5 Bad Financial Habits You Need to Break

Assorted letters with past due notices
Garry Gay/Alamy

By Geoff Williams

If you want to make extra money, you might consider getting a second job or paring back your budget. Both are smart strategies, but first consider whether you have any bad money habits you need to curb. After all, if you're always paying bills late and getting hammered with late fees, that may be what's draining your bank account.

So if you're the reason your money never seems to stick around, here are some strategies to help break five bad financial habits, culled from research and interviews with members of the National CPA Financial Literacy Commission.

Paying bills late. Late fees can be as much as 10 to 15 percent of your monthly bill. If you're frequently late with most bills, you're probably spending 10 percent more each year on bills than you should. And if you're constantly late with some bills, like credit card payments, the credit bureaus are probably taking note and dinging your credit score.

How to break the habit. It sounds so easy: Pay on time. But it isn't easy if you're living paycheck to paycheck, and you never have enough money on hand.

If that's the case, being more organized will help. Clare Levison, a certified public accountant in Blacksburg, Virginia, suggests setting up calendar reminders through your email or phone to alert you when bills are due. If you have ample money but are just forgetful, she says, "you might also consider setting up auto pay so the bills are paid automatically from your bank account each month."

%VIRTUAL-WSSCourseInline-762%You could also do it the old-school way, says Armando Roman, a CPA in Phoenix. "A simple, old-fashioned way to budget is to put money into different envelopes for specific purposes," he says. You put cash in the envelopes the moment you have it and "after each envelope is filled on each payday, the money left over is what the person can spend until the next payday."

If it's only one or two bills you're paying late, contact the company and ask for a new monthly due date. It's worth a shot.

Getting hit with bank fees. Every fee you pay your bank for having insufficient funds in your account is money you could have spent on yourself or your household. If you rack up three bank fees a month at $36 a pop, that's $1,200 a year you could save by ending the overdraft fee madness.

How to break the habit. If you're constantly collecting bank fees, it's probably due to a lot of reasons, from not making enough money to overspending. If it's a joint account, you may be communicating badly with your spouse about how the money should be managed.

Analyze everything you're doing to pinpoint the culprit. And don't be afraid to consult your bank manager, who might go easy on you and reverse some recent fees. The manager might also have some practical suggestions for curbing your fees, like opening a savings account so if your checking account goes into overdraft, money would be pulled out of savings.

There are often fees to that approach, too, but smaller fees -- and there's also the matter of funding the savings account.

Taking out a loan for everything. If you're putting daily purchases on credit cards and not paying them off every month, or if you're taking out payday loans or drawing on a home equity loan, you're collecting more interest every month and digging a financial hole.

How to break the habit. Like collecting bank fees, you need to do a financial exam to see exactly where you're going wrong. But you would help yourself a lot if "whenever you get paid, pay yourself first," says Ernie Almonte, who owns an accounting and consulting firm in Providence, Rhode Island, and is the chairman of the National CPA Financial Literacy Commission. "Set aside an amount, automatically deducted from your pay, to set up an emergency fund. Start with a small amount and build from there."

Almonte adds that if you could put away $10 a week, you'd have $520 by the end of the year for emergencies. Of course, the problem for a lot of people is that financial emergencies crop up every few months or so. Still, if you can create your own cash stash and borrow from that instead of borrowing from a lending company that will charge a high interest rate, you'll be far better off.

Overspending. This leads to just about every financial problem and bad habit, from mounting debt to feeling like you need to take out a loan -- to pay for the loans you already have.

How to break the habit. Your overspending problem may be due to a lack of clarity on how much money you have to spend. Almonte suggests keeping track of your expenses online or with an app on your phone.

Mint.com is one of the most well-known personal finance management tools, but there's also LearnVest.com, Manilla.com, DailyCost.com, Toshl.com, LevelUp.com and Checkme.com (to name a few). Luckily for the financially beleaguered, many are free.

You could also try to delay your purchases. For instance, if you're buying something online, Almonte suggests leaving the purchases in the shopping cart. "Wait a couple of days and ask yourself if you still need or want this item. I started doing this a long time ago and most times, I don't make the purchase," he says.

Spending money as soon as you get it. Spend your paycheck without thinking things through and putting savings aside, and you'll never have money on hand when you need it.

How to break the habit. Break all of the other habits first. You're probably spending money quickly because a bill is due, or overdue, and hanging onto it isn't an option.

Or perhaps you've been going without something for so long that you're grateful to have a little money in the bank, and you can't help but spend it. But if that's the case, it's quite possibly because you're paying bills late, collecting bank fees, taking out a loan for virtually everything and doing a lot of overspending. In other words, break your worst financial habits, and you'll stop breaking the bank.

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