the best tax break opportunities while also making sure you are utilizing the proper financial products for your particular income and situation.
Hire a very good CPA who can help you find the right amount of deductions and exemptions so that your withholdings help you meet your goals.
You also want to confer with your financial advisor on all of the tax-advantaged products available to you such as IRAs (individual retirement accounts) and a 401(k) and SEP accounts if you’re self-employed. Ensuring that your savings and retirement accounts are helping to build your wealth should be your top financial priority.
One way you can start building your wealth is to begin passively investing in real estate syndications. It’s also a great way to become eligible for the tax benefits that only the ultra-wealthy qualify for. Learn more about this investing in real estate syndications by signing up for the PCRP Group Investor Club. It’s free!
5. You’re unsure how to evaluate risk
Investing is the way to have your money work for you. Financial experts will tell you that diversification when investing is key to mitigating any risk.
Investments such as stocks can be on the risky side, but many people are diversified in some way into stocks. You just want to avoid putting all of your money into one asset class. A good alternative can be exchange-traded funds or mutual funds, which can pose less risk than individual stocks.
A great way to build your wealth is through real estate. If you have funds available, you could invest in real estate such as a small rental property or you could invest as a limited partner in a real estate syndication. Investing in real estate is an effective way to gain the tax benefits that real estate provides while also building your net worth.
Real estate also comes with other advantages that many other investments don’t have such as cash flow distributions, appreciation and equity, and enormous tax advantages not to mention the opportunity to make a positive impact on communities with just one investment. All investments, real estate included, pose some risk so you will always want to conduct your own due diligence before making any investment.
6. You’re taking early withdrawals from retirement savings
You want to avoid ever tapping into your retirement accounts and using them in any way that would deplete them. A retirement account is just that – an account to be utilized in retirement as just one of the vehicles that will provide you financial stability when you have stopped working.
When you prematurely withdraw funds from your investment account, you risk losing out on the growth that those investments likely would have provided you, and will take a longer time for you to rebuild.
Taking loans out early on your 401k will jeopardize your investment strategy, derail your retirement plans, and will almost certainly lead to your inability to retire early. You may have a false sense of security that you have the time to rebuild the account if you start taking funds from the account, but that is not a good idea – it will set you back from reaching your goals.
7. You need to exercise patience with diversification
Don’t be tempted to react to market fluctuations. Have patience and don’t start panicking if you start to see your account balances dip. Stay the course and remember you’re in this for the long haul – that’s what markets do; they gyrate, so don’t start adjusting your portfolio. Be patient.
Individuals with sound money habits understand that markets move in the short term but will steadily bounce back over time. Staying focused on the end game can be challenging, but your commitment will pay off to secure your future financial health.
If you want to learn more about investing and managing finances, the best way to do that is to join the PCRP Passive Investor Club. We will provide you with useful tools and insights on a regular basis that will elevate your financial well-being. We at PCRP Group can help you get rid of your bad money habits and help you start implementing more empowering financial habits so that you can live a life by design.
It’s time to begin learning new money habits that will propel you to your financial goals. The PCRP Passive Investor Club is here to help you achieve those goals by providing you with the resources and education you need to build wealth.
Remember, I’m not a CPA, nor am I a financial advisor so I’m going to advise you to always talk with a tax and or financial advisor before making any financial decisions. I do hope this has spurred your interest in learning more about all of the amazing benefits that real estate investing has to offer you.
Until next time, Earn Passively & Live Abundantly!
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