Getting your finances in order can sometimes feel like going on a grueling new diet.
We know we should be paying off debts, starting to save, and learning to maintain that good behavior for the long term. But there are some bad habits we just can't seem to drop.
On a recent Reddit thread, candid consumers answered this question: "What's the biggest mistake you repeatedly made before you got your finances in order?"
Here are some of our favorite responses, along with tips on how to avoid them yourself.
1. " Went from a practically paid off new car to new car with $25,000 in debt."
The minute you drive off the lot, your shiny new car starts losing its value. Within a year, it shaves 30% of its resale value, and 50% by year three, according to Edmunds.com.
Our tip: We don't recommend picking up a $1,000 clunker on Craigslist. Instead, try to buy a relatively new car (1-3 years old) that doesn't have many miles on it and is well-maintained. And if you're looking to trade up, compare the cost benefit of trading your current car in for the newer model. When you see the difference in monthly payments, you may realize you don't need a new car – you just want one.
Reddit tip: "If you are going to drive it for many years, I don't see a new car as a poor financial decision. What will ultimately cost a person a lot of money is constantly changing cars due to taxes, fees etc."
2. " I could easily spend $20 on coffee [every] week."
Ditching your daily coffee habit won't exactly make you a millionaire (no matter what some experts say), but it can certainly put a few hundred bucks back in your pocket each year.
Our tip: We don't expect anyone to give up coffee cold turkey. Instead, ease into a "cafe lite" lifestyle. Brew your own coffee at home, and if you still miss that fancy $5 latte, invest in an espresso or cappuccino machine.
Reddit tip: " I bought at $50 gift card for Starbucks months ago. This way, I account for the cost once and on the rare occasion I go to Starbucks, I don't have to think about it."
3. "O rdering drinks while eating out."
Walking into a bar with a budget problem is like sending a diabetic into a Dunkin' Donuts. Temptation abounds.
Our tip: Happy hour, happy hour, happy hour. And if you must socialize on weekends or late nights, just have one drink, sip slowly, and order a nice fizzy seltzer water with lime for the rest of the evening. You won't feel weird not toting a drink that way.
Reddit tip: " What I do is go out to eat, have a water or iced tea, then when I get home I enjoy my beer."
4. "Getting caught in the credit trap."
It's all too easy to fall into the credit trap – the vicious cycle of spending more than you earn.
Our tip: Don't spend it if you don't have it. Paying your credit card bill in full each month will be a huge weight off your shoulders and send a message to lenders that you're trustworthy enough for lower interest rates and higher spending limits, which will do wonders for your credit score.
Reddit tip: "Y ou have to budget some joy and fun. You don't have to be stupid about it, but you need to enjoy (at a responsible level) your life to some degree. So be frugal, but do set aside something for you on a regular basis."
5. "I had no emergency fund. Every emergency went on a credit card ."
Credit is there for times of emergency, but it should never be your first line of defense.
Our tip: Start putting away a portion of your pay each pay period into a fund designated for emergencies. We recommend at least six months worth of living expenses (including rent, food, etc.), though most experts say $1,000 is good enough to handle most pressing emergencies.
Reddit tip: " There is no way I could justify putting a true emergency on [credit] without the actual cash funds to pay it off immediately. To me, an emergency isn't "Oh oh, I don't have enough money in checking to buy this thing I want, so I'll take it out of my emergency fund." An emergency is, "S---, my roof just caved in from too much snow, and [my insurance] is only going to cover 10% of a $10,000 bill!"
6. "S elling out of the stock market because I was sure it would fall back down after a long period of increase. "
When it comes to investing, emotions often lead consumers astray, especially during times of heightened financial insecurity, like the recent recession. Everyone panicked a little during the financial crisis, but the 1.6% of pre-retirees who abandoned equities altogether lost out big.
Pre-retirees (age 55 or older) who dropped stocks from their 401(k) by the first quarter of 2009 and never rebalanced have seen their balances grow by only 25.9% through the first quarter of 2013, according to a new report from Fidelity. Their average balance rose during this period from $80,200 to $101,000.
Our tip: There's no such thing as a sure thing when it comes to investing, which is why you're better off leaving the day trading to the professionals. There's far more to be gained by simply investing in a low-cost index fund that tracks the market and letting nature take its course, so to speak. That doesn't mean you shouldn't consult a professional advisor or planner from time to time or rejigger your investments as your life situation changes, but if you react to every ebb and flow of the market or listen to market gurus on cable TV, you'll only be setting yourself up to lose down the road.
Reddit tip: " The stock market is not a zero-sum game, and it is impossible to determine when it is going to fall back."
7. " Overdrafting my account. "
There's no reason for anyone to waste money on overdraft fees, and yet they are a multi-billion-dollar revenue source for big banks. The average fee is $27, which if done regularly can really add to your monthly expenses.
Our tip: Set up automatic balance alerts to your smartphone or email. If you are constantly reminded of your balance, there's less chance that you'll overdraft. And if you are enrolled in overdraft protection with your bank, you might consider dropping out. The bank will allow transactions to go through if there are insufficient funds, but you'll pay the price for it in fees. Dealing with the embarrassment of getting a purchase declined at the store might be worth it.
Reddit tip: " I've never overdrawn my checking and I don't keep a single receipt. If you're coming so close to overdrawing your account that you actually need to write out all your charges and figure out if pending transactions will be ok, then you just need to stop spending money until your next paycheck. "
8. "Eating out during work instead of keeping stuff there. So. Much. Wasted. Money."
You could save thousands of dollars each year by skipping that $10 salad on your lunch hour. And yet, it's one of the hardest bad money habits for people to break.
Some people just use lunch as an excuse to take a break from the office. Others are simply too lazy to prep meals the night before.
Our tip: Skip the 'break' excuse. Go for a long walk in the park and bring your homemade lunch along.
Reddit tip : "Usually I'll take a trip to the grocery store every other Monday for my lunch break ... Winter time is all about the pre-made soups. I'll make a huge heap of bean soup or something, bring about a [week's] portion and freeze the rest. Thaw out some more on Sunday and repeat."
9. "Taking out loans to pay for my Master's degree."
As tuition costs rise, many students are finding themselves deep in debt without a way to pay back student loans. At that point, graduate school seems like a safe bet – you'll get a break from searching for a job, and your degree will make you more marketable down the road ... right?
Our tip: Wrong. Before you go back to school, calculate your debt burden to get your estimated debt upon graduation. Is it worth shelling out tens of thousands of dollars for a degree in a field that is notorious for low-paying jobs? And if you're going back to school just because the job market is rough, all you're doing is increasing your debt burden in the process. If it's something you're truly passionate about pursuing, carefully shop around for programs that are the most affordable for you and boast a high employment rate for graduates.
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