11 Habits You Need to Break Before You’re Broke

This post 11 Habits You Need to Break Before You’re Broke appeared first on Daily Reckoning.

I’m all for treating myself to some of life’s luxuries, but I won’t splurge to the point where it starts to hurt my finances.

Sadly, for a lot of Americans the latter is true.

In fact, the average US adult spends $1,497 a month on nonessential items, according to a recent survey conducted by OnePoll. That’s roughly $18,000 a year on things we can all do without.

The survey revealed that the average person spends about $20 per month on coffee, as well as $209 on dinners at restaurants and $189 going out for drinks with friends.

Survey respondents said they spend an average of $91 per month for cable, in addition to $23 for streaming movies and TV shows. Music streaming services averaged $22 a month, while other apps added $23.

Even the cost of health club and gym memberships was significant, averaging $73 a month, including classes.

One interesting finding was that Amerians make an average of five impulse buys per month – for a total of $109. But, the irony is the majority (58 percent) feel there are other important things they can’t afford…hmm.

The truth of the matter is we all have bad spending habits we need to work on. Today I’m going to walk you through 11 of the worst spending habits that drive financial experts wild.

The good news is that all of these can easily be fixed…

Bad Habit #1: Keeping All Your Money in One Account

I’m always surprised when I hear someone say they only have one bank account. Physically separating your money is the easiest way to set and stick to a budget.

Here’s what you should be doing: 1) Rename your checking account your spending/depositing account. Tie this account to your debit card. 2) Open a second checking account and designate this one to your bills.

Calculate your average bill tally from the 1st to the 15th, and from the 16th to the end of the month, and transfer that amount to your bills account every two weeks. This will stop you from overspending on your debit card because you’ll have already covered your bills.

This two-account setup will save you a lot of time and money by automating your budgeting.

Bad Habit #2: You’re always searching for deals

This might sound counter-intuitive, but searching for sales can sometimes set you further back. Out of the top ten reasons cited for overspending, two include sales: discounted items or “one-time only” flash sales that typically lead to more spending. The expression, I can’t afford not to buy it, couldn’t be more true.

Bad Habit #3: Not Saving “Found” Money

Did a rebate you sent in months ago finally come in? Did someone buy you a coffee unexpectedly?

“Found” money often gets wasted. Anytime you find unexpected money, transfer that money to your savings or bill accounts. You’ll be surprised how much this adds up with minimal effort on your part.

Bad Habit #4: Having Too Many Subscriptions

You sign up for a one-month free trial and before you know it, you’ve gone 6 months without realizing you’ve been paying this whole time. Too many people pay for monthly subscriptions they never use.

Review your credit card statements monthly and highlight any subscriptions you’re not using anymore. Cancel these as soon as possible or mark the next renewal date on your calendar so you know when to cancel.

Bad Habit #5: Keeping Up with the “Smiths”

It used to be you were trying to keep up with the Joneses. Except back then, it was just your next-door neighbor. Now, in an era of social media and 24/7 news cycles, everyone is your neighbor when you turn on your phone.

Don’t subscribe to this keeping-up temptation. What you see being portrayed online is not always a true portrayal of someone’s day-to-day. Set realistic expectations for how your life should look.

Bad Habit #6: Being Too Passive

How many items of clothing in your closet do you own that still have tags on them? Returning items. Calling your cable company to get a better rate. Negotiating a bank fee. These things all take time and a little bit of effort. But it’s time and effort well spent.

A twenty-minute phone call with your internet provider, could save you $15 a month. Multiply those savings by 12 and you’ve saved $180 a year from one phone call. It’s tempting to take the path of least resistance when it comes to your money, don’t do it.

Bad Habit #7: Paying fees

Fees are something I won’t tolerate. Bank fees, ATM fees, maintenance fees, they all add up and they’re all negotiable. If you look at your bank statements and notice you’re paying a significant amount in fees, you need to stop this immediately.

Write down all the fees you’re paying on a regular basis and choose at least three to slash. You might have to threaten to switch providers or change banks, whatever you need to do to get the fee waived.

