3 (More) Bad Money Habits and How You Can Break Them

This is going to be my second post on the topic of bad money habits, the first post on this topic can be seen at 3 Bad Money Habits and How You Can Break Them, where I covered keeping a balance on your credit card, not tracking your spending and impulse spending. I'll cover 3 more bad money habits in this post

(Image source: http://www.womansday.com/life/work-money/tips/a6793/bad-money-habits/)

Not having an emergency fund

I've actually done a blog post on this topics, which can be seen at: What is an Emergency Fund and Why you should have one. Not having an emergency fund puts you at the mercy of recessions, accidents, medical emergencies, etc. You may even have to take short-term loans just to tide yourself over some period just because you didn't prepare sufficient funds to cover some of these emergencies that may arise. And, just like companies, this will increase our finance costs, making us pay more in interest, most of which is actually unncessary.

How to break it

To break this habit, you have to start putting aside some of your income in order to build up your emergency fund, which would vary in size depending on your income and other factors such as job security. I've done a post which includes some tips on how you can start building your emergency fund at 5 Ways to Start Building Your Emergency Fund


Binge saving

Trying to save a lot of money at one go by using almost all of the money saving tips that you can muster is definitely not a good idea. While the cold turkey may work on some people, most will eventually break down with this unsustainable way of saving money, which can lead to even more expenses later. Think about it like binge dieting, after saving for a few days or weeks, you may just break down and go on a spending spree which is worse for you in the long run.

How to break it

Develop sustainable ways of saving money. One way would be to acquire cheaper hobbies (I've written a blog post on it here: Hobbies Can Make or Break You) Also, don't cut out on things that you really love. If you really love something then try to cut down on other areas of your life. For example, if you really love to travel, maybe you can try cutting down on your food expenses or your house renovation.


Not making full use of your savings

Putting money in a savings account isn't going to make you rich, or at least I've heard of no one that became rich by putting money in a savings account. The interest on the money in a savings account is really low and would be far outpaced by inflation (some offer quite good rates comparable or higher than fixed deposits but come with certain criteria and still lose out to inflation). By keeping our money in a savings account (or even a fixed deposit, I don't know of any that goes above 2%), we are losing potential returns that we could be getting on our money.

How to break it

We are unlikely to need a large sum of money on hand other than our emergency fund unless we are planning for a large purchase such as a house. The excess funds can be placed into longer term bonds such as the Singapore Government Bonds or the new Singapore Savings Bonds that are going to be introduced in October, which offer higher interest rates if we are able to hold on to them for longer periods. 

Investing in the stock market is also a good option but would require an investment of time to research companies unless you buy an index fund or a unit trust, but even then, these still bear the element of risk as they are not principal guaranteed.


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