Very few people end up over their heads in debt or in need of bankruptcy because of their overall money management habits, but it does happen. For most people, unexpected circumstances and economic pressures are the driving force behind their money troubles. However, staying financially healthy takes planning and effort, even for the most money savvy person.
Good vs. Bad Habits
There are a few common bad habits that are typically associated with financial hardships. First, having an insufficient or nonexistent emergency fund. Most people fail to plan adequately for a rainy day or unexpected situation. Losing a job, spouse or suffering a medical illness are all top reasons for ending up in debt and without the adequate income necessary to sustain monthly living expenses. A good habit for financial health is having enough money saved to cover all essential living expenses for at least four to six months.
Another bad money management habit is an unnecessarily high mortgage payment. Many people make the mistake of borrowing at the top of their loan approval range, buying a house far more expensive than they need. Although they may be able to maintain payments in good times, the mortgage payment quickly becomes a burden when finances are tight. Once the threat of foreclosure sets in many people are forced into using credit cards to pay for other expenses simply so they can stay in their home.
Lastly, not prioritizing spending and credit card use is a big problem among the financially sick. The average person views credit cards as a tool of convenience, rather than a method for establishing and maintaining responsible borrowing history. When credit cards are viewed as easy money for want-now-pay-later purchases, debts quickly rise leading to burdens. A healthy money management style views credit card use as a tool for writing a positive financial history.