Bad Habit #8: Not Automating Your Bills

Everyone should be doing this nowadays. If you’re still getting bills in the mail, there’s a good chance you’re forgetting to pay those bills some months or your payments are late.

Use your bills checking account to pay your bills without having to think about it.

You’ll save the hassle of having to remember and you won’t have to worry about paying late fees and other penalties.

Bad Habit #9: Wasting Food

The number-one money-waster is throwing away leftover food. According to a recent study, part of the reason for this phenomenon is that people are bad at reading food labels. Food date labels like “best before” and “sell by” are largely unregulated in the US.

84% of consumers discard food near the package date at least occasionally, says the study. Among date labels assessed, “best if used by” was most frequently perceived as communicating quality, and both “expires on” and “use by” as communicating safety.

Over one third of participants incorrectly thought that date labeling was federally regulated, and 26% were unsure.

Bad Habit #10: Thinking a Budget Means “No”

When you think of the word “budget” what comes to mind? For most people, they think a budget means they have to say “no” to everything. You can’t save for a vacation, if you’re saying yes to brunch with your friends. You can’t save for a new car, if you’re saying yes to new clothes every month.

That’s not necessarily true. A budget doesn’t mean no, it just means you need to start prioritizing your money.

Think of a budget as a pecking order for where your money goes. Whatever is left after the important nuggets get covered can go toward the less important “non-essential” wants.

Bad Habit #11: Ignoring Your Daily Habits

And just because you have a monthly budget, doesn’t mean you’re necessarily aware of all your day-to-day expenditures. If you want to quickly assess your weekly spending habits, run a 10-day budget.

Notice how many small things you didn’t realize you needed to budget for. You want to do this once a quarter for a few reasons.

First, it helps alleviate the paycheck effect, where you get paid and then spend your full paycheck two weeks later. Second, you’ll pay attention to daily fluctuations in your spending and be able to make adjustments as you go.

To a richer life,

Nilus Mattive

Nilus Mattive

The post 11 Habits You Need to Break Before You’re Broke appeared first on Daily Reckoning.

10 Spending Habits That Can Leave You Broke

This post 10 Spending Habits That Can Leave You Broke appeared first on Daily Reckoning.

I’m all for treating myself to some of life’s luxuries, but I won’t splurge to the point where it starts to hurt my finances.

Sadly, for a lot of Americans the latter is true.

In fact, the average US adult spends $1,497 a month on nonessential items, according to a recent survey conducted by OnePoll. That’s roughly $18,000 a year on things we can all do without.

The survey revealed that the average person spends about $20 per month on coffee, as well as $209 on dinners at restaurants and $189 going out for drinks with friends.

Survey respondents said they spend an average of $91 per month for cable, in addition to $23 for streaming movies and TV shows. Music streaming services averaged $22 a month, while other apps added $23.

Even the cost of health club and gym memberships was significant, averaging $73 a month, including classes.

One interesting finding was that Amerians make an average of five impulse buys per month – for a total of $109. But, the irony is the majority (58 percent) feel there are other important things they can’t afford…hmm.

The truth of the matter is we all have bad spending habits we need to work on. Today I’m going to walk you through 10 of the worst spending habits that drive financial experts wild.

The good news is that all of these can easily be fixed…

Bad Habit #1: Keeping All Your Money in One Account

I’m always surprised when I hear someone say they only have one bank account. Physically separating your money is the easiest way to set and stick to a budget.

Here’s what you should be doing: 1) Rename your checking account your spending/depositing account. Tie this account to your debit card. 2) Open a second checking account and designate this one to your bills.

Calculate your average bill tally from the 1st to the 15th, and from the 16th to the end of the month, and transfer that amount to your bills account every two weeks. This will stop you from overspending on your debit card because you’ll have already covered your bills.

This two-account setup will save you a lot of time and money by automating your budgeting.

Bad Habit #2: You’re always searching for deals

This might sound counter-intuitive, but searching for sales can sometimes set you further back. Out of the top ten reasons cited for overspending, two include sales: discounted items or “one-time only” flash sales that typically lead to more spending. The expression, I can’t afford not to buy it, couldn’t be more true.

