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These 5 habits will prevent you from being financially secure

What does financial security mean to you? Does it mean not lying awake at night worrying about bills? Does it mean knowing that if an unplanned expense comes your way, you’ll have a means of handling it?

If you’re hoping to become financially secure, you’ll need to avoid certain habits that will stop you from meeting that goal. Here are five in particular to steer clear of.

1. Not following a budget

Regardless of your age, income level, and expenses, you need a budget to help stay on top of your finances. Without one, you’ll have a hard time understanding where your money goes month after month, and where it would make sense to cut corners.

Thankfully, creating a budget is easy, and it doesn’t take a whole lot of time. All you really need to do is list your recurring monthly expenses, factor in sporadic expenses that pop up throughout the year, and compare your total spending to your total earnings. If you find that you’re maxing out each paycheque or, worse yet, spending more than what your paycheques bring in, you’ll need to rethink your habits and start making changes.

2. Not having an emergency fund

You never know when your car might break down, your air conditioner might die, or your leg might get broken, landing you in the hospital with a whopping bill to follow. For better and worse, life is full of surprises, but if you don’t have cash reserves on hand for the unexpected, you put yourself in a position where taking on debt becomes your only option to cover those unanticipated costs.

Of course, racking up too much debt can ruin your credit score and damage your finances on a long-term basis, so rather than go that route, work on building an emergency fund. That fund should, ideally, contain enough money to cover at least three months of living expenses. For even more protection, aim to sock away six months’ worth of living costs. This will also come in handy if you happen to lose your job and it takes some time to find work again.

3. Not paying yourself first

It’s not just emergencies you should be saving for. You’ll also be better off salary sacrificing into your superannuation fund during your working years so that when you’re ready to close out your career, you’ll have money to pay the bills as a senior. But super contributions can easily fall by the wayside when life’s more pressing expenses get in the way, which explains why so many workers nearing retirement find themselves panicking that they haven’t saved enough.

That’s why it’s much better to get into the habit of paying yourself first. This means arranging to salary sacrifice a portion of each paycheque you get to automatically land in your super fund. Once you set up that automatic transfer, you’ll eliminate the temptation to spend that money, all the while boosting your retirement savings so you’re set for the future.

4. Taking on too much debt

Whether it’s a mortgage, a car loan, or a credit card balance, having too much debt can hurt you in multiple ways. First, it can damage your credit, making it more expensive for you to borrow in the future. Secondly, it can put a strain on your limited financial resources, causing you to fall behind on other obligations and — you guessed it — sink further into that hole.

A better bet? Keep your debt load to a minimum. Take on a mortgage that’s lower than the amount you’re ultimately approved for, and finance the most cost-effective vehicle for your needs. Just as important, make sure to never charge more on a credit card than you can afford to pay off by the time your bill comes due. Credit card interest can be downright crippling, and avoiding it will help keep your financial stress to a minimum.

5. Making impulse purchases

If you have a tendency to buy things on the fly, you’re in good company. An estimated 84% of Americans regularly fall victim to impulse purchases, and while it’s clearly a common habit, it’s one that can really hurt your finances. Of course, it’s hard to avoid unplanned purchases when every time you go to the store or log onto a retail website, there’s a deal or sale right there in your face. But you can evade the impulse-buy trap by following the 24-hour rule.

It’s a simple one: Whenever you get the urge to buy something on the spot, force yourself to wait 24 hours before going through with the purchase. If, after that time, you determine that the item in question is worth buying, so be it (assuming you can afford it, of course). But chances are, some of your initial excitement will have worn off and you’ll realise that you’re better off saving your money or using it for more important things.

There’s something to be said about feeling financially secure. Stay away from the above habits, and with any luck, you’ll get your financial house in order before you know it.

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Bruce Jackson is the founder of The Capital Club. This article was originally written by Maurie Backman and published here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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