8 Habits That Hit You in the Checkbook
Our days are filled to the brim with habitual behavior. I bet by the time you get in your car to go to work, you’ve already done upwards of 20 things strictly out of habit. It’s mostly innocuous stuff like making a pot of coffee or hanging your towel on the bedpost, but the actions are absolutely born of routine behavior.
Habits have equal ability to help or hurt us. Subconsciously checking your blind spots when driving serves you very well, while constantly checking your phone while driving has the potential to be a deadly inclination. Whether good or bad, most people will agree that habits don’t break easily. Changing decades-old and regular behavior takes a fair amount of effort, and lots of people feel like it isn’t worth the time.
Not only are habits hard to break, but it requires some self-assessment to identify them in the first place. This certainly holds true with bad financial habits, as most of them go on undetected for years, costing hundreds or thousands of dollars as the months fly by. Some of this repetitive spending comes from behavior that feels necessary; some of it hides in the shadows with recurring payments or tangential fees associated with other expenses. In either case, lots of money leaves your bank account with predictable regularity.
When we correct this kind of habitual spending, it makes a drastic difference. However, it’s not easy to stop certain purchases cold turkey. You need to develop the ability to distinguish between needs and wants, and you have to commit to changes that might test your patience.
If you think you have a spending problem but aren’t exactly sure where the money is going, here are some of the areas where we tend to waste the most. As you look over this list, remember you need to be honest about your habits if you want to have any hope of breaking them.
1. Wasting Food
It’s widely accepted that people throw out a lot of food, either in the form of oversized portions that don’t get finished or homecooked meals that spoil before getting eaten. However, very few of us pay attention to how much we waste with each of our daily meals. According to a recent survey, the average American throws out 20lbs of food each month. That’s like throwing out 20 quarter-pound cheeseburgers, fixings and all, each month.
If reducing food waste were easy, we’d all be doing it. Unfortunately, dozens of factors are at play each time leftovers get scraped into the trash. If you eat at a restaurant and get a massive portion, it’s not a healthy choice to eat everything just so it doesn’t get wasted. When you buy produce at the grocery store, you can’t guarantee how long everything will last. Food spoils and our bellies get full, and those realities aren’t easy to prepare for ahead of time.
What can be done to save money and waste less? Cut back on the habitual purchases that, upon further inspection, don’t get used efficiently. Meal deals at fast food restaurants don’t actually count as deals, especially when you pay for more fries and soda than you actually need. Value packs at the grocery store might have a per-ounce value, but if you spend more on a bigger box of cereal that ends up going stale, you haven’t saved a dime.
With dining out, a big waste of money and food is bringing home leftovers you pretend you’re going to eat. Some people are great at turning one dinner into three feedings, while others love stuffing the fridge with boxed leftovers that sit untouched until the food starts to smell. If you hate reheating food, force yourself to order a smaller plate. Less spending, less wasting, less funky odors wafting out of the fridge.
2. Buying Cheap Goods
Just like the value box of cereal, some products tempt us with bright red tags advertising massive bargains. Electronics, furniture and clothing can always be found at a discounted rate, but those items don’t always make for good purchases.
Short-sighted savings make us feel fiscally responsible, which is why it’s easy to develop a habit of bargain shopping. The problem is, you fall into a cycle of buying “bargain” goods to replace the last “bargain” item that immediately fell apart or stopped working.
It’s easy to see this play out with a big-ticket item like a car. Buying a $2,000 used car saves money when compared to buying a $25,000 new car. Buying a $2,000 car every two years does not make sense when compared to buying one new car you can drive for 20 years. When you’re on your third car in six years, this will probably become abundantly clear.
It’s harder to comprehend the financial impact with every day cheap items, but the effect remains the same. Cheap toys, cheap shoes, cheap jewelry, cheap glassware - all of these things need replacements far more regularly than their better made, higher quality counterparts. You just have to look at the bigger picture to understand the financial impact.
If you pride yourself on being a skillful bargain shopper, take a minute to think about how often you actually have to shop. If you’re hunting for bargains every couple of weeks, you might not be as skilled as you thought.
3. Poor Tax Planning
Lots of bad habits come from mismanaged time. I think it’s safe to say failure to plan ahead accounts for thousands of wasted dollars each year. Buying food because you didn’t leave time to cook, overpaying for a service because you waited until the last minute and prices went up, and, most of all, ignoring your taxes until your under the gun and trying to beat the cutoff date.
When you track your spending properly, you get either a big refund or a big reduction in the amount you owe. With a keen eye, you can find hundreds of ways to save money on taxes each year. And yet, because of time constraints or laziness, millions of people let the government keep or take more money than it deserves.
This is an area where people need to swap bad habits for good ones. Get in the habit of tracking mileage or keeping receipts, make sure you separate business and personal expenses, and pay attention to how you organize your records. Tax filing is as complicated as you make it, and if you stay organized it becomes much less daunting.
Your first step might be to file earlier than normal. If your tendency is to wait until late March to get started on your return, that’s a full fiscal quarter during which you probably haven’t done much record keeping for the next year. If you get an early jump on filing, you could break yourself from the habit of putting off tax matters until the 11th hour.
4. Excessive Driving
Driving to work doesn’t constitute a habit. If you have places you need to be, you have to get there somehow, and most of us don’t have an alternative to driving. Nevertheless, I promise you can drive less if you think about ways to make it happen.
The obvious answer is typically the least convenient, and that’s taking public transportation. This adds time to your day and isn’t readily available in a lot of cities. I’m not going to lie and say it’s easy to take buses everywhere you go, but that option should at least find its way into the conversation.