Bad Habit #3: Not Saving “Found” Money

Did a rebate you sent in months ago finally come in? Did someone buy you a coffee unexpectedly?

“Found” money often gets wasted. Anytime you find unexpected money, transfer that money to your savings or bill accounts. You’ll be surprised how much this adds up with minimal effort on your part.

Bad Habit #4: Having Too Many Subscriptions

You sign up for a one-month free trial and before you know it, you’ve gone 6 months without realizing you’ve been paying this whole time. Too many people pay for monthly subscriptions they never use.

Review your credit card statements monthly and highlight any subscriptions you’re not using anymore. Cancel these as soon as possible or mark the next renewal date on your calendar so you know when to cancel.

Bad Habit #5: Keeping Up with the “Smiths”

It used to be you were trying to keep up with the Joneses. Except back then, it was just your next-door neighbor. Now, in an era of social media and 24/7 news cycles, everyone is your neighbor when you turn on your phone.

Don’t subscribe to this keeping-up temptation. What you see being portrayed online is not always a true portrayal of someone’s day-to-day. Set realistic expectations for how your life should look.

Bad Habit #6: Being Too Passive

How many items of clothing in your closet do you own that still have tags on them? Returning items. Calling your cable company to get a better rate. Negotiating a bank fee. These things all take time and a little bit of effort. But it’s time and effort well spent.

A twenty-minute phone call with your internet provider, could save you $15 a month. Multiply those savings by 12 and you’ve saved $180 a year from one phone call. It’s tempting to take the path of least resistance when it comes to your money, don’t do it.

Bad Habit #7: Paying fees

Fees are something I won’t tolerate. Bank fees, ATM fees, maintenance fees, they all add up and they’re all negotiable. If you look at your bank statements and notice you’re paying a significant amount in fees, you need to stop this immediately.

Write down all the fees you’re paying on a regular basis and choose at least three to slash. You might have to threaten to switch providers or change banks, whatever you need to do to get the fee waived.

Bad Habit #8: Not Automating Your Bills

Everyone should be doing this nowadays. If you’re still getting bills in the mail, there’s a good chance you’re forgetting to pay those bills some months or your payments are late.

Use your bills checking account to pay your bills without having to think about it.

You’ll save the hassle of having to remember and you won’t have to worry about paying late fees and other penalties.

Bad Habit #8: Wasting Food

The number-one money-waster is throwing away leftover food. According to a recent study, part of the reason for this phenomenon is that people are bad at reading food labels. Food date labels like “best before” and “sell by” are largely unregulated in the US.

84% of consumers discard food near the package date at least occasionally, says the study. Among date labels assessed, “best if used by” was most frequently perceived as communicating quality, and both “expires on” and “use by” as communicating safety.

Over one third of participants incorrectly thought that date labeling was federally regulated, and 26% were unsure.

Bad Habit #9: Thinking a Budget Means “No”

When you think of the word “budget” what comes to mind? For most people, they think a budget means they have to say “no” to everything. You can’t save for a vacation, if you’re saying yes to brunch with your friends. You can’t save for a new car, if you’re saying yes to new clothes every month.

That’s not necessarily true. A budget doesn’t mean no, it just means you need to start prioritizing your money.

Think of a budget as a pecking order for where your money goes. Whatever is left after the important nuggets get covered can go toward the less important “non-essential” wants.

Bad Habit #10: Ignoring Your Daily Habits

And just because you have a monthly budget, doesn’t mean you’re necessarily aware of all your day-to-day expenditures. If you want to quickly assess your weekly spending habits, run a 10-day budget.

Notice how many small things you didn’t realize you needed to budget for. You want to do this once a quarter for a few reasons.

First, it helps alleviate the paycheck effect, where you get paid and then spend your full paycheck two weeks later. Second, you’ll pay attention to daily fluctuations in your spending and be able to make adjustments as you go.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 10 Spending Habits That Can Leave You Broke appeared first on Daily Reckoning.

4 Steps to Break ANY Bad Habit

This post 4 Steps to Break ANY Bad Habit appeared first on Daily Reckoning.

