Personal finance: Nine bad habits to break right now

Habit #1: Stop doing the same things over and over again.

Human beings are habit-creating machines. Research shows we crave any mental or physical shortcut that frees time and energy for our minds to focus on higher-level thoughts, such as wondering what to have for lunch or speculating about the true parentage of Jon Snow on “Game of Thrones.”

A “habit loop” is created in three steps: a cue or trigger, the behavior itself and a reward for that behavior, according to Charles Duhigg, author of “The Power of Habit.” Bad money habits are more difficult to steer out of than automated behaviors like driving a car. Why? Financial peace of mind is a much more subtle reward than the satisfaction of navigating a half-ton piece of metal through city streets without death or injury.

Still, every person who is good at money learned these habits, which means you can, too. “What we know from lab studies is that it’s never too late to break a habit. Habits are malleable throughout your entire life,”Duhigg told NPR.

Habit #2: Stop spending more than you earn.

Who do you think you are, the U.S. government? Even America’s once-ballyhooed fiscal deficit is shrinking – it’s now $492 billion, or 2.8% of the economy, down from $1.4 trillion (9.8% of the nation’s GDP) in 2009 at the height of the financial crisis, according to the Congressional Budget Office.

How is your own personal deficit doing? About one in five Americans spend more than they earn, and 36% break even, research from the National Financial Capability Study shows. Your goal must be to join the 41% of Americans who spend less than they earn.

Habit #3: Stop ignoring your bills. 

A 21-year-old woman with medical bills looming recently told this NerdWallet writer that her pattern for prioritizing what bills to pay is this: When a collection agency calls, she pays the bill. This kind of financial firefighting guarantees she will veer from crisis to crisis as her credit score burns.

Payment history carries huge weight on your financial future; more than one-third of your credit score is judged by your ability to pay your power, car insurance and credit cards on time. If you can’t, work out a payment plan with your provider before it goes to collections.

Habit #4: Stop using your credit cards like free money.

Credit cards are a weapon in your financial arsenal. Like all armaments, they can be used in strategic defense or to shoot yourself in the foot. Too often, it’s the latter – the average U.S. household carries $15,480 on credit cards.

That plastic in your pocketbook is the greatest enabler of bad money habits, allowing you to spend on a whimand forsake all budget plans. Sticking to a budget should be your most faithful money habit.

Habit #5: Stop thinking you’re not smart enough.

Money matters can quickly confuse. In the rollout of the Affordable Care Act, many consumers struggled to understand basic health insurance terms such as “deductible,” a survey last month by the Kaiser Foundation found.

We live in an age where consumers are forced to take control of their own financial lives, whether it’s being smart with health insurance or guiding their own 401(k) plans to invest for retirement. Learn the lexicon of finance.  “I used to catch myself saying, ‘Investing is hard. I just don’t understand it.’ This gave me permission to avoid learning how to invest,” writes Ann Marie Houghtailing, author of “How I Created a Dollar Out of Thin Air.” “Now I say: ‘Investing is a skill. You just have to start small’.”

Habit #6: Stop making it hard on yourself to save.

Old habits die hard, and one of the oldest habits is using checks to pay bills or make savings deposits. “Personal finance habits take longer to change than the way you might switch from one smartphone to another. That’s because money is so important to us,” Fred Davis, a professor of Information Systems at the University of Arkansas, told Marketplace.

Set up automatic transfers for bill payments. Also automatically have 10% or more of your paycheck sent directly to your savings account. These two steps will go a long way toward building good money habits and credit scores with the least amount of effort.

Habit #7: Stop complaining about your paycheck.

Whatever energy you’re spending complaining about the size of your paycheck takes energy away from finding ways to improve your bottom line. Think you’re being underpaid? Negotiate a raise or at least have a chat with your employer to understand what’s needed to see a bump in pay. If you’re valued, your boss will see the implicit threat that you may leave for a higher-paying job (which, of course, you should be looking for).

Investigate ways to build other streams of income. Look at ways to improve your skill set. Just stop whining and do something about it.

Habit #8: Stop your Starbucks dependency.

If you’re like a lot of people, many of the receipts in your pocket are for caffeine pick-me-ups. That drip-feed coffee habit costs half of American workers nearly $1,000 per year, according to a 2012 survey by Accounting Principals. The survey shows that two-thirds of American workers buy their lunch rather than bringing one from home, costing an average of nearly $2,000 a year. Worse, Americans throw away 40% of the food they purchase each year, about $165 billion worth, which works out to $2,275 in the bin for the average family of four, according to the Natural Resources Defense Council.

Planning meals should be lockstep with planning your budget. Eating out costs you much more than you think.

Habit #9: Stop thinking more cash brings happiness.

OK, money does bring happiness, but only to a point. A 2010 study by Nobel Laureate Daniel Kahneman and Angus Deaton found that emotional satisfaction in life rises with wealth until income hits $75,000 per year. Purchasing experiences and giving to charity have a much longer shelf life for our well-being, research suggests.

Still, the serenity of being free from debt brings its own kind of glee. Look how much fun these people are having…