A more conceivable option is simply to drive less. Combine your errands, don’t run home between meetings, plot your route to shave off a few miles. Every five-minute drive takes money out of your pocket, and yet most of us just accept frequent fill-ups as the norm. If you put your mind to it, you can instantly save money at the pump.
The worst part of our habitual driving is how absent-minded it is. We get in the car, go a bunch of places, use a bunch of gas - all without batting an eye. If you spend a lot on fuel each month, being a little more mindful could solve that problem.
5. Procrastinating on Savings
The longer you put off saving money, the more hurdles appear between your paychecks and your funding goals.
In my line of work, I encounter the same story over and over. “I want to save for retirement, but before I can put money in my IRA I end up spending it on this, that and this.” As much as it may feel like you don’t make enough to save, you could probably solve the problem if you changed your habits and decided to save first and spend second.
Spending money is easy. As long as you have access to capital, you’ll find no shortage of ways to make it disappear. While things like rent and utilities are costly and unavoidable, it’s the unnecessary purchases made right after payday that usually cause the most harm. With your bank account looking flush, you don’t hesitate to join your friends for drinks after work or head out of town to stay at a B&B over the long weekend. By making those purchases, your cash situation starts to look a bit scarier and suddenly you can’t afford to hit those savings goals.
This spending pattern becomes habitual and eventually, it’s impossible to fund your IRA because you don’t make enough money. That, of course, isn’t actually true. You make enough, but you spend too much, and you don’t really know when it’s happening.
Get in the habit of prioritizing your savings. With a little extra effort put toward budgeting, you’ll drive up your net worth, pay down your debts and start to break the cycle of spending frivolously every time your paycheck clears.
6. Expensive Socializing
We are emotional creatures of habit. Therefore, it’s not surprising that our emotions put us in the position of habitual spending.
When we meet up with friends or plan events, the gathering tends to revolve around food, drink and entertainment. Asking someone to catch up at the park or on a hike puts all the pressure on the conversation, which might make you feel a little awkward. Instead, our get-togethers take place at coffee shops, bars and movie theaters. We talk for as long as it takes to finish a meal, pay the tab and end the conversation.
These social outings become regular, even turning into unbreakable traditions, and the impact it has on your wallet is astounding. When you factor in the gas you spend heading to the restaurant, the cost of parking and the tip you leave, you could easily spend $50 just to see and talk with your friend. When you look at it that way, meeting up for lunch seems like a big financial commitment.
It might feel strange at first, but you can see the people you care about for far less money. Invite them over for a home-brewed pot of coffee, or pick a TV show you watch together each week; go to a park or a museum or the library; pick any number of free activities in your area and make it a date.
If you stick with the same over-priced haunts, you could end up resentful, feeling like your friendships are hurting your finances. Before it comes to that, see if you can shake things up and save a few bucks while you’re at it.
7. Recurring Billing
Gym memberships, cable packages, cell phone bills, magazine subscriptions. Monthly charges like these are secretly - or not-so-secretly - stealing your money every month. If you weren’t so used to it happening, you would have done something about it ages ago.
People have done studies on the mental effect of having a gym membership. A huge number of people pay monthly dues to a fitness center that they hardly ever use, and yet they’re unwilling to cancel the membership because that would be viewed as quitting. Instead of spending that money more wisely - on a new tennis racket or running shoes, something that might actually get some use - these people let their debit and credit cards get hit every month in exchange for the concept of going to a gym.
The same happens with cell phones, as people panic that they’ll need more data as soon as they reduce their plans. Cable packages can cost hundreds of dollars a month, but they don’t get canceled out of the fear of losing a channel that gets watched twice a year.
I challenge you to scan your bank statement and see if you can identify every automatic payment. If something gets charged regularly and you aren’t sure what it is, find out and consider putting an end to that service. Once you get in the habit of paying for stuff you might only need on occasion, you commit to wasting lots of money on stuff you could absolutely do without.
8. Routine Buys
The most habitual of all the habits is our daily routine. Showering, reading the paper, listening to the radio on the way to work - these things are as regular as breathing. More expensive than breathing, but still mixed in with the day-to-day habits, are coffees, lunches, and more coffees.
Snacks and beverages get swept under the rug since they usually cost less than $10, but few things add up more quickly than two coffee purchases a day, five days a week, 52 weeks a year. It’s easy to justify that first coffee the day, as you stop for a cup of Joe and a breakfast sandwich on your way to work. Then, when 3 PM rolls around, you have to get another coffee or you just won’t make it through the day. I’m sure many of you identify with this type of spending, and that’s because it ranks as the #1 spending habit in America. Even if it’s just one cup of coffee a day, that adds up to about $1,200 each year.
Java isn’t our only routine purchase. There are weekend trips to the movies, weekly supplies of gum and breath mints, bi-weekly purchases of lotto tickets. All of these expenses become so ingrained into your daily and weekly routine that you don’t have any concept of the amount of money being spent.
Pay attention to what you buy. Think about which purchases you could do without. Consider ways to, if not halt spending altogether, at least reign it in a little. Don’t let your routine handicap your financial wellness.
Old habits are hard to break, but that goes for both good and bad habitual behavior. If you put time into adopting a routine that puts more emphasis on frugality, you might just adopt a whole new set of habits that help you put more dollars into your bank account. In the meantime, think about which of your tendencies might be costing you too much money, then start thinking about ways to curb that behavior.