Finance: Avoid these bad habits

Eight bad habits that can lead to financial problems in your life

26 OCT, 2012, 01.47PM IST, SANJEEV SINHA,ECONOMICTIMES.COM 

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Driven by easy availability of finance and plastic money, debt has become a way of our life today, with very few of us being sure how to get out of it. True, sometimes, particularly in times of crisis, one may have to resort to borrowing. The problem, however, starts when people start taking debt for self-indulgence as well as keeping their friends and neighbours jealous.

No need to say that more than lack of money and circumstances beyond our control, our own bad habits are usually seen leading to debt disaster. Therefore, unless you do something to recognize them and get rid of them, you just can't avoid getting into a debt trap.

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Here we take a look at 8 such bad habits which usually lead to debt disaster and how to get rid of them:

1. Spending more than you can afford: You are more likely to face financial problems, if you have been extravagant in your expenses. After all, people loose more than they ever gain, simply by living large or beyond their means. Lots of people, in fact, generally get seduced by big-debt, big-ticket luxury items, sometimes going all the way into bankruptcy.

You should, therefore, always keep an eye on your regular expenses and manage them in a way so as to be aware of your regular monthly expenditure. "This can help you determine how much you can spend without moving into the territory of living beyond your means. Spending more than you can afford will lead to you having to resort to credit for your purchases frequently and adding up to your outstanding debt," says Anil Sahgal, founder of financial services portal 'i-save'.
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2. Misusing your credit cards: Misusing your credit card and carrying credit card balance can easily lead to debt disaster. For instance, "using credit cards in emergencies is understandable. The problem, however, starts when people start using their plastic money even for recurring expenses like getting the gas filled in the car, buying groceries and clothes, among others," says Lovaii Navlakhi, MD & chief financial planner, International Money Matters.

Credit cards, therefore, should largely be used for convenience and not for debt. Just think of the interest rates on credit card dues, which can be as high as 3-3.5% a month or 36%-42% a year. No need to say that paying such high interest rates makes the price of the charged items a great deal more expensive, sometimes taking even decades to clear the dues if you just keep paying the minimum amount due!

3. Buying on impulse: Do you often purchase something and then get it home to find you aren't excited about it any longer? It happens with most of us. Therefore, if you are in the habit of spending on impulse, make an effort to have a moment of reflection before buying anything.

"If you see something you would like to buy, try waiting a day or two before actually committing yourself to buying. If you really want it, you will come back. This also gives you the chance to find other things that may be better," says Atul Surana, Certified Financial Planner & MD of Mangalore-based Catalyst Financial Planning.

4. Using personal loans to fund lifestyle purchases: Personal loans come with a fairly high interest rate and are best avoided to make expensive lifestyle purchases as it only adds up to your interest cost. These loans are best used for emergencies or to meet a short-term liquidity crunch.

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