The United States is one of the most prosperous countries in the world, yet many of its citizens are struggling financially. Millions of working adults aren’t able to save money and pay their monthly expenses.
Contrary to popular belief, low-income earners aren’t the only ones who are experiencing financial challenges. High-income earners often experience financial distress as well.
The unfortunate reality is society has normalized being broke and in debt. According to the results of a recent Pew Research poll, 70% of Americans believe that being in debt is a necessity.
If you share this mindset, your beliefs may be causing you to take actions that are destroying your finances. Here are six practices that could be sabotaging your finances.
Consistently Paying Your Bills Late
Financial setbacks can occur at any time. Occasionally, emergencies such as car repairs and health issues can cause you to pay your bills late.
However, if you have developed the habit of paying most of your bills after the due date, you could be destroying your finances and your credit. The average American credit card holder has six late fee payments on each credit card.
Using Credit Cards to Pay Monthly Expenses
Using credit cards for emergencies or occasional purchases is fine. This is true as long as you repay the balance before the due date.
Problems can arise when you use your credit cards to pay rent, utilities and cell phone bills. Paying recurring monthly expenses using your credit cards can increase your debt by thousands of dollars each year.
Spending Every Dollar of Your Paycheck
When you receive a regular paycheck, it’s tempting to spend all of it. After all, you’ll be getting another one in a few weeks.
Spending all the money you earned can cripple your ability to respond to future emergencies. What will you do if your car suddenly breaks down or your child needs expensive medicine that’s not covered by your insurance?
Ignoring Your Monthly Budget
In simple terms, a budget is a plan for how you will spend your money. If you don’t stick to your budget, it can be nearly impossible for you to keep track of your money. People who have successful money habits create and stick to a budget. Chart Westcott, COO of Ikarian Capital, says, “A budget is essentially a financial roadmap that ensures you to live within your means, while having enough left over to save for emergencies or long-term goals.”
Getting Trapped in High-Interest Loans
Your credit rating can be affected by late payments and delinquent accounts. After your credit score drops, traditional lenders may consider it too risky to loan money to you.
As a result, you may only qualify for high-interest credit such as payday loans and title loans. Once you get trapped in these high-interest cycles of debt, it can be difficult to escape.
Withdrawing Money From Your Retirement Plan
The IRS has strict rules about borrowing money from retirement plans. In many instances, you can be penalized for withdrawing money before your date of eligibility.
If you withdraw money, you can be penalized in two ways. You won’t be allowed to contribute to your 401k for at least six months. You must pay taxes and a 10% penalty for the amount that you withdrew.
To prosper financially, you must consistently take actions that increase the amount of money in your bank account. By eliminating financial activities that sabotage your success, you can get control of your money.