There are some people out there who are very good at making money, but for some reason, they never manage to become rich. Well, that reason has a lot to do with what we like to call bad money habits.
They work hard every day, but no matter how much they earn, due to bad money habits, it just simply seems to slip through their fingers.
And believe us when we say that you don’t want to ignore these unless you want to remain stuck in the loop that keeps most people average.
So, why not prevent that by reading this through to the end? Here are 15 bad money habits that you need to break immediately!
Don’t worry if you don’t feel like reading, you can enjoy the video below or watch it on YouTube:
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Bad Habit #1 – Impulse Buying
Now, we think this should be at the top because a lot of people don’t know about it.
Every day when we leave our homes, we feel this habit coming back. Impulse buying is the act of purchasing something without initially planning to do so.
You go to the grocery store to buy bread and milk, but you end up buying a new kind of cookie you see at the checkout.
Impulse buying is when you decide to buy something without planning to right before you buy it.
Usually, it’s because something caught your eye or you had a quick need to have the item. There are many things that can make someone buy something on the spot.
One common cause for this bad money habit is feeling stressed or excited.
Sometimes it’s because of good marketing techniques. One such technique is putting tempting things at the checkout line or giving limited-time discounts that make people feel like they need to act fast.
Other techniques are ads that are tailored to your interests and one-click purchases. Social media and internet shopping have also made it easier to buy things on the spot.
Yes, marketing firms have learned how to get people into this habit. And don’t be fooled: buying things on the spur of the moment can have a big effect on your finances.
Even though a small unplanned purchase might not seem like a big deal, if you keep doing it, you’ll end up getting things you don’t need.
And then you might find yourself living from paycheck to paycheck or without any money set aside for emergencies.
Remember that you need to understand yourself if you want to reach your financial goals.
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Bad Habit #2 – Keeping Up With The Joneses
Now, this one might sound familiar to some of you.
“Keeping up with the Joneses” is a term that means you want to live like or have more than other people. Especially to keep a, how do we say, “equivalent” social position…
For example, if your neighbor gets a new, expensive car, you might feel pressured to buy a similar or even more expensive car.
Even if you don’t need one, you buy one to show that you’re on the same social or economic level. Sounds bad and shallow, right? That’s because it is!
The “Joneses” can be friends, family, coworkers, or even people you see on social media or TV. Which we hope you don’t watch too much of.
Okay, but what makes us indulge in this bad money habit?
It’s called social comparison. It’s normal for people to judge themselves based on how they compare to others.
But this social comparison is made worse by social norms and ads. They tell us we need to constantly improve our lifestyle, things, and experiences in order to be happy or successful.
So, if you think this habit might affect you, you might want to stop using social media apps. Just focus on your journey and the process.
Remember that most people are not as happy as they seem. And if you knew what goes on behind the scenes, you probably wouldn’t want their life.
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Bad Habit #3 – Living Beyond Your Means
This is the most common bad money habit, but also the easiest one to break.
You might ask “Okay, but how do I know if I’m living beyond my means?” That’s easy to figure out.
Write down all of your regular costs on a piece of paper. Do your expenses exceed your income?
If you say “yes,” that means that you are.
Living beyond your means can lead to debt or even bankruptcy.
When you spend more than you earn, you’re often stuck in a cycle of trying to catch up on bills and other costs. Which, in turn, leaves no room for financial growth or stability.
Not having enough money can also cause a lot of stress and worry.
You will do better in life if you know exactly where you are and how much you can afford.
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Bad Habit #4 – Paying Only The Minimum Amount On Your Credit Card
There is a reason why this part of the service is there.
Even though paying just the minimum might seem like a good idea when you’re short on cash, it can end up costing you a lot in the long run.
That’s because, surprise, surprise, the interest rates on the amount you didn’t pay off are very high.
It’s not a free function; it’s there to trick you into buying something.
When the amount isn’t paid off, the credit card company charges this interest every month.
This means that the more time you take to pay off your amount, the more money you end up owing because of the interest.
Let’s imagine this bad money habit with an example.
Imagine you borrowed a book from a friend and didn’t give it back for a long time.
As time goes on, your friend might start asking for a small “fine” for each day the book is late.
In the same way, the bank will charge you a “fine” or interest if you don’t pay off your credit card debt.
The amount you owe on your credit card grows each month that you don’t pay it off, just like the “fine” for the book grows each day that it’s late.
