Do you find yourself diverting funds away from your emergency savings fund or just savings overall? Are you buried in credit card debt, despite earning a decent income? If so, it might be time for a financial makeover. In part two of our series on breaking bad financial habits, we will delve into more habits that may be hindering your path to financial success and explore how you can overcome them.

Firstly, do not feel judged or alone in your struggle. According to a 2019 Financial Literacy Around the World Report by Standard & Poor’s, in collaboration with the World Bank, only 33 per cent of Jamaicans surveyed indicated that they knew basic financial principles. However, given the proliferation of information across various media today, with a little effort it is possible to improve your financial literacy.

Taking proactive steps to break poor financial habits is essential to reaching your financial goals and securing your future. The fact is that we often form bad habits unconsciously, and while breaking unhealthy habits and replacing them with new ones may be challenging, it is possible with conscious effort.

If you have money goals that seem distant or even unattainable, it is time to identify and break those habits that are hindering you with a financial makeover by following the tips below.

1. Ignoring the Importance of Paying Yourself First

Breaking the habit of not paying yourself first is essential, especially with regard to building and maintaining an emergency fund to deal with unexpected emergencies. An emergency fund is not for spontaneous trips or non-essential purchases, but for sudden expenses such as job loss, major health issues or urgent home/car repairs. Having cash readily available in a high-interest account can serve as a financial safety net and provide security in times of genuine need. It can also prevent you from relying on high-interest borrowing in emergencies.

Recommendation: Establish a habit of building and maintaining an emergency fund. How to build one? Determine how much funds you will need. While the size of your emergency fund will vary depending on your monthly expenses, lifestyle, and income, typically, you should aim to have at least three to six months’ worth of expenses saved. Now that you know how much funds you need, using the pay yourself first habit, save at least 10 per cent of your income before you start paying your bills and other expenses in a high interest savings or investment account. Ensure that this account is not tied to your debit card for easy access. Automate the contributions to your emergency fund each month by setting up a recurring payment or salary deduction to ensure consistent progress towards your goal. When you have sufficient emergency funds saved, you can move on to your next goal — investing to secure your financial future.

2. Avoiding Investing for Your Future

Investing is critical to reaching your financial goals. It allows your money to work for you by generating returns to grow your wealth over time. When you invest, your money grows and augments the funds you are able to save each month from your income, helping you to reach your financial goals faster. Therefore, breaking this habit and shifting your mindset towards proactive and consistent investing will create opportunities for you to achieve long-term financial security.

Recommendation: If you are employed, it is never too early to start investing. Begin investing early and regularly to leverage the power of compounding. The longer your time horizon, the more your money has a chance to earn more returns, allowing you to build wealth over time. If your excuse for not starting your investment journey is that you are waiting until you have more money to invest, do not delay. Regardless of your current financial situation, even small monthly contributions can accumulate over time. Importantly, building the habit of investing early will ensure that it has solidified by time your income has grown significantly. Start your journey today by establishing the habit of setting aside a little each month. NCB Capital Markets provides an array of products to meet you where you are now, that can accommodate any investment need, any risk appetite, via varied options such as stocks, bonds, alternative investments, unit trusts, among so many others.

3. Ignoring Insurance

Many young people underestimate the importance of insurance and often fail to see the link between insurance and wealth creation. They think that their age makes them invincible. However, a health diagnosis or accident can expose the fragility of life and quickly wipe out your entire savings and derail your financial plans. Insurance is actually cheaper when you are younger, so it helps to buy insurance early.

Recommendation: Buy insurance to protect yourself and your loved ones from unforeseen events. Buy both critical illness to protect yourself and life insurance for your family. A life insurance policy can also be seen as a long-term income strategy. Explore policies with investment components and cash values that build over time that can complement your other investments.

4. Overlooking Retirement

Many retirees face financial struggles and are left vulnerable due to inadequate funds saved for retirement. According to a recent survey conducted by the Pensions Industry Association of Jamaica (PIAJ), roughly 82 per cent of the Jamaican working population is without a pension plan, with most failing to think about it until it is too late. Will you have to work well past the retirement age just to be able to survive? Would you be able to afford your ideal retirement lifestyle? Retirement planning often takes a back seat amidst immediate financial concerns, yet investing for retirements is a key habit to build early to secure your future.

Recommendation: If your company provides a pension scheme for retirement, maximise your contribution and take advantage of any matching contributions offered by your employer to reap maximum benefits. Calculate your retirement savings goal, factoring in travel goals hobbies, inflation, health-care costs, and your life expectancy. Start thinking about what financial steps you will need to take if your pension is not enough, so that you can continue living your life without disruption once your nine-to-five ends. Regularly review and update your retirement plan to adapt to changing circumstances and ensure alignment with your goals.

It is essential to identify and tackle bad money habits now as it will help you on your journey to wealth creation. Speak to a trusted wealth advisor at ncbcapinfo@jncb.com if you are feeling overwhelmed; they can assist. Remember, your future financial well-being is in your hands. By committing to breaking these bad habits and adopting sound financial practices, you can pave the way toward a more secure financial future for yourself and your loved ones.