Home Budgeting 35 Bad Money Habits and How to Break Them

35 Bad Money Habits and How to Break Them

by Dale Thompson

Are you continually facing financial challenges? You might be keeping yourself poor with bad money habits you didn’t even realize were contributing to your situation. According to estimates, 25% of Americans do not have a single cent in emergency reserves. Dropping financial habits that could keep you poor is an effective first step towards securing your financial future.

1. Failure To Create An Adequate Emergency Fund

An emergency fund that covers at least three months of living costs is the best way to avoid financial catastrophe. Unemployment for a short period of time or a single large, unexpected expense may be financially disastrous. It will take place. Don’t think it’s a question of “if it ever occurs.” Start putting money away for an emergency fund with whatever amount you can afford. Even a few bucks each week may help.

2. Adopting a Consumer Mentality

Although I think that spending money on things you like is well worth it, some individuals just have a “buy buy buy” mentality. If this describes you, you should consider how your money may be utilized to generate even more money.

Consider this: Every dollar you spend is a dollar you might be investing or putting towards a side business. You’ll put a lot more consideration into every dollar you spend once you start thinking like that.

3. Spending Out To Eat

There’s nothing wrong with getting together with friends for a bite to eat now and then, but if you’re having lunch out every day or ordering pizza a few times a week, you may want to reconsider.

Restaurants and takeaway cost the typical American slightly over $3,000 each year. That’s plenty to go on a trip or do a job around the house.

Instead, bring your lunch and dine out just on Fridays, limiting pizza evenings to once or twice a month.

4. Taking Chances

You’re essentially winging it if you don’t have any financial objectives right now. Sure, it may work out and you’ll wind up in excellent financial shape, but chances are you’ll be in a same situation 10 or twenty years from now.

Setting realistic and solid objectives to aim towards is essential if you want to really succeed with your money. Create a savings goal for a downpayment and donate money to it every month if you want to purchase a home in ten years. That is an example of a long-term objective.

5. Paying Yourself First

You’re probably not saving as much money as you might be if you wait until the end of the month to see how much money you have left. When you are paid, you should immediately deduct money from your paycheck and put it in a savings account.

Making a budget is one of the most effective methods to find out how much to cut. Budgeting may be done in a variety of ways, so choose one that works for you! Budgeting on a regular basis is a wonderful habit to develop.

6. Pay Off Your Mortgage as Soon as Possible

Adam Goetz, a partner at Burstin & Goetz and the head of MassMutual’s Advisor’s Association, thinks that paying off your mortgage as soon as possible is a poor money habit that should be broken.

“For a long time, every homeowner’s dream was to have a mortgage burning party!” Goetz remarked.

This isn’t 1982, however, and 17 percent mortgages aren’t the norm. When interest rates are as low as they are now — around 3% for many people for the next 30 years — take advantage and free up cash flow. Even though many people may be unable to deduct their expenses due to the higher standard (tax) deduction, locking in such low rates to enable for other investments is a fantastic opportunity. I’d want to have a mortgage for the rest of my life, as long as I can maintain obtaining such favorable terms!

7. Credit Card Reliance (Avoid Credit Card Debt)

Using credit cards is one of the worst things you can do for your money unless you can pay off the amount in full each month, particularly if you’re using them to live above your means. This will keep adding to your credit card debt. 

Every dollar you put on a card will cost you several times more in interest charges if you don’t pay it off in full each month. You may waste years of your life and tens of thousands of dollars paying off debts you don’t recall incurring.

Consider utilizing the debt snowball or debt avalanche technique to pay off your credit card debt. You pay more on the loan with the lowest amount each month using the debt snowball, while paying the minimum on the remainder of your debt. Once it’s paid off, you apply the money you were paying on that card to the next-lowest-balance obligation.

For example, if you were paying $100 per month on the card with the lowest debt and the $50 minimum payment on the next lowest amount, after the lowest balance was paid off, you’d start paying $150 (the $50 minimum plus the $100 from the prior card) on the next lowest balance. Until you’ve paid off all of your debts, you keep doing this.

The debt avalanche is similar, but you start with the debt with the highest interest rate and work your way down.

8. Choosing the Incorrect Financial Advisor

Hiring a financial advisor is a significant life choice, whether you’re trying to grow money or plan for a happy retirement. Regrettably, not all of them are made equal. If you choose the incorrect advisor, you may find yourself in a worse situation than when you began.

