7 Bad Money Habits That Keep You Poor
We all have bad money habits, and many of us don’t even realize it’s these habits that prevent us from reaching our financial goals.
Over time, bad money habits compound. And, then, one day in the future, we wake up and wonder how the heck we got into so much debt and have so little invested for our future.
The key is to become aware, then replace bad habits with better ones.
Find out how you can replace these 7 bad money habits with 7 good ones. These strategies may help you achieve financial freedom and have the retirement lifestyle you dream of.
#1 Paying Yourself Last
Here’s the scenario: You get paid, and then you pay your mortgage or rent, utility bills, credit card bills, buy groceries, buy stuff for the kids, go to dinner, buy yourself something you want. The plan was to save and invest.
Problem is, more often than not, there isn’t any money left. The answer isn’t necessarily to make more money because if you have this bad money habit, you will find a way to spend every single paycheck.
People who get ahead financially pay themselves FIRST – before they pay anyone else.
They prioritize their wealth and treat saving money as if it’s a bill.
Break this bad money habit right now. Commit to set aside a percentage of each paycheck to your financial future, and then live on what’s left.
If you have a 401(k), your retirement savings are automatically taken out of each paycheck. If you have an IRA, you should be paying into this first as well. Same with your emergency fund.
If you don’t have much left to spend at the end of a pay period, don’t fret. You’re building a nest egg for the future!
#2 Putting Off Investing More
Piggy backing off #1 is the bad money habit of putting off investing until you have more money.
The problem with this mindset is that rarely will you have more left over. And, if you do and you’re not in the habit of saving for the future, you’ll find something to spend that money on.
If you have this bad money habit, chances are there is always a reason why you can’t invest more money each pay period. Your car stops working. You need a new air condition unit. Your cat gets sick. You get hit with a big tax bill.
This bad money habit is a slippery slope that may have devastating consequences come retirement.
The longer you put off investing, the harder and longer you’ll have to work to get to financial freedom than someone who starts investing earlier in life.
Stop this bad money habit today. Sit down, review your current finances, and then commit to saving more starting next pay period.
Can you invest 1% or 2% more each month? Better yet, 10 – 15% of your income?
If you have a 401(k), contact your HR department and raise your contribution amount. If you have an IRA, set up direct deposits each month to ensure you’re on track to max out your contribution limits. While you’re at it, do the same for your emergency fund.
[Related Read: 7 Things That May Maximize 401(k) Performance in 2022]
#3 Keeping Up with the Joneses
You know how this one goes. You have friends or family with expensive tastes. You are envious of influencers and others on social media who jetset around the world.
It’s hard to resist the temptation to keep up with them.
But it’s this bad money habit that prevents you from having more money after you’ve paid your bills and saved. It’s what’s helped get you into debt. And it is what will keep you poor and in debt if you aren’t careful.
If you have friends or family who are always wanting to go to fancy dinners or take trips that you can’t afford – well, it’s as simple as a conversation.
Share your financial plans to save and invest, and they will understand. Turn down certain invitations. Or suggest less expensive activities. If they don’t respect you, get new friends.
Also, remember, you don’t know what’s going on behind the scene with friends, neighbors, or influencers.
A lot of what you see is not real. You see a San Tropez vacation, but do you know that they put that entire trip on a credit card that they can’t pay off right away?
#4 Putting Everything on Your Credit Card
A lot of people put everything on a credit card in order to earn rewards, such as flight miles.
While it’s a smart money move to earn flight miles, it can be a slippery slope because you may end up justifying buying more just to get the rewards.
Plastic has a way of making us spend mindlessly and spending more than we otherwise would. When this happens, it cancels out the rewards received – especially if you aren’t paying off your credit card bill in full each month.
The way to avoid this bad money habit is to make sure you only put things on your rewards credit card IF you have the money in your bank account to pay for it.
And pay off each purchase immediately after you’ve bought something using your credit card.
#5 Being Okay with Too Much Debt
The status quo in America is to live with too much debt.
Is it any wonder many of us are all too comfortable with holding so much debt?
The problem with this is that the debt continues to accumulate over our lifetime. Then, we enter retirement saddled with car loan, student loan, personal loan, and credit card debt.
Turn this bad money habit around and make it a point to pay off your debt now. Sit down today, and make a plan for how you plan to tackle your debt.
Don’t get a new car loan or take on any other debt until you get it under control. And don’t buy things you cannot afford.
Make debt payoff a priority, and your future self will thank you for it! Nothing improves cash flow more than paying off debt!
#6 Paying Too Much in Taxes
The next bad money habit is not paying attention to taxes. Failure to plan for taxes more often than not means higher tax bills.
Turn this bad money habit around and do what you can to cut down your tax bill. This means planning and knowing what tax loopholes are available to you.
For example, if you have a 401(k), the more you contribute, the more you directly reduce your taxable income.
An HSA account is another way to decrease your taxable income, if you qualify.
If you are eligible to open a Roth IRA, these investments shelter your profits from taxes.
We recommend you speak with a tax professional right away and see how you can bring down your taxes.
#7 Refusing to Get Professional Help with Your Finances
There is no shame in asking for help.
In fact, it is one of the wisest choices you can make for your financial future.
Recent studies show how Professional Account Management may improve your annual 401(k) account performance by 3% or more.
Use our 401(k) Calculator to discover your estimated account balance with professional help.
Check out our no-cost guide on how to understand The Different Types of Licenses Financial Advisors Have and What They Mean to You.