Table of Contents
- 1 Bad Money Habits That’s Keeping You Broke!
- 1.1 Top Bad Money Habits And How to Break Them.
- 1.1.1 1. Paying Yourself Last
- 1.1.2 2. Trying to Keep Up With Friends
- 1.1.3 3. Overusing Your Credit Card Because of Points and Rewards
- 1.1.4 4. Having Disorganized Finances
- 1.1.5 5. Numbing Yourself to Debt
- 1.1.6 6. Paying Extra Due Lack Of Planning
- 1.1.7 7. Paying Too Much In Taxes
- 1.1.9 8. Waiting Too Long To Start Investing.
- 1.2 Conclusion
- 1.1 Top Bad Money Habits And How to Break Them.
Bad Money Habits That’s Keeping You Broke!
So you got paid. Great! But do you realize that how you’re going to spend this money is completely unconscious? A couple of weeks into the month either these top bad money habits that keep you poor would have led you clean your account or other good money habits would have helped you save a good amount.
The money habits you have have been formed over the years and the more you’re conscious of them, the better and faster they will work for you to achieve your financial goals. Check out these bad money habits. See if there’s any that you can identify with and cutoff this year.
Bad money habits, dare I say keep you poor unfortunately. I have also shared some personal finance tips that helped kick bad money management and replace them with rewarding, good money habits.
Before recognizing these eight bad money habits I was always in debt and had trouble saving any money. However, once I realized what I was doing I started replacing bad money habits with good money habits.
Needless to say that’s exactly what helped me pay off $50,000 of student loans in just a few years. Then I finally started investing my money so that I could work smarter not harder.
Your habits have ripple effects that get compounded over time. Ultimately they determine who you become and whether you’ll end up rich or poor. That’s why it’s super important to recognize any bad money habits you have early on and replace them with good money habits.
Top Bad Money Habits And How to Break Them.
1. Paying Yourself Last
The first bad money habit that it keeping you poor is paying yourself last and here’s what I mean. As soon as you get paid, what do you do? You buy something for yourself right?
Then you pay your rent or mortgage, your phone bill, your gym membership, you go out to dinner. Then you buy one more something nice for yourself and you’re planning to save if there’s any money left at the end of the month. This is a great typical bad money habits example.
The problem is there’s never any money left to save. Does it sound familiar?
People who get ahead financially do the exact opposite. They pay themselves first.
That means that before they start paying their bills, swiping their cards left and right and giving money to everyone else and their mother except for themselves, they put a portion of everything they make into their own pockets first.
Then they pay their bills and live on what’s left. They prioritize making themselves richer versus making other people richer.
People who are good at saving money all understand something called Parkinson’s Law. Parkinson’s Law is the principle that demands will always expand to consume all available resources.
That’s why if you have a week to finish a project you end up taking all that time in the world to finish it and you were probably pretty inefficient with your time. Whereas if you have just one hour to finish that same project you’ll be super focused and efficient and still get it done.
So work expands to consume all available time and it’s the same with money. You’re spending will expand to consume all available money.
Whether you have a hundred dollars or a hundred thousand dollars your expenses will keep increasing to consume all the money that you have. That’s why making more and more money isn’t always the answer.
And saving money after you do all your spending is just not gonna work. Why? Because your spending will always rise to just eat up all that money you got.
To pay yourself first you have to treat saving money like a bill. So as soon as you get paid, commit to setting aside 10% or whatever percentage that you can handle and put that towards savings and investments and then just live on what’s left.
Bottom line: If you want to stop letting money slip through your fingers and you actually want to start keeping some of what you make for yourself, then give up bad money habit number one by paying yourself first.
2. Trying to Keep Up With Friends
The next money habit to give up it’s trying to keep up with friends who have expensive tastes. Or should I say trying to keep up with the Jones’s? So do you have friends who always want you to go out to expensive restaurants and go shopping with them and go on trips with them and stay in nice hotels?
So if you have friends with bigger budgets than yours then it’s okay to be authentic and say just you know hey I can’t do that because I’m working towards some financial goals right now and I need to save money. It’s out of my budget. If they are real friends they’ll understand.
Everyone has very different levels of tastes as well as very different budgets. Trying to keep up with everyone around you is going to leave you broke and in debt. This includes friends as well as people you see on social media.
The reality is the average American has very little in savings and an average of $38,000.00 in debt and that’s not even including mortgages. So a lot of what you see in terms of amazing lifestyles on social media and whatever is often just an illusion.
In fact I personally know someone who is always posting Instagram photos of herself travelling to all kinds of exotic locations. It really looks like she has this glamorous, awesome life.
However, the reality is she has $20,000 in credit card debt and has zero in savings and investments.
So don’t be fooled. A lot of what you see is not real and chasing experiences just so you can post a cool photo on Instagram or look good to everybody else is a recipe for ending up broke.