When you’re in the checkout line, what goes through your mind?

Do you think about how much available credit you have on each of your cards, then choose the one with the smallest debt?

Do you think about the value of the product you’re about to buy versus the opportunity cost of using those dollars elsewhere?

Or do you simply pull out whatever card is closest in your wallet, and spend?

The choices we make each day may seem like well-thought out decisions, but they’re not.

They’re habits.

And if you’ve been noticing a downward trend in your bank account (or upward on your credit) lately, look no further than your daily routines.

In Charles Duhigg’s bestselling book The Power of Habit, he outlines the habit loop — how good and bad habits are made and broken.

While writing the book, Duhigg became hyper aware of some of his own habits, including buying chocolate chip cookies every weekday at the same time. This routine demonstrated how easy it is to slip into a routine of spending with no intentions.

Duhigg wrote about his experience and explained in detail how he broke free from this bad habit.

Today I’m going to share with you Duhigg’s secret to breaking bad spending habits.

To break any bad habit you must follow Duhigg’s four rules:

Rule One: You Must Identify Your Habits

To figure out how you spend, you have to identify your spending habits — the cues and routines and rewards — that drive how you handle money.

As an example, let’s say you have a bad habit, like I did when I started researching my book, The Power of Habit, of going to the cafeteria and buying a chocolate chip cookie every afternoon.

How do you start diagnosing and then changing this behavior?

By figuring out the habit loop. And the first step is to identify the routine. In this cookie scenario — as with most habits — the routine is the most obvious aspect: it’s the behavior you want to change.

My routine was that I got up from my desk every afternoon, walked to the cafeteria, and bought a chocolate chip cookie and ate it while chatting with friends. So that’s what I put into the loop.

Spending money on fast food is no different. You might drive by a fast food restaurant on your way home from work and start to feel hungry. Next thing you know you’re skipping cooking and heading for the drive thru.

To take control over these habits, you have to identify them. And to do that, you need to look for patterns in your spending. Download your credit card data and ask yourself:

  • When do you spend? Is it more often on weekdays or weekends? Mornings or afternoons?
  • Do you make a few big purchases or a lot of small ones?
  • Do you spend more when you are with your friends or alone?

It won’t take long to find some basic patterns — and those patterns will highlight the routines that shape your financial life.

Next, some less obvious questions: What’s the cue for this routine? Is it boredom? Genuine needs like food and rent? Do you spend to socialize or entertain yourself on your own? Do you crave the things you buy, or the shopping experience itself?

To diagnose my cookie habit, I had to ask myself some similar questions. Was I eating because I wanted the cookie itself? A temporary distraction? Or the burst of energy that comes from that blast of sugar?

To figure this out, you need to experiment.

Rule Two: Look for Rewards

Rewards are powerful because they satisfy cravings. But we’re often not conscious of the cravings that drive our behaviors.

To figure out which cravings are driving particular habits, it’s useful to experiment with different rewards.

If we’re trying to change a cookie habit, I would suggest that on the first day of your experiment, when you felt the urge to go to the cafeteria and buy a cookie, you should adjust your routine so it delivers a different reward.

Go outside, for instance, and walk around the block, and then go back to your desk without eating anything. The next day, go to the cafeteria and buy a donut, or a candy bar, and eat it at your desk. The next day, go to the cafeteria, buy an apple, and eat it while chatting with your friends. Then, try a cup of coffee.

The idea here is you need to experiment with different rewards to figure out what you’re actually craving. Your spending habits are the same way: when you would normally spend, experiment by doing something else.

For example, instead of buying an expensive drink at Starbucks, buy a bottle of water instead. The following day, go for a walk and don’t buy anything.

By experimenting with different rewards, you can isolate what you are actually craving, which is essential in redesigning the habit. In my case, when I went to a colleague’s desk to gossip for a few moments, I found the cookie urge disappeared. What I was really craving, I realized, wasn’t cookies, but socialization. That was my habit’s real reward.

