By Sunwook Jin, CFP®, CRPC®, CMFC®
(CRPC) conferred by College for Financial Planning

New year, New you?!? Do bad money habits constrain your financial progress? Many people fall into the same financial behavior patterns, year after year. If you sometimes succumb to these financial tendencies, now is as good a time as any to alter your behavior.  Even though you can implement changes at any point in the year, there is something about the beginning of the year that sparks change.  Here are some habits you can look to break at the turn of the calendar.

#1: Lending money to family & friends. You may know someone who has lent a few thousand to a sister or brother, a few hundred to an old buddy, and so on. Generosity is a virtue, but personal loans can easily transform into personal financial losses for the lender. If you must loan money to a friend or family member, mention that you will charge interest and set a repayment plan with deadlines. Better yet, don’t do it at all. If your friends or relatives can’t learn to budget, why should you bail them out?  On a personal level, it can also create strain on the relationship.

#2: Spending more than you make. Living beyond your means, living on margin, or whatever you wish to call it – it is a path toward significant debt. Wealth is seldom made by buying possessions.  Far too common in our industry, we’ll find that people with higher incomes also have higher debt.

#3: Saving little or nothing. Good savers build emergency funds, have money to invest, and aim to leave the stress of living paycheck to paycheck behind.  Some people aren’t sure what to do so they don’t know where to start.  The key is starting.  If you are not able to put extra money away, there is another way to get some: a second job. Even working 15-20 hours more per week could make a big difference.  Even if it’s only for a short period of time, working a second job can create the financial buffer you need to not accumulate credit card debt. 

#4: Living without a budget. You may make enough money that you don’t feel you need to budget. In truth, few of us are really that wealthy. In calculating a budget, you may find opportunities for savings and detect wasteful spending.

#5: Frivolous spending.  This habit tends to be tied to #4.  Advertisers can make us feel as if we have sudden needs; needs we must respond to, or ones that can only be met via the purchase of a product. See their ploys for what they are. Think twice before spending impulsively.  A good practice is to hold off on the purchase you think you “need”.  After a week, if you still desire the product then go buy it.  You’d be surprised at how frequently you’d end up not buying the product.

#6: Not using cash often enough. No one can deny that the world runs on credit, but that doesn’t mean your household should. Pay with cash as often as your budget allows.  An exception to the rule can be if you are taking advantage of a rewards credit card.  You must be sure to pay the card off every month though to ensure you don’t pay interest. 

#7: Thinking you’ll win the lottery. When the headlines are filled with news of big lottery jackpots, you might be tempted to throw a few bucks at a lottery ticket. It’s important, though, to be fully aware that the odds in the lottery and other games of chance are against you. A few bucks once in a while is one thing, but a few bucks (or more) every week could possibly lead to financial and personal issues. 

#8: Inadequate financial literacy. Is the financial world boring? To many people, it can seem that way. The Wall Street Journal is not exactly Rolling Stone, and The Economist is hardly light reading. You don’t have to start there, however. There are great, readable, and even, entertaining websites filled with useful financial information. Reading an article per day on these websites could help you greatly increase your financial understanding.  Knowledge is power and knowing the right questions to ask when you meet with a financial planner can increase your comfort with the process.

#9: Not contributing to retirement plans. The earlier you contribute to them, the better; the more you contribute to them, the more potential compounding you may realize on any growth of those invested assets.  Additionally, if your company offers a match of any kind, be sure to take advantage of the free money your employer gives.

#10: DIY retirement strategy.  Those who save for retirement without the help of professionals may leave themselves open to abrupt, emotional investing mistakes and other oversights. Another common tendency is to vastly underestimate the amount of money needed for the future. Few people have the time to amass the knowledge and skill set possessed by a financial services professional with years of experience. Instead of flirting with trial and error, see a professional for insight.  You may know how to change the brakes on your car, but does that stop you from taking it to a licensed mechanic?

The new year commonly brings about new goals, most times in the form of a diet.  We take in to account our physical wellness and strive to become more healthy.  Do the same for your financial wellness!