I think it basically comes down to this:
Would you rather look rich or would you rather be rich?
If you dream about becoming financially independent one day you have to stop caring what everyone else thinks about you. No one else is gonna make it happen for you but you.
Just learn how to speak up for yourself. Don’t be afraid to turn down invitations or just suggest cheaper activities for you and your friends.
Chances are people will respect you for having your priorities straight and it’ll probably inspire them to reassess their financial priorities as well.
Bottom line: Stand up and speak up for yourself and/or suggest cheaper activities.
3. Overusing Your Credit Card Because of Points and Rewards
The third of the bad money habits that keep you broke and you may even realize is putting everything on your credit card for the cash back rewards and award miles. Now don’t get me wrong, some credit cards rewards are amazing!
I love my credit card. I haven’t paid for a flight in years thanks to the award miles that I rack up on my United Explorer card. Sadly often times I find that people end up spending way more on their credit card than they would have spent otherwise.
What happens is that basically just cancels out all the benefits of having these credit card rewards. I’m freaking guilty of this as well. When I’m considering whether to make a purchase or not, sometimes I find myself justifying it because I’m like hey well at least I’ll get miles for it.
I still justify the purchase even if I can’t actually afford it. This is an extremely slippery slope. Ever since I realized this pattern I’ve just stopped putting everything on my card.
Here’s what I do instead. For everyday small items like coffees and cab rides, I just pay for it with my debit card, in cash.
However, if there’s anything that’s a $100 or more like facials, hotels, courses things like that, I basically put it on my credit card to get the award miles but then I pay it off immediately, like within seconds of making the purchase. I will just do it all on my phone.
That way it forces me to only buy things I can afford to pay for in cash while also allowing me to get those miles and earn all those amazing credit card benefits.
Before I started doing it this way I would usually just rack up a balance and then every month I just be shocked at how much I’d spent. Putting things on plastic really has a way of just making you spend a little too mindlessly.
It’s especially true if you’re justifying your spending because of the rewards.
Bottom line: Make sure you only put things on your rewards credit card if you have the money to pay for it in cash and don’t justify the purchase just because of the points or the or miles.
4. Having Disorganized Finances
The fourth of the bad money habits that keep you poor and must be given up is having disorganized finances.
Having disorganized finances is basically another way of keeping your head in the sand. Here’s what I mean by having a typical disorganized financial outlook:
- You have credit cards open everywhere.
- Student loans that you don’t really know the balance for.
- You’re not really sure what you’re spending every month.
If this describes your situation, then it’s really time to consolidate your finances. So there’s a lot of really awesome apps out there that make it super easy to track all your financial stuff.
For example I used to use mint and I really liked it. You can connect your bank accounts and your credit cards. Then they’ll look at your spending and your income and tell you what you’re spending looks like every month.
You can also put in all your accounts and look at your net worth and how it changes over time. It really only takes a few minutes to setup. It’s totally worth your time.
Ever since I’ve actually switched over to tracking my finances in a spreadsheet versus in apps because I’m just a big nerd and I love my spreadsheets. I look at my spreadsheet to update my net worth every month.
That way I can see the progress that I’m making month by month. Not only is this hugely motivating but it also forces me to keep my finances very organized. I know where all my money is at all times.
Something also helps with keeping your finances organized is choosing a financial institution that offers a wide range of services so that you can do all your financial stuff in one place. The less online usernames and passwords you have to keep track of the better.
For example I have my personal checking account as well as most of my investment accounts like my Roth IRA, HSA and other investments. I have all that at Fidelity Investments. So I could access all my financial stuff with one username and it was really convenient.
Another place that offers a full suite of financial services is Betterment. They offer a checking account, a high-yield savings account as well as different investment accounts for all your financial goals.
Either way with technology and all these amazing new platforms, it’s really not hard to get and stay organized with your finances.
The key is to just get up that courage to really look at where you stand financially. I know it can be a humbling and sobering moment for some people but until you know what your starting point is,it’s impossible to get to where you want to be.
How can you get to where you want to be if you don’t know where you are now?
Bottom line: Give up the habit of staying confused about your finances and build a habit of staying organized and looking at your numbers regularly.
5. Numbing Yourself to Debt
We’re now on our fifth of the top bad money habits that keep you poor and that is numbing yourself to debt as if it will magically disappear.
We live in a society where practically everybody has debt. It’s become totally normal for someone in their 20s to have tens of thousands of dollars of student loan debt.
It’s totally normal for someone in their 40s to have a mortgage, a car loan, credit card debt ,and possibly even be paying off their student loans still.
Listen up! Just because everyone else lives with debt doesn’t make it okay for you to live with debt either. Let me illustrate this with a real life example.
Say you’re applying to colleges and you had the option to go to USC which is a school in LA on a full scholarship for your tuition. However, the school that you really wanted to go to was NYU.