When you’re looking for someone to help you, meet with a few planners. Before making a choice, speak with them, ask a comparable set of questions, and evaluate their credentials and recommendations. Inquire about how they are compensated and how long they have been in business. Please take your time. Always work with a fiduciary, or a planner who is legally obligated to put your needs ahead of their own.

Finding a trustworthy financial advisor doesn’t have to be difficult or time-consuming these days. Begin your search with our free financial advisor matching service, which can connect you with up to three competent financial advisers in less than five minutes. Every advisor has been thoroughly vetted and is a fiduciary.

Get started today if you’d like to be connected with local advisors who can help you achieve your financial objectives.

9. You Are Surrounded by Negativity

Negative, gloomy people who blame everything on others or social causes may truly bring you down. Misery enjoys the company of others.

Surround yourself with successful individuals and those who have a positive outlook on life.

Their mindset will rub off on you, and successful individuals can teach you a lot.

Other blogs I’ve read claim that hanging out with broke individuals will keep you broke. But I believe it has less to do with their financial situation and more to do with their mindset.

10. Failing To Make or Stick To a Budget

Simply understanding where your money must go and where it comes from, as stated many times throughout this article, may greatly assist you in structuring your life in a manner that is most beneficial to you.

Calculate your income and expenditures – Determine how much you earn and how much you must spend each month, then determine where you have a surplus or a deficit.

Set short- and long-term financial objectives for yourself to help you stay on track and on budget.

Monitor your expenditure – Keep a close eye on your spending patterns to figure out where your money is going. Small expenditures that you weren’t even aware of will almost certainly mount up to more than you could have anticipated or believed before today.

11. Keep Your Expenses Minimal To Reduce Bad Habits

Living within your means is one of the greatest money habits you can acquire.

Living within your means may help you save money quicker and understand the difference between necessities and desires, which can help you avoid poor spending habits.

Although leading a modest lifestyle may seem difficult, you’d be amazed how much money you can save by making even little lifestyle changes. Simple adjustments in your spending habits, such as couponing, buying used instead of new, and cutting the cord, may have a significant effect on your bank account.

12. Take Your Time Before Making a Purchase

Adults learn to say no to themselves in order to acquire something more valuable in the long term, regardless of their present feelings or what others are doing. Making choices based on what will propel you ahead requires knowledge, and it takes bravery to ignore what others believe. I often have to ask myself, “Would I purchase this if no one ever saw it?”

Begin budgeting with EveryDollar right now!

Okay, gentlemen, with a little sacrifice and a lot of self-control, your dream trip will no longer seem so far-fetched. Tuition for college will begin to resemble a molehill rather than a mountain. And since you have more money than ever before, giving will become second nature.

13. Irrational Mobile Shopping & Spending Spree

While you’re waiting, don’t go shopping. Do you ever browse online shopping sites while waiting in line at the store, at the doctor’s office, or on public transportation? If you purchase something little every time you’re delayed in line, you could wind up with a big bill at the end of the month.

14. Dry Cleaning

If you’re spending a lot of money on dry cleaning each month, it’s time to cut down. Dry washing is no longer required for most clothing purchases.

Consider purchasing an at-home dry cleaning kit and doing the job yourself if you want your suits to be crisp and clean.

15. When It Comes to Investments, Be Cautious

bad financial habits to avoid

One poor money habit that parents instill in their children, according to Andrew Latham, certified personal financial advisor and managing editor of SuperMoney, is to put money in secure assets like certificates of deposit.

“Don’t be too harsh on your parents: putting money into certificates of deposit wasn’t such a terrible idea when they were young,” Latham remarked. “Three-month CDs reached an all-time high of 18.65% in 1980. However, the average rate as of April 1 was 0.07 percent. CDs may have served your parents well, but a well-diversified investment portfolio with a decent mix of equities and bonds is almost always a better choice.” Deposit accounts, according to Latham, are a secure choice since they’re insured by the Federal Deposit Insurance Corporation (FDIC), and you won’t lose your money. However, there is a drawback.

“They’re also a bad investment since you’ll always earn less than the inflation rate, which is about 2% APY,” Latham said. “Investing in secure certificates of deposit will almost certainly result in a loss of buying power (i.e., money).” 

16. Retiring Prematurely or Insufficiently

If you’re nearing retirement, you may fantasize of leaving your work and exploring the globe. However, before you call it quits, there are a few reasons why you might reconsider. To begin with, you may live longer than you anticipate, have unexpected health problems, or experience difficult financial circumstances that require you to make sacrifices.

