Our money habits operate in the background, but they influence our long-term wealth. While adopting good money habits like saving and investing can be beneficial, there are also a bunch of bad money habits that you should avoid.
Financial guru Vincent Chan recently laid out five bad money habits that keep people poor. These habits result in fewer people saving money and not having enough when they approach retirement. Chan outlines the dire nature of the situation while presenting some solutions.
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“The average savings rate in the U.S. is 4.6%,” Chan explains.
Make sure you are avoiding these red flags as you work toward your long-term financial goals.
Most People Spend First And Save What’s Left Over
Chan starts the list by describing how most people manage their money. People are usually inclined to spend money and then view saving as an afterthought. This mentality can lead to dangerous credit card debt and shrink your nest egg.
Chan recommends that you approach your finances with the 80/20 rule. You should save at least 20% of your money and spend the remaining 80% on necessities and discretionary items. However, you can gradually boost your savings rate above 20% if you find yourself in a position to do so.
Reaching 80/20 will require that you cut back on some expenses. You may have to abandon unused subscriptions and take a closer look at how you spend money. Avoiding impulsive spending and establishing a budget can help you stick with the 80/20 rule.
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Not Investing Early Enough
Warren Buffett made 99% of his wealth after his 50th birthday. Chan brings up this detail while encouraging people to invest early and often.
Compound growth can work wonders and move you closer to your goals than earning a salary and stashing your money in a checking account. While bank accounts have their value, it’s important to regularly invest your money into assets like ETFs and mutual funds. Real estate is another viable option, but it can take some time before you have enough capital to invest.
Letting Credit Card Debt Build
Compound growth doesn’t only work for investments. It also applies to credit card debt, but if you let your lingering balance compound for too long, it can put you in a tough financial position.
To remedy this, Chan recommends only using your credit card for purchases if you have enough cash to cover them. You shouldn’t carry a balance at the end of each month. Instead, you should pay it in full.
If you are not in a position to pay off your balance each month, make sure it’s getting smaller at the end of each month. Don’t let credit card debt grow even more than it already has. If you let it grow too much, it can become unmanageable and lead to bankruptcy.
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Not Tracking Your Money
Review your monthly credit card statements and keep a spreadsheet that details your monthly income and expenses. Chan says that it’s a big mistake not to know where your money is going.
By monitoring your finances, you can discover new opportunities to save money. Once you set up the systems, it’s very easy to stay on top of where your money goes.
Not Saving Enough Money
Most people don’t save enough money in the U.S., especially with the average savings rate hovering at 4.6%. You can cut expenses to boost your savings right away, but you will eventually have to prioritize income growth.
Someone who is only saving 4.6% might be able to get to a 5% to 7% savings rate with a few changes to their budget. However, you will only get to a more desirable savings rate that is above 20% if you increase your earnings. You can grow your income by asking for a raise, job hopping, working more hours, or picking up a side hustle.
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This article Vincent Chan Reveals The Five Money Habits That Keep People Poor: ‘The Average Savings Rate In The U.S. Is 4.6%’ originally appeared on Benzinga.com
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