Rule Three: Isolate the Cue

Experiments have shown that almost all habitual cues fit into one of five categories:

  • Location
  • Time
  • Emotional State
  • Other People
  • Immediately preceding action

So, if you’re trying to figure out the cue for the ‘going to the cafeteria and buying a chocolate chip cookie’ habit, you write down five things the moment the urge hits (these are my actual notes from when I was trying to diagnose my habit):

  • Where are you? (sitting at my desk)
  • What time is it? (3:36 pm)
  • What’s your emotional state? (bored)
  • Who else is around? (no one)
  • What action preceded the urge? (answered an email)

After just a few days, it was pretty clear which cue was triggering my cookie habit — I felt an urge to get a snack at a certain time of day. The habit, I had figured out, was triggered between 3:00 and 4:00.

The same logic can be applied to your spending habits. Write down your answers to the five questions to figure out your habit’s pattern.

Rule Four: Have a Plan

Once you’ve figured out your habit loop — you’ve identified the reward driving your behavior, the cue triggering it, and the routine itself — you can begin to shift the behavior.

You can change to a better routine by planning for the cue, and choosing a behavior that delivers the reward you are craving. What you need is a plan.

Your plan should look something like this according to Duhigg:

When I see CUE, I will do ROUTINE in order to get a REWARD.

The cookie habit plan looks like this:

At 3:30 every day, I will walk to a friend’s desk and talk for 10 minutes.

It didn’t work immediately. But, eventually, it got be automatic. Now, at about 3:30 everyday, I absentmindedly stand up, look around for someone to talk to, spend 10 minutes gossiping, and then go back to my desk. It occurs almost without me thinking about it. It has become a habit.

Your habits are automatic for good reason. If you had to think about every little thing you do before you do it, your brain would be exhausted.

But don’t let your brain’s natural shortcuts get taken advantage of.

Give yourself a spending habit audit and follow Duhigg’s four rules to break bad spending habits.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 4 Steps to Break ANY Bad Habit appeared first on Daily Reckoning.

The 1 Budget Change to Make You Rich 

This post The 1 Budget Change to Make You Rich  appeared first on Daily Reckoning.

Even more than our education, our habits reflect our lives. Habits are very easy to develop and very hard to break, and once they’re developed, they control our behavior—sometimes in ways that we don’t even recognize. Often these bad habits lead to other bad habits. It’s a vicious cycle.

For instance, many people want to be in shape. In fact, we’re only a few weeks away from that time of year when people start making resolutions to go to the gym and get fit. Emboldened, they go sign up for a membership and begin working out. Soon they realize that working out is hard and that it hurts.

That’s when the bad habits they’ve developed over the years creep in. They start hitting the snooze button. “Just ten more minutes and then I’ll get up and go to the gym,” they say.

Then ten minutes turns into an hour. “I’m running late for work! I can’t go this morning, but I’ll go at lunch,” they say.

At lunch, a friend wants to go get hot wings. “I’ll skip just this once,” they say. And so on. Before long, they’ve canceled the gym membership, and they’re back to their old unhealthy ways.

You can’t afford not to take action when it comes to your finances. And as I write today’s letter, a colleague of mine is gearing up for the biggest interview of his life. He’s going to show you exactly how you can break your bad money habits at 1pm EST today. And has blueprint to follow is not nearly as difficult as sticking to your workout plan.

When It Comes to Money, Most People Have Bad Habits

Many people I talk to want to be rich. They even read my books and understand what it would take for them to reach their financial goals.

But they lack the discipline to become rich. They may come to a seminar and leave excited about, and committed to, building their asset column and financial education, only to have their bad financial habits derail them.

For instance, they may want to set aside money for investing every month, but then they see a sale on some shiny new object they’ve wanted for a while.

“I’ll start investing next month,” they say. “I need to get this now so that I’ll save money.” Then, when the next month rolls around, they realize that they’ve gone out to eat a little too much and that they won’t have any money left over after paying their bills.

“I have to pay my bills,” they reason. “I’ll start investing next month.” Then another month comes and they’re in the same predicament. “I should adjust my budget,” they think.

But then they remember their favorite TV show is on. “I’ll do it tomorrow.” Before long, they give up on their goal of investing and let their bad habits win.