That’s not to suggest you shouldn’t retire early; but, if you do, be sure your assets will meet your expenditures throughout retirement and provide you with a lifetime of income.

The same may be said for not retiring early enough. If you’re uncertain if your funds will be sufficient, you’ll be concerned and, as a consequence, may work longer than necessary. It’s much better to know what you have and what you’ll need. Replace uncertainty with confidence, and work only as long as you desire.

If you’re approaching retirement, see a financial adviser to figure out the best time to retire depending on your unique circumstances.

17. Buying at a Store

Paying retail markup is like to lighting a fire under a stack of cash. Buyers that are astute discover methods to prevent this.

A new vehicle, for example, loses a lot of value the moment you drive it off the dealer’s lot. So, go for a lightly used one. Create a new habit: If you’re feeling pressed to keep up with your friends or neighbors, consider how much it costs you. Except when researching goods, avoid shopping centers and brand-name shops. Look up pricing online so you can recognize a good deal when you encounter one.

18. Discounts and Bargain Sites Aren’t Taken Into Consideration

You’re overspending if you’re not utilizing coupons and visiting daily bargain sites. When discount shopping, though, you must maintain discipline to avoid sabotaging your good intentions with impulsive purchases.

Create a new habit: Take modest steps to break harmful behaviors. Only use one offer or coupon site at a time.

Every day, for example, on Money Talks News’ specials page, there are fresh discounts and coupons for clothing, shoes, gadgets, tools, and more.

19. You Only Have One Source of Income

Having a single source of income may be beneficial for a time, but what happens if that job is lost? What happens if the business goes bankrupt?

Being dependent on a single source of income may put you in a difficult financial position if anything unexpected occurs. However, it has the potential to keep you broke.

You should invest in stocks, establish a side business (like a blog), invest in real estate, freelancing, and so on to really generate wealth and passive income.

20. You’re Concerned About Making a Good Impression on People

Constantly worrying about what others have and attempting to impress them with material goods is a fantastic way to remain poor.

You may become aggressive with your spending on needless items or improvements you don’t need by combining the consumer mindset with witnessing the flash of social media.

The trick is to disregard what others have and concentrate on your own financial objectives. It’s easier said than done, but it may help you keep your money in your pocket.

21. Failure To Establish Personal Objectives and Financial Goals

Personal and financial objectives are often inextricably linked. Perhaps your personal aim is to work part-time so you can spend more time with your family, or perhaps you want to save money so you can explore the globe.

Perhaps you prefer a low-stress work with good income that enables you to dedicate time to creative projects, or perhaps you prefer a low-stress job with decent salary that allows you to devote time to creative projects. It’s a good idea to have a clear understanding of your personal objectives so that you may use them to guide your professional and financial objectives.

22. Purchasing All New Items

Buying everything new may eat up hundreds of dollars in savings each year if you’re attempting to conserve money and get your finances under control. There are definitely cheaper gently used alternatives for everything you want to purchase, from automobiles to clothes and everything in between.

I like scouring Craigslist, yard sales, and thrift shops for bargains! While you’re unlikely to discover everything you need, it’s still a good idea to look into your alternatives before purchasing any brand new goods at full price.

It may be tempting to forego insurance in order to make ends meet when your budget is already tight. Going without insurance, on the other hand, may place you in an even worse financial position when you most need it.

If you have the financial means, you should get insurance such as health insurance, house or renters insurance, and car insurance to ensure that you are protected in the case of an emergency. Insurance marketplaces like as Policygenius can assist you in locating a cost-effective insurance policy that meets your needs.

23. Inflationary lifestyles

Having a little more income left over at the end of each month, whether you recently received a raise or launched a successful side business, may feel wonderfully liberating. While it may be tempting to spoil yourself to mark your newfound prosperity, you should avoid allowing lifestyle inflation to eat into your budget. You may set yourself up for a successful financial future by living within your means and putting any extra money you make into savings and investments.

24. Accusing Others of Your Misfortunes

“Life isn’t always kind.” It’s a phrase we’ve all heard and perhaps uttered to ourselves at some point. And it’s absolutely, unequivocally correct. We’ve all come from diverse backgrounds, with some of us having much more possibilities than others.

While it’s true that “life isn’t fair,” blaming others won’t assist you at all! Accept your current situation and play the cards you’ve been dealt. Only look at yourself in the mirror.

