Position yourself for a better financial future by breaking these harmful money habits (Photo by... [+]
The New Year is upon us, which means like a lot of people, you might be taking a good hard look at your financial life and vowing to spend less and save more this year. Really. This is the year.
However, since bad habits can derail even the best of intentions, it pays to look at the routines you've developed in dealing with your money. You might find that you're doing some things on autopilot that are terrible for your wallet, without really realizing.
"People with good habits are predisposed to make good financial decisions, and conversely those with bad habits are predisposed to make bad financial decisions," says behavioral economist Hersh Shefrin.
With that in mind, here are five harmful money habits to break in 2016:
1. Sticking strictly to minimums. If you've settled into the habit of just paying the minimum amount due on your credit cards, you've probably gotten used to regularly charging more than you can pay back. Remember that by sticking to the minimum, you'll fork over interest on the balance you're carrying from month to month. Credit cards have notoriously high interest rates, too.
Consider that the average American household has $15,355 in credit card debt and if they only paid the minimum each month, it could take them as long as 44 years to wipe it out, according to a recent study by NerdWallet. You could also be hurting your credit score by maintaining a high balance. So, instead, aim to charge only what you can pay back in full each month.
It's no fun to put last night's dinner on a credit card and be paying it off for the next two years anyways, says John Sweeney, who oversees retirement and investing strategies at Fidelity.
Similar logic goes for payments on student loans, auto loans and mortgages. Your first priority is to make sure you're paying the minimum monthly payment on time each and every month. If you're comfortably doing that, see if you can up your monthly payment. You'll wipe out the debt faster and pay less in interest over time. Crunch the numbers in an early-payoff calculator (like this one) to see how much you'd save.
2. Frequently checking your investments. Another bad habit to break is regularly stealing a peek at your portfolio. When you're investing for the long term, the best thing you can do is leave your money alone and let it grow. By peeking at your investments every time the market moves or you see an alarmist headline, you'll only be more tempted to move your money in or out of the market. Remember: trying to time the market is a fool's errand. For some peace of mind, consider that there has been no 20-year period going back to 1926 in which you would have lost money by investing in the S&P 500 and reinvesting your dividends -- even after inflation.
Stick to rebalancing once per year, instead, just to make sure your asset allocation is still where you want it.
Meet the superstar savers, ordinary people who accomplished amazing financial feats—like retiring at age 30.
3. Spending reflexively. You know you've been there. You go into a store to pick up one thing and walk out an hour later with your arms full. This happens time and time again. Before you know it, you have multiples of the same thing sitting in your pantry, because you forgot if you had cinnamon and picked one up just in case. Sometimes it's good to stockpile. Sometimes it just means things will go to waste.
The remedy, simply put, is better planning. "If you didn't know you needed it before you walked into the store, you probably don't need it," says Gretchen Cliburn, director at BKD Wealth Advisors. She suggests sticking to a list or leaving credit cards at home if you know you'll be tempted to spend.
It's also easy to get into the habit of spending on certain things (magazines, Seamless delivery) and in certain scenarios (on your way to work, every time you hang out with a particular group of friends). Try a brief spending hiatus to figure out your triggers and if you really miss the things you've stopped paying for.
4. Making too many decisions. If you haven't automated your savings -- not just into your retirement kitty but also for short-term goals, like next summer's vacation -- you've put yourself in the position of having to frequently make decisions about your money.
"You're sitting down at the end of each month and saying 'Well, how much do I have left? What do I save this month? For what?'" says Stuart Ritter, a financial planner at T. Rowe Price. "It's way too many decisions."
Instead, pay yourself first. By automatically putting part of each paycheck into savings, you'll get used to living on what is leftover. That means fewer decisions and time spent thinking about how to save and spend.
5. Telling yourself you'll get to it later. Have you gotten in the habit of pushing off that decision about life insurance or your old 401(k)? Or regularly telling yourself that next week you'll finally research your investment choices or that new budgeting app your friend mentioned? Time to break that cycle of procrastination. Before another year passes, commit to getting it done.
Shefrin suggests telling a friend you admire, who you want to admire you, to keep the pressure on you until you do what you need to do. He also suggests: "Think about something you really want soon. Then deny it to yourself until you face up to the money decision you have been putting off."
This is part of a two-part series. Also read: 5 Powerful Money Habits To Form in 2016
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