Achieving financial freedom and building savings is becoming more challenging in a volatile economic market. We delve into six common ways you could be hurting your bank balance
There are a number of poor financial habits that can keep you stuck in a cycle of living paycheck to paycheck and that are preventing you from reaching your financial goals. Here we take a look at six common bad money habits that might hold you back and hinder your path to financial freedom.
1. Failing to budget
Number one on the list of major money mistakes is the failure to establish and adhere to a budget. When you lack a budget, it becomes easy to overspend and lose sight of your spending patterns. Crafting and staying committed to a budget allows you to identify areas where you can reduce unnecessary expenses and channel those resources towards achieving your broader financial objectives. While it can be a daunting task to begin with, there are many resources that can help you to take control of your finances, including our guide to family budgeting.
2. Spending more than you can afford
Coming in at number two is the all-too-familiar blunder of spending beyond your means. This unfortunate habit can rapidly lead to debt and financial strain. If you find yourself frequently depending on credit cards or loans to cover expenses, it may be time to reexamine your spending patterns and seek opportunities to curtail spending while finding other ways to boost your income.
3. Not planning for emergencies
Ranked at number three in our list is the failure to set aside funds for emergencies, which can significantly impact your financial stability. Unforeseen expenses like car repairs, medical bills or home upkeep costs can swiftly deplete your savings and lead to debt. Ideally you should aim to work towards building an emergency fund equivalent to at least three to six months' worth of living expenses. Having this cushion will provide you with the necessary financial security to navigate through unexpected challenges with peace of mind.
4. Ignoring debt
At number four, we have the detrimental habit of neglecting debt, which will at best hinder your financial progress and at worst, lead to serious financial problems down the line. Ignoring high-interest credit card debt can lead to a snowball effect, where the amount you owe keeps growing due to accrued interest. It's crucial to take action and develop a plan to pay off your debt as swiftly as possible. Begin by focusing on the balances with the highest interest rates, gradually working your way towards financial freedom.
5. Not planning for retirement
Number five on this list is the failure to prepare for retirement, which when not addressed can impede your financial well-being later in life. Neglecting to establish a retirement plan may leave you with insufficient savings to sustain yourself during your golden years. It's essential to start saving for retirement as early as possible and to seek guidance from a financial advisor to craft a retirement plan tailored to your aspirations. If you’d like to learn more about planning for retirement, read our guide here.
6. Choosing not to invest
Last on our list is the habit of not investing, which could hold you back from achieving financial independence. While saving is vital, investing those savings can provide you with an opportunity to grow your money and build wealth over time even after you’ve retired. It might be beneficial to team up with a financial advisor who can help you create an investment plan tailored to your goals and risk tolerance. By taking this step, you can unlock the potential of your finances and work towards a prosperous financial future.
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