Six bad financial habits you can kick today!

Do you want to learn how to be better with money? Follow these six simple steps to a fantastic financial future.

This article is for anyone who really wants to be better at managing their money, but hasn't quite got there yet. Remember, it's often just a case of changing your way of thinking. So, break these six bad habits starting today, and I promise you'll never look back!

Here goes...

1. Stop thinking of your overdraft as your own money

Has your overdraft become something of a long-term companion? Is it always ready to help you out of a sticky situation when you run short of money before payday?

But I'm afraid it isn't your money, and it never has been. In fact, the bank has the right to cancel your facility, and demand you put your current account back in the black.

So, the time has come to wave goodbye to this expensive debt. You may not realise that most high street banks charge anything between a painful 10% and 20% EAR on overdraft borrowing. Read Wipe out your overdraft forever to discover two very clever ways to clear it without paying another penny in interest.

2. Stop spending on your credit card

Spending on plastic is absolutely fine for savvy cardholders. If you're taking advantage of a 0% on purchases deal and you intend to pay back your credit during the interest-free period, great! Or perhaps you're the type to clear your balance in full every month, and use your card to earn lots of lovely cashback or rewards.

This is how credit cards should be used. If you struggle to get to grips with your balance, stop spending on the card now, and apply for a 0% balance transfer deal. You could try the market-leading Virgin Money Card which is totally interest-free for the next 16 months (with a 2.98% transfer fee).

You'll get a great sense of achievement when you finally pay off a once maxed-out credit card. But the trouble is, transferring your debt immediately frees up the credit limit on your original card. So don't, whatever you do, be tempted to run up your bill all over again. (If you can't trust yourself, cancel the old card and cut it up. Snip the new card in half too, to avoid negative payment hierarchy.) 

3. Stop thinking getting money off means you're saving

It doesn't! I hear this time and time again especially when the high street sales are in full swing (which seems to be almost permanently these days).

Let's say you're enjoying an afternoon's shopping where you buy a £100 pair of shoes with a fantastic sale price of £50. Are you the type of person who thinks you've just spent £50, or have you just saved £50? If the second scenario sounds just like you, then you really should try to change your mind set. Spending is still spending even with a fabulous discount!

Worse still, if you're enticed into shelling out your £50 worth of 'savings' on a bag to match your new shoes, then you know it's time to change your spending habits. And don't make the mistake of blowing your budget just because you can't resist a bargain.

If budgeting is your Achilles heel, take a look at How to budget in five simple steps.

4. Stop spending your savings

You can't really ignore the fact that we're in the middle of a deep recession. Unfortunately, jobs are always a casualty of an economic downturn. So, at a time when the labour market is looking vulnerable, the last thing you want to be doing is running your savings down.

Instead, you should be building up an emergency cash cushion to see you through tough times if you're unlucky enough to be hit by redundancy. You should aim to put away at least three month's salary in a best buy savings account with easy access.

I recommend the Alliance & Leicester Online Saver Issue 5 or the Birmingham Midshires Telephone Extra Account. Both pay 3.15% and allow you to withdraw your cash whenever you need to without any penalties.

5. Stop smoking

I won't claim this is an easy sacrifice, but if you're a regular smoker, you could save around £150 a month by giving up your habit. Imagine what that extra money would do if you used it to overpay your mortgage, or you stashed it away in a best buy savings account.

But the financial benefits of quitting don't end there. Did you know non-smokers enjoy life insurance premiums which are roughly 40% cheaper than smokers? The same applies to policies which protect your health such as critical illness cover.

Most insurance companies will count you as a non-smoker if you haven't touched tobacco in the last 12 months. So, give up today and you could enjoy low-cost cover this time next year. When the times comes, make sure you compare quotes using the lovemoney.com life insurance search engine.

6. And finally, stop putting things off

Take a look at my lovemoney.com blog, What Not To Do With Money, and read Rule #2 Don't put off until tomorrow what you can do today. Quite simply, the key to great money management is to get - and keep - your financial house in good order. That means dealing with all those niggling money matters right now. This can include everything from opening a simple savings account for a rainy day to writing your will. Good luck!

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