Evaluate your spending habits

This was originally published on Monday, December 5 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: With the new year approaching quickly, I have been reflecting on my current financial habits. I know that there are certainly some habits that I can change. I want to start thinking about my New Year’s financial resolution for 2017 and how I can improve my financial position. What are some of the most common money mistakes you encounter that lead to bad financial habits and how do you go about avoiding them?

Kudos for taking the time to evaluate your spending habits. There are several habits or patterns that often lead people to major hardship. Fortunately, many of them are preventable. Some may require a different way of thinking and others may include overhauling how money is spent. Realize what mistakes have happened and resolve.

  • Frivolous spending. This is the most common error. It is the most undetected, but easiest to fix. Unless you are very honest with your budget and become aware of your spending patterns, this habit is literally letting money slip through your fingers. How many of us stop off at a coffee shop or gas station for a coffee in the morning? While $5 doesn’t seem like much at the time of purchase, if you multiply that by five times a week that equals to $25 a week. For the year, 52 weeks, that equals to $1,300 on coffee alone! Now think about how many other little purchases you make? All these nonessential expenses add up. That $1,300 can be better spent on lowering your credit card balance or making an extra mortgage payment on your house.
  • Living off credit cards. Unfortunately, this behavior is becoming more of the norm.  Many purchase gasoline, groceries and other essentials, and even advance cash, with high-interest-rate credit cards. Credit card interest rates can double, sometimes triple, the amount of the original purchase.
  • Purchasing a new car. Many of us cannot afford to pay for a car in cash. On Guam, a car is an essential item to get around. However, many don’t take into consideration that a car is a depreciating asset. A depreciating asset loses value due to its age, wear and tear, or market conditions. For a vehicle, once you start adding mileage to the car, the value of resale decreases. This magnifies the difference of how much you owe versus how much the car is worth. Many people trade in their car every two or three years and lose money. Evaluate what type of car you really need. If you have a large family, a vehicle that comfortably fits everyone may be needed. But is a gas-guzzling SUV with all the upgrades needed? Those extras add up and create the need for a larger loan. Don’t forget to factor the high price of insurance and fuel costs. Assess what type of car you need, not want, and use the money you saved for other purposes.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

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