There is no question that creating savings is important for your future. But there are a variety of financial pitfalls that anyone can end up falling victim to. These pitfalls are dangerous because they can drain your savings and create financial stress for you over time. Often times we fall into these habits without noticing the long term consequences, and what we think is a normal part of our lives is really a behavior that is draining money straight from our pockets. Today we overview 7 of the most prominent pitfalls, and how to avoid the vicious cycle that can result in bankruptcy…
1. The Party Animal: This person spends most of their money each week on trips to the bar or to the grocery store for party supplies. He/she doesn’t hesitate to buy a $12 mix drink or 8 bottles of wine for house guests. Sure, it’s great to be social, but if you’re picking up a $50 tab 5 days a week, or spending close to the same amount at the grocery store for a social gathering, you can quickly find your finances dwindling. Try to limit yourself to only one or two trips to to bar each week (or less), and if you’re going to host guests at your house, consider doing a potluck instead of buying everything on your own.
2. The Shopaholic: This person is obsessed with buying new things. As soon as they make a pay check, they go to the store to spend it. While it’s always nice having new things, it’s important to keep your purchases in moderation. If you find yourself spending your paycheck on unnecessary items, try to create a limit to how much you spend on such items each week. If you want something more expensive than your limit, consider waiting a few weeks before you buy it. Be sure to set your limit in such a way that you still have enough to slowly grow your savings, and enough for essentials like food and utilities. Also remember to ask yourself if you really need what you are buying before you buy it. If you don’t need it, do you want it badly enough to take from your spending limit or save up for it?
3. The Diner: We all love food, but this person goes out to eat every night of the week and hates the thought of cooking for themselves. Going out to eat can add up, especially when you are doing so for 2 or 3 meals a day. Going to a restaurant can be a great reward for a hard weeks work, but it isn’t a reward at all if you end up with no savings. If you find yourself going out to eat frequently, try to find places that are more affordable but still enjoyable to you. Also try to set a limit to how much you will spend each week on eating out so that you still end up with some savings at the end of the week. Finally, go buy some kitchen supplies and get excited about cooking! Nothing can save you more food money than cooking for yourself.
4. The Procrastinator: This person works only the minimal amount that they can without ever striving to create more income for themselves. If you are satisfied with your salary, you will never make more. If your job only demands a little bit of time, and you find yourself with free time on your hands, consider using that to your advantage. It’s always good to have off time, but it’s also important not to have too much off time. If you find a lot of time each day where you are sitting on your couch and doing nothing, consider alternative work opportunities like freelancing, or perhaps taking a 2nd day job. Remember, while it might demand energy right now, creating more savings will give you more freedom in the future.
5. The Gas Guzzler: This person drives all the time without achieving much. Driving is fun, but gas prices and car prices are too high to go on joy rides every day without any real practical reason. If you want to go on joy rides, try to limit how many you do each week. If you commute to work, try to think about what you can get done while you are out. If you get groceries and gas during your commute, then you could be saving on gas in the long run. So before you drive anywhere, make a list of things you can do while you are out. There is something to be said for hitting multiple birds with one stone. Lastly, invest in alternative transportation! A bicycle can save hundreds of dollars in gas, and so can your own two feet.
6. The Borrower: This person is addicted to borrowing, whether that be from friends or from a bank or agency. While friends can be more forgiving, borrowing from a bank or agency could create insurmountable debt that ends up debilitating you in the future. Alternatively, if you borrow from a friend, it can create tension and sometimes ruin a good relationship. If you find yourself borrowing frequently, make a point to pay off your debts as quickly as possible, and make a note on your calendar for when those payments will take place. Also ask yourself if you really need the money you are borrowing. Is the money to feed your family, or is it to try a new business venture? If it is the ladder, you might want to wait until you have saved up the money on your own before you pursue the business, despite what your ambition may be telling you.
7. The Lender: This person has such a kind and empathetic heart that they find themselves giving out money to their friends on a regular basis, and often times that money never ends up being paid back. It’s important to be there for your friends, but be sure to evaluate what your friend is asking for before you help to give them a leg up. Is your friend borrowing from you to go out to eat, or are they borrowing from you for a vital healthcare bill? Are they borrowing because they fall into one of the financial pitfalls listed above? If the answer is yes, it probably is best to give your friend tough love and not lend them money. If you do end up lending money, be sure to write out an IOU and put a reminder on your calendar for when your friend agrees to pay it back. It can be really easy to forget you lent money, and to never see that money again.