Bad habits of any kind can keep you from building the life you want and being the best version of yourself. The most challenging part is sometimes we don’t even realize when we have a bad habit. And it’s so much harder to break one when you don’t even know it exists. Bad money habits can prevent you from ever getting ahead financially. But luckily there are fixes you can implement in order to replace the bad habits with good ones. Here are 8 bad money habits you should stop doing immediately.
1. Buying things you can’t afford
It’s so easy to pull out a credit card and pay for things you want or feel you deserve. You do work hard after all and deserve to treat yourself every now and then. But if you don’t actually have money in the bank to pay for your splurges, all you’re doing is adding to your debt. It’s important to shift your mindset from “I deserve this because I work hard” to “I don’t deserve this unless I have the money to pay for it.” Because (here’s some tough love for you) borrowing money to pay for things you don’t need isn’t behavior that’s deserving of anything.
2. Not doing a monthly budget
In order to get a clear picture of what you bring in and what you spend every month, you need to do a monthly budget. How else are you going to know if you’re coming out ahead? Budgeting allows you to see what you plan to do with every dollar that comes in. If you’re spending more than you’re making, that’s a problem (see bad habit #4). But you won’t even know it’s a problem if you’re not budgeting and making a plan for your money.
3. Not tracking your spending
A budget will only take you so far. You need to track your spending to find out how well you’re doing with sticking to your budget. Keep track of all your spending using a bank ledger, Excel spreadsheet, or even just a plain old piece of paper – whatever works best for you. You also need to assign a category from your budget to each expense so that you can add them up and see the total amount you spent on groceries for example. That’s how you will find out how well you stuck to your budget this month and if any adjustments should be made for your budget next month.
4. Spending more than you make
This is one of the worst bad money habits! If you spend every last dime you make and then some, how are you ever going to get ahead and get your finances under control? This is why budgeting is so important. It allows you to see how much you’re bringing in and make sure you don’t overspend. Set a goal for yourself to save a certain percentage of your income (even if it’s only 3%-5% in the beginning), then as you get the hang of this savings thing, increase that percentage! Your ultimate goal should be to save about 30% of your income each month.
5. Not shopping around
Whether you’re buying a piece of furniture or a candy bar, you should always ask yourself, “Can I buy this for less money elsewhere?” When it comes to larger purchases such as furniture, appliances, or electronics, check out different stores’ websites and keep an eye out for sales. This is something most people know they should do, but the same concept should apply to smaller purchases as well. If I’m eyeing a candy bar at the grocery store that would cost me $1.29, I stop and think would this be cheaper elsewhere? I know for a fact I could get it for $0.89 at a drugstore, so I choose not to purchase the candy bar. Chances are I would end up not going to the drugstore anyway, so – bonus – I just saved myself from an unnecessary purchase and unnecessary calories! Always question if you’re getting the best deal. Don’t just blindly trust that the store you’re in has the lowest or even standard prices.
6. Not having an emergency savings fund
Your emergency savings fund is your safety net, and if you don’t have one then you’re running the risk of adding more to your debt when the unexpected happens, and somehow it always does. You should have $1,000 tucked away in a savings account just for emergencies such as a flat tire or a trip to the emergency room. Otherwise you’ll end up charging those expenses to your credit card and paying it back with interest.
7. Not giving the small transactions the credit they’re worth
I never pay for apps. If I did it would be $0.99 cents here, $1.99 there, and before you know it, I’d be spending $100 a year. I’d much rather stick to free apps and use that $100 on something I enjoy more. Think I’m being extreme over a couple of bucks? Guess what? I never pay for bags either. At $0.10 cents each if I paid for bags every time I forgot to bring some into the store with me it would add up over time. No thank you, I just won’t buy more than I can carry. It’s the little negligible costs that sneak up on you and half the time you don’t even realize it!
8. Succumbing to lifestyle creep
Lifestyle creep happens when you get a raise, bonus, inheritance, or come into some money in some way, shape, or form, and then you start spending more because you have more to spend. I’m sure you see it all the time. Someone gets a big promotion at work and then buys himself a new car. Someone else inherits some money and suddenly she’s going on several expensive vacations. I’m all for enjoying life, but you should make sure your debt is paid off and you have 3 to 6 months worth of living expenses saved up first. Perhaps even start investing in a retirement account and/or paying down your mortgage faster. It’s easy to get carried away when you suddenly have extra money, but if you use it responsibly instead of succumbing to lifestyle creep, you can stretch it out farther and give yourself better financial stability for the long run. And I don’t know about you, but I think that’s better than a new car.
Now that you know what these bad habits are, you can start working toward creating new, healthier money habits. Are you guilty of any of these bad money habits? Are there others I didn’t mention that you find yourself struggling with? Leave me a comment and let me know!