Breaking bad money habits

From Woman's Day:

Money a little tight? You may assume it’s due to rising costs, tightening credit and the fact that you haven’t had a raise in, like, forever. Well, let’s be honest. If your basic needs are being met, your financial problems could be the result of bad money habits. But in the same way you picked up these habits, you can replace them with good ones that will help you spend less and save.

Living without a budget
Spending money without a plan has to be the mother of all bad money habits. It’s like driving blindfolded—you don’t know where you are and can’t see where you’re going, so you don’t know when to stop. But if you want to be in control of your money and make intelligent decisions, a budget is absolutely essential.
Break the habit! Sit yourself down and make a list of your fixed monthly expenses, like the rent and car payment. Next, estimate your variable expenses, such as utilities, food and gas. Set a little aside for occasional expenditures (clothes, appliance repairs, car maintenance, entertainment). Tally these and subtract from your monthly income. If you find out that your expenses are more than your income, don’t worry. Just keep making adjustments until you strike the right balance, then stick to it.

Paying with plastic
Depending on plastic—I’m talking about both debit and credit cards—to cover your day-to-day spending may be convenient, but you’re probably not noticing how much you’re spending.
It’s a fact that we spend more when we pay with plastic, says Robert Frank, a Cornell University economist and visiting professor at NYU’s Stern School of Business. “Forking over cash is a more vivid sensation than the abstract act of promising to pay for than the abstract act of promising to pay for something later,” he says. “Paying with plastic allows a person to act more impulsively—he can get things right now without having to deal with the actual payment until sometime in the future.”
Break the habit! Paying with cash puts strict limits on what you can buy. Figure out how much you’ll need for the day and put that in your wallet. That’s it! Leave your plastic at home, or put it in a less convenient place in your wallet. As you go through your day, you’ll become shockingly aware of how often you reach for the plastic. The good part? You’ll discover you spend less when you depend on cash.

Rolling a credit card balance
Credit card issuers know that once they can get you to cross the threshold where you owe more than you can pay in a single month, they’ve got you where they want you—paying them interest month after month. But when you carry a balance and pay just the minimum, you’re rolling the equivalent of a snowball that can quickly grow out of control.
At a 14.39% average credit card interest rate, very little of your minimum monthly payment goes to pay down the balance. If you owe $5,000 at 14% interest with minimum payments of 2.5% of the outstanding balance, it will take you 243 months (20 years!) to be rid of your debt. In that time you’ll pay $4,167 in interest—and that’s assuming you don’t add any new purchases. What started as a one-time event to get you through a difficult month can easily turn into a balance that rolls over indefinitely.
Break the habit! If you can’t pay the entire balance in a single month, get rid of that credit card. Cut it up so you can’t use it (but don’t close the account, or you could be hit with a big interest rate increase). Now start paying down the balance as rapidly as possible. Create a payment chart and look at it each day for proof of your progress. Once you get that balance down to zero, promise yourself you’ll never get into that mess again.

Being unaware of interest rates
Interest you earn on a savings account. Interest you pay on a home equity loan, credit card account or student loan. Either way, ignoring it can be an expensive proposition.
The difference between 3% ($8,734) and 1% interest ($2,628) on $25,000 in a savings account over a 10-year period is more than $6,000! That’s what you’d throw down the drain if you weren’t paying attention. Paying a credit card bill late can send your interest rate soaring to 27% or more. How long will it take you to notice that your required payment has doubled but your principal balance remains stalled?
Break the habit! Make a simple chart that shows the interest rates you’re earning on your CDs and money market accounts (and those you’re paying, too). If mortgage rates have dropped, it may be time to refinance your home. Just make sure you run all the numbers, taking into account all of the associated fees. If your bank has dropped its interest rate for savings, shop around. You may get a much better rate by transferring your savings to an online bank like hsbcdirect.com.

Saving only at the end of the month
If you think it makes sense to pay your bills first and then see how much you have left to put in savings, think again. This usually leads to a very bad habit known as “no savings,” because whatever you have left, you’ll always find some way to spend it.
Break the habit! I’ve said it before, but here it is again: Treat yourself as your most important creditor. Pay yourself first! You may want to make up payment coupons like the ones you have for your car payment. Or set up an automatic bill payment to “Myself.” Even if it’s only $25 or even $10 to start with, do it.

Too many visits to the ATM
Since you only go to your bank’s ATM (no fees involved), and you’re pulling money out of your checking account (no debt), visiting the ATM is totally harmless, right?
Wrong. Just because you’re not paying a fee to withdraw money from an ATM doesn’t mean you’re spending responsibly. Frequent ATM visits can allow money to leak from your life undetected—you take out cash, but fail to keep track of where it’s going. That can easily become one $200 drain after another.
Break the habit! Discipline yourself: Go to the ATM only once a week. Once you withdraw cash, tuck it into marked envelopes: Groceries, Gas, Lunches, etc. Spend from the appropriate envelope. When it’s empty, no more spending until the next fill-up.

Ignoring your credit reports
Each year that goes by in which you haven’t reviewed your credit reports (one from each of the big three credit bureaus), you may become more entrenched in a financial quagmire.
It’s been estimated that 4 out of 5 credit reports have errors. And according to Consumer Reports, consumers find some 13 million inaccuracies each year. Inaccurate information could mean you’re paying higher insurance premiums or inappropriately high interest on a credit card account—and you’re stuck with a low credit score.
Break the habit! Get out your calendar. Make a note on the first day of March, July and November, reminding yourself to request one of your free credit reports to review. Federal law says you’re entitled to one free credit report each year from each of Experian, Equifax and TransUnion. Spread them out over the year so you can monitor your report once every four months. Get your reports free at AnnualCreditReport.com (all other sites require you to pay). If you find any errors, report them immediately, using the dispute feature outlined on the report.

Not paying on time
I was born with a strong procrastination gene, so I can attest to the problems associated with this terrible habit. The cost of late payments these days ($29 or more per occurrence with most credit card companies, for example) is bad enough. But that’s not all: Many creditors will see one or two late payments as cause for increasing the interest rate. The increased interest together with the late fee can easily send a credit card balance over the limit, which of course kicks in another punitive charge: the over-limit fee. And even one late payment can put a seven-year black eye on your credit report.
Break the habit! Don’t wait until a few days before a bill is due to pay it. If there’s any chance you will procrastinate, make the payment on the day the bill arrives.

Bouncing the account
There was a time when bouncing a check was, at the most, embarrassing, and the $5 fee wasn’t hard to take. But those days are long gone. Bounce fees have skyrocketed to $25 or more—plus a daily fee from some banks for each day your account remains in the red. Habitually bouncing your bank account via debit card, ATM withdrawals or writing a paper check can be devastating. If the bank considers you a deadbeat customer, they’ll close your account and report it to a central clearing house. Now you will find it tough to open a bank account anywhere.
Break the habit! If you’re a bouncer, get thee to the bank! Arrange for overdraft protection that will catch you in case you overdraw again. There will be a small transaction fee, but nothing close to the horrendous “courtesy bounce fees” many banks are charging. Next, commit yourself to recording every single debit card, ATM and paper check transaction in your checkbook register, making certain you calculate a new balance every time. Never allow yourself to come closer than $100 to the end of your money in the account. Reconcile your account each month when the statement arrives.