So you chose to go to NYU because that’s the school that you really wanted to go to except that you didn’t get anywhere near as much in scholarships to NYU as you did to USC. Can you imagine this?
Honestly can you imagine where you would be financially if you had just gone to USC and didn’t graduate with student loans and debt?
Now don’t get me wrong you may not have any regrets about going to NYU but because debt is so normalized in our society you just didn’t even think twice about signing away my life to student loans as an eighteen year old. It’s crazy right?
Just pay for things in cash. Don’t do things if you can’t afford it. Don’t go into debt for college unless you absolutely have to and you know you you’ll get a job that will allow you to pay that off quickly.
Don’t get a car loan to buy a car. Don’t get a mortgage if you’re still paying off student loans it’s just too much!
America is one of the wealthiest countries in the world yet somehow it’s considered OK to have crap loads of debt. These days the status quo is to live with debt but don’t settle for the status quo.
Bottom line: Don’t get into debt if you don’t have to and do whatever you need to do to live debt-free.
6. Paying Extra Due Lack Of Planning
Our sixth of the bad money habits you need to break is paying extra due to lack of planning. I used to be the queen of cheap $10 umbrellas.
The reason was because I always forgot to check the weather and I just end up getting caught in the rain. Then I had to run into a drugstore to just buy another umbrella despite having like multiple umbrellas at home. This is just an example of very bad planning.
Not planning in advance and being caught unprepared always ends up costing you money. So more examples could be
things like having to take an Uber instead of using your subway card. It could also be like paying overdraft fees because you didn’t check your account balance and that last purchase went into your overdraft and the bank has to charge you.
Another way is you put things on a credit card and you just end up paying all these interest charges because you didn’t set money aside for unexpected expenses.
You know I love to fun and living spontaneously. However, if you’re always having to buy things you already have at home or just paying extra fees and interest because you’re unprepared then just take a few extra minutes to plan ahead.
Check the weather before you leave the house, leave buffer time in between appointments. Look at your account balance every so often and things like that.
Bottom line: Even just a little bit of planning will save you tons of money and at the end of the day having money in the bank is what allows you to really live as much as you want.
7. Paying Too Much In Taxes
Next bad money habits number seven is paying too much in taxes. Taxes are gonna be the single biggest expense in your lifetime. So why not do what you can to cut down on your tax bill?
Most of the tax loopholes are for the rich, for people who own assets and businesses but there are a lot of tax loopholes available to the average person as well.
For example most people have a 401k through their employer and contributing to your 401k is a way to directly reduce your taxable income. The HSA is another way to reduce your taxable income and also everyone is eligible to open an IRA either a traditional IRA or a Roth IRA.
These are investment accounts that shelter your dividends and profits from taxes. There’s an article on how to reduce your taxable income that I’ve linked below. Read it if you can make the time for it. There are a lot of ways you can start paying less taxes starting today.
Bottom line: Find out how to cut down your tax bill as much as possible.
Read More: 6 Ways to reduce your taxable income.
8. Waiting Too Long To Start Investing.
Finally here is the last of the top bad money habits that keep your poor and must be ditched! And it’s putting off investing until you have more money.
I mentioned in my first tip that putting things off like saving money and investing for the future, that is a very slippery slope and not a sound financial mindset. You might be thinking that you’ll start doing it one day when you have more money.
However, more often than not that becomes a never-ending cycle of procrastination and excuses. There’s always gonna be reasons why you can’t invest.
Some of the popular excuses are not enough money, not enough knowledge, not enough time, other priorities and so on and so forth. But get this, the longer you put off investing the harder you’ll have to work to get to the same level of financial freedom as someone who starts investing earlier.
Someone who starts investing at age 20 can become a millionaire by age 50, by investing just $180,000 of their own money. However, if they were to wait until age thirty to start investing, they would need to invest almost twice as much of their own money to reach millionaire status by age 50.
This means the sooner you start the less heavy lifting you have to do and the less of your own money it takes to get to a millionaire. Even if it’s just fifty dollars a month start investing now.
Don’t wait! It’s really easy to get started investing if you just stick your money in some low-cost index funds. Here’s also an article how to pick good index funds so check it out to learn more.
These are the top bad money habits that keep you poor and must be stopped. If the idea of saving money just isn’t fun for you then just try to re-frame how you think about it.
It’s not about discipline and deprivation but rather it’s about taking care of future you. It’s a form of self-care so take care of yourself by taking care of your money. If you’ve recognized yourself doing any of these bad money habits just be gentle with yourself.
They don’t teach this at college and unfortunately we don’t learn it from our parents. It’s all about having the awareness and the financial literacy to notice whether your daily actions bring you closer to your financial goals or take you further from your financial goals.
It’s never too late to replace bad money habits with good money habits and to just improve your relationship with money.