Rich Dad said that the rich had a very simple way of breaking bad money-habits. “The poor pay themselves last, and that is why they’re poor,” he said. “But the rich pay themselves first, and that is why they’re rich.”

The Difference Between Rich Dad’s Budget and Yours

Rich dad’s budget was different than most people’s because he treated his asset column as an expense—and his most important expense. Every month, no matter what, he put money aside for his investments, even if he didn’t have enough money for his other bills. As a young man, I didn’t quite understand.

“Are you saying you don’t pay your bills?” I asked.

“Of course not,” said rich dad. “I firmly believe in paying my bills on time. I just pay myself first…before I even pay the government.”

“What if you don’t have enough money?” I asked.

“I still pay myself first,” said rich dad.

“But don’t they come after you?”

“Yes,” said rich dad. “That’s why I always find a way to pay.”

How Budgeting Motivates the Rich

For rich dad, paying himself first motivated him to work harder and smarter to make sure to pay his bills and creditors. He used the fear of not being able to pay his bills, sometimes a situation created by paying himself first, to motivate him to make more money.

He worked extra jobs, started companies, traded in the stock market—anything he could to make sure he met his obligations. After paying himself first, he used the pressure from creditors to form good money habits.

“If I’d paid myself last,” said rich dad. “I would have felt no pressure…but I’d also be broke.”

Kim and I put rich dad’s advice into practice early in our marriage. We found that, just as he had promised, we learned to get motivated to find creative ways to make money. In the process, we learned more about ourselves and how to make money out of thin air.

What Does it Take to Get Rich?

Anyone who says that money isn’t important obviously has not been without it for very long.

The year 1985 was the longest and hardest of my life. Kim and I were homeless; we were unemployed, had little-to-nothing left in our savings, our credit cards were maxed out, and we were living in an old, brown Toyota.

After three weeks of that, a friend found out about our financial situation and invited us to stay in a basement room. We stayed there for over nine months.

During those times, Kim and I often fought and argued. Fear, hunger, and uncertainty has a way of shortening our emotional fuse, and we usually end up fighting with the one we love the most. Yet, love held us together through those hard times.

Get a Job?

We kept our financial woes quiet for the most part, but when a friend or family member found out about our struggles, the first question they always asked was, “Why don’t you get a job?”

At first, we attempted to explain ourselves, but it didn’t do much good. To someone who values a job, it’s difficult to explain why you might not want one. We had a few odd jobs here and there, but those were only to keep us fed and gas in the tank.

At the time, the idea of a safe, secure paycheck was certainly tempting. But we didn’t want safety and security. We wanted to be completely independent in the financial aspect of our lives.

By 1989, we were millionaires.

By 1994, we were in a position to never work another day in our lives.

No Money, No Problem

I often hear people say, “It takes money to make money.” This is not true. For Kim and me to go from homeless in 1985 to millionaires in 1989, and then to independence, money-wise, in 1994, it didn’t take money. We had no money when we started, and we were deeply in debt.

It also didn’t take a formal education. I have a degree, and I can tell you that achieving independence financially had nothing to do with what I learned in college.

I didn’t find much demand for my skills in calculus, spherical trigonometry, chemistry, physics, French, and English literature in the real world.

What Does It Take to Get Rich?

I’m often asked, “If it doesn’t take money to make money and schools don’t teach you how to become independent, money-wise, then what does it take?”

My answer: It takes a dream, a lot of determination, a willingness to learn quickly, the ability to use your God-given assets properly, and to understand how money works and can work for you.

All of the qualities necessary for getting rich, start with financial education—a type of education that you can’t get in a traditional school.

My financial education started with my rich dad, my best friend’s dad, and continues today through books, seminars, learned lessons, and mentors. From all these sources, I learned about cash flow, debt, business and investing, taxes, and more—and how to use each to make myself rich.

If you want to be rich, I can’t stress the importance of starting your financial education today. Take some classes, read a book, attend a seminar, and find a great coach.

It’s the most important investment you can make.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

The post The 1 Budget Change to Make You Rich  appeared first on Daily Reckoning.