Experts advise not to be guided by emotions
- Loans to family and friends can damage relationships and pockets
Bad habits related to money can be exceptionally difficult to break since in many cases they are associated with a problem of ignorance about personal finances.
Even when we have the best intentions and a strong financial plan, these ingrained rituals will take us out of our way. For this reason, MarketWatch has published a list of the seven bad economic habits that we must break.
1.- EMOTIONAL SPENDING
Using purchases to deal with other problems is usually common, but emotional impulses do not fix anything
Using purchases to deal with other problems is common, says Gretchen Cliburn, director of financial planning for BKD Wealth Advisors, in a statement to MarketWatch. But emotional impulses do not fix anything, but, on the contrary, tend to make things worse.
To avoid making impulsive or emotional purchases, a series of basic rules must be established. For example, buy things only from a ‘wish list’ that you have previously done in a quiet moment, not when you try to distract yourself from anxiety or sadness. It also advises waiting 24 hours before going ahead with an unplanned purchase.
2.- PAY MONEY
Although it is admirable to give help to others, leaving money to friends and family can damage your pocket and your personal relationships. It can be difficult for the other person to return the loan, which could create conflicts and resentment.
Instead of offering a loan, there are many ways to help a friend in a situation of need and maintain your relationship: find ways to help your friend find solutions to their problems that do not involve giving money. For example, you can offer to take it until the car is fixed or suggest ways to reduce your expenses.
If you still want to offer money, consider it a gift. This way, you will not feel resentful when your friend buys clothes and shoes instead of giving it back to you. If you can not afford to give money as a gift, it is better not to lend it.
3.- ALWAYS PAY THE ACCOUNT
For some people, being able to pay for a friend’s dinner or a round of drinks is a source of pride. But if you are going to go into debt or a very large expense, you have gone too far and can cause your family and friends just want to go out with you because you invite them.
4.- COMPARE YOUR FINANCIAL SITUATION WITH THAT OF OTHERS
Many people measure success by the size of their homes or the cars they drive, but this assumption is false. Big houses and expensive things only indicate how some choose to spend their money, not how much they have, says Cliburn.
The first thing is to determine what is important and set goals to ten, twenty or even fifty years. Maybe you want a house in a certain area or a comfortable retirement. “Once you’ve identified what is most meaningful to you, make spending decisions based on it,” he recommends.
5.- SPEND ALL YOUR INCOME
Everyone has to pay bills every month, but it is up to each one to decide what they spend the money that remains. Choosing to spend everything can easily become the norm, which usually means that there is no cushion for contingencies or retirement savings.
When someone spends everything they earn, they usually do not have a budget, says Derek Gabrielsen, an adviser to Strategic Wealth Partners, who calls this behavior “the big mistake people make.” Thus, he recommends writing a budget that includes monthly provisions for emergencies and for retirement.
6.- DEPENDING ON CREDIT CARDS
At the end of 2015, the debt of the Americans with the credit cards reached 900,000 million dollars, according to the analysis of CardHub from the data of the Federal Reserve. If you have become accustomed to living with debt on your credit card. To break the cycle of indebtedness, one must stop using credit cards and mark a strict budget.
7.- IGNORE THE OBVIOUS
If you avoid looking at your credit card charges or checking account balances, you are living in an ‘economic coma’. You may think that, if you really do not know how bad it is, the problems will go away, but it is not true.
It’s time to ask for help from friends or family, a counselor or a financial planner to evaluate your financial situation and develop a plan for you. To begin, make sure you know the amount of debt you have or your monthly commitments.