Good money management is all about creating a budget and sticking to it, right? Well, you might be surprised to see what else is involved.
By Maryalene LaPonsie | Contributor Aug. 12, 2016, at 12:19 p.m.
If you want to live the good life, financially-speaking, you might expect to need a job that pays well and a plan for how to responsibly spend the money you earn. However, there could be more to it than that.
Your health habits, friends and even how many times you check your credit score could all have an impact on your financial security. Here’s a closer look at five things that have a surprising effect on your money situation.
Smoking and your other bad habits. When you think about it, it’s not too surprising that spending money on a habit means less cash is available to save or invest. In case there was any doubt, Jay Zagorsky, an economist at The Ohio State University, published research in 2004 that demonstrates heavy smokers have a net worth that is $8,300 less than non-smokers. The net worth for light smokers was $2,000 less than non-smokers. On average, smokers had a 4 percent decrease in wealth for each year they lit up, a number that is roughly the same as what an average smoker might spend on his or her habit each year.
“The study was done a few years ago, so the numbers are different now,” Zagorsky says. He also stresses that the study doesn’t prove smoking causes less wealth, but it does suggest a link. When asked if the research could apply to tobacco-less products, Zagorsky says, “My guess is e-cigarettes are the same.” While there isn’t research on every bad habit, it might be safe to assume other behaviors, such as $5-a-day latte habit, could have a similar effect. “Adding an extra habit just reduces your wealth,” Zagorsky says.
The company you keep. Thomas Corley, author of “Rich Habits – The Daily Success Habits of Wealthy Individuals,” says people can end up in “poverty by association.” In other words, if they spend their time with friends and colleagues who have poor money habits, they may pick those up for themselves. “I actually believe bad habits are a function of your environment – the household you grew up in and the neighborhood you live in,” Corley says. If your friends spend each weekend dining at expensive restaurants or shopping at the mall, chances are you will, too, a practice that could quickly deplete your bank account.
Fortunately, the effect of friends can work the opposite way as well. Frugal friends can help you keep spending in check or offer accountability for a common goal such as getting out of debt. “Surround yourself with people who have the habits you want to adopt,” Corley says.
How you were raised. While people can control their friends, they have less control over their family, who can also have a significant impact on a person’s ability to build wealth. “I’m 100 percent convinced habits are a function of early upbringing,” Corley says. Children raised in households where parents gambled excessively, maxed out credit cards or took out payday loans may grow up to do the same.
That can be discouraging for people raised in these households to hear, but Corley believes they aren’t necessarily destined to repeat the financial sins of their parents. “Just because I’m born into certain circumstances doesn’t mean I’m stuck in them for the rest of my life,” he says. Having awareness of those bad habits and making a conscious commitment to avoid them is key.
Checking your credit score regularly. Obsessing over your credit score could actually help you increase the number. “Consumers who are more aware of their credit score are more motivated to improve it,” says Laks Vasudevan, vice president of products and innovation for Discover.
The credit card company recently surveyed 2,000 adults and found 76 percent of those who checked their credit scores at least seven times a year said their number had greatly or slightly improved in the previous year. “We believe knowledge is power,” Vasudevan says, adding that Discover has recently begun providing free credit scores on its website to all consumers regardless of whether they are cardholders.
Buying what you want, when you want. Spontaneous spending comes with a couple of pitfalls, according to Corley. “A lot of people have a poor habit of buying things they don’t need,” he says. Not only that, but they may not put a lot of thought into the price either.
“The poor don’t track their spending,” Corley says. “They have absolutely no idea if they are paying too much for something.” This type of on-the-fly buying has the potential to financially wreck people if they have limited funds and then spend what little they do have on unnecessary or overly expensive purchases.
Being a more thoughtful consumer won’t instantly transform a person’s bank account, but it will create momentum toward a more financially stable future. Checking your credit score and quitting your expensive habits won’t hurt either.