25. Failure To Be Prepared In The Event Of An Emergency

If there’s one thing you can rely on, it’s that something will go wrong at some time. An accident will occur, a job will be lost, or a piece of equipment will break. When it comes to your money, being prepared for an emergency is crucial.

Financially, you don’t want to be caught off guard. Make a cash reserve in case of an emergency.

26. Failing To Put Money Aside For The Future

#YOLO and #FOMO are two popular hashtags that make you feel compelled to spend all of your money right now. Why save for the future when you can live in the present? Wrong.

When it comes to money, it’s important to strike a balance. YOLOing at the top of your lungs isn’t going to suddenly make you have a wonderful retirement life or help you create money. Enjoy life today, but don’t forget to save for the future and work hard to achieve your objectives.

27. Make Your Finances More Automated

By automating your money, you can simplify your life and guarantee that your payments are paid on time.

You may set up automatic bill payment and even have money sent to your savings account automatically. You should still examine your accounts on a regular basis, but this is an excellent approach to gain financial control.

28. Make Sure You Have Enough Insurance

Being underinsured may result in significant out-of-pocket expenses. It is possible to safeguard your income and possessions by purchasing the appropriate insurance. Naturally, the kind of insurance coverage you need is determined by your circumstances.

Check out these 9 kinds of insurance that you may not be aware of. Bank account fraud is common, and checking your bank statements may help you immediately spot illegal activities. Keeping a careful watch on your money ensures that nothing slips through the cracks, and it also allows you to observe your spending patterns. One of your new financial habits should be to check your bank statements on a monthly basis.

29. Expenditure Exceeds Income

The cardinal sin of personal finance is spending more than you make. This one bad behavior will have a domino effect, creating major issues in every aspect of your personal finances.

If you spend more than you earn, for example, you’ll have to depend on credit to make ends meet. Credit comes with a high rate of interest, trapping you in debt. You continue to spend more than you make, resulting in an ever-increasing and vicious cycle.

If you are presently spending more than you make, this should be your first priority. Don’t worry about anything else until you’ve figured out how to live within your means.

(For some, this will imply new spending habits, while for others on a tight budget, it will imply more earnings.) You have a choice of two options here. You may either concentrate on cutting your expenditure and budgeting better or on generating more money to bridge the difference.

30. Habitually Paying Bills Late

bad money habits

Most people think that credit card issuers earn the majority of their money by charging exorbitant interest rates. This is not the case. It’s the late fines that they collect.

If you’re late, even by a single day, almost every payment you pay each month gets more costly. Make it a financial habit to sit down once a week and pay your payments when they come due. Pay them at least seven days ahead of time.

31. Inappropriate Use Of Credit Cards

The worst use of credit cards is buying things you can’t afford. Using your credit cards to their maximum limits and then paying just the minimum due can put you in a dangerous situation, decrease your credit score, and keep you in debt for a long time.

 Resolve to limit the use of your credit card in emergency situations or to accumulate rewards if you pay off your balance in full each month.

32. Failing To Save Money From Each Paycheck

If you’re struggling to make ends meet, saving money often seems to be impossible. But this is the most critical time. Start saving 1 percent of your take-home pay and build it from there. If you don’t save any money, how is your situation going to change?

33. Buying Items You Don’t Need

After shelter, clothing, food, and medical care, most spending is optional to varying degrees. You probably don’t want to feel like you’re living in a cave and eating sticks, but you certainly spend money each month that could either be saved or spent more wisely.

34. Making Impulse Purchases

How many times did you make a big purchase and ran out of money at the end of the month? Impulse purchases are rarely satisfactory after the initial glow has been worn out. In fact, you’re probably resentful of the purchase after the financial pain comes home to roost.

  • Take a few days to think about the purchase before making a final decision. You’ll often find the urge has subsided.

35. Failing To Contribute To Your Retirement

After forty years of work to make ends meet, wouldn’t it be nice to retire comfortably? Many seniors find themselves in difficult financial circumstances because they have not made an adequate contribution to their retirement. It’s never too late to get started.

Final Thoughts

Eliminating bad money habits is the most effective way to begin your journey to financial abundance. Choose a habit and make an effort every day to get it out of your life. The most powerful action you can take on your finances is to eliminate your three most debilitating financial habits. Also, if you are new to budgeting, feel free to check out these awesome tips for first time budgeters.

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