So, if you do this often, you should put paying off your credit card debt at the top of your list.
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Bad Habit #5 – Never Asking For A Raise
You make what you ask for, not what you are worth.
Most people really make a habit of underselling themselves at every job they get. But with this mindset, you are not going to become wealthy any time soon.
That’s because, in a capitalist system, you need to know how to negotiate and evaluate yourself properly.
Nobody is going to give you a raise or offer you more capital, or a better price for your product and services.
You are the one responsible for that and if you are afraid to do so, it means you don’t have enough confidence in your skills or the product you are selling.
But, if you want to get ahead in life, you’d better change this habit.
Otherwise, money will certainly not come to you by itself.
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Bad Habit #6 – Not Investing
Saving will never make you rich.
On the other hand, investing can and will make you money if you know how to put your money to work and take advantage of compound interest.
When you invest money, especially for a long time, you might get interest on both the money you put in at first (called the capital) and the interest you’ve already made.
Imagine that your money is making money on its own!
But if you just keep your money in a regular bank or savings account, where interest rates are often low, your money doesn’t work nearly as hard for you.
In fact, putting it in a savings account will cause you to lose money.
That’s because the rate of inflation is almost always higher than the rate of interest a bank will give you.
Really, it’s a scam, and even if it weren’t, banks aren’t safe.
See our article about the SVB’s fall for more information.
Anyway, just to be clear, inflation is the rate at which prices for goods and services as a whole are going up, which means that people have less money to buy things.
This means that over time, your money will be worth less than it is now.
By spending, you try to grow your money at a faster rate than inflation, which helps your money keep its value over time.
But be careful! There are good investments and bad ones out there, so you should do your study before putting all your money into something.
You shouldn’t put your money into things you don’t understand.
This will come up again later in the movie.
So, if you don’t already spend regularly, you should start learning everything you can about it right now.
You should start putting your money to work for you.
And while we are still on this subject, there is one more type of inflation you should know about:
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Bad Habit #7 – Ignoring Lifestyle Inflation
Lifestyle inflation, also called “lifestyle creep,” happens when your standard of living goes up as your income goes up.
It means that you spend more, often on things or services that aren’t necessary.
For instance, if you get a raise at work, you might move into a bigger house, start eating at fancier places, or buy a more expensive car.
Basically, your costs go up at the same rate as your income, or in some extreme cases, at a faster rate.
But what’s wrong with this?
Well, living inflation can make it hard to reach your long-term financial goals.
If you keep spending more as your income goes up, you might not be able to save or invest enough for your future wants.
Also, it’s easy to get used to a more expensive way of life, which can be hard to keep up if your income drops quickly.
Also, it makes it harder to handle unexpected costs or situations because you might not have saved enough.
This bad money habit can make even people with high incomes live from salary to paycheck.
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”Keeping Your Money Under the Mattress”
There is a big difference between thinking that money will make you rich and putting some money away in case of an emergency.
The bad money habit we’re talking about here is saving money with the idea that keeping it will make you rich when you’re 70 or whatever.
If you live in an emerging country, you may have heard stories about family members who saved money, only to find that it was worthless years later.
We already told you how to fix it: invest and keep an eye on prices.
If you don’t do that, the central banks will just make you poor and wipe out the value of all the years you’ve worked.
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Lending money to people who you know will never pay it back
We know you probably don’t want to hear this, but if you give money to other people often, you already know it’s true.
When you give money, you should expect to get it back in full.
If it isn’t, you aren’t really lending the money. You’re just handing it to them.
Even though it’s good to be kind, giving away more than you can afford to lose can hurt your finances.
Also, giving money to people who don’t pay you back is a bad money habit.
It shows them that you don’t care if they take money from you.
This can make them keep borrowing money because they know they won’t have to pay it back.
Over time, this can do a lot of damage to your finances and might even make it hard for you to get along with the person who owes you money.
So, if you want to keep your money and relationships in good shape, you might want to stop doing this.
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Not Paying Your Taxes
Some people find out the hard way that they shouldn’t try to trick the government.
We know that nobody likes to pay taxes. Everyone wants to keep as much as possible of what they make.
But society has to work in some way, and taxes are the way it does that.
So, if you don’t pay your taxes, the government doesn’t get the money it needs to pay for things like roads, schools, and health care.
It’s like harming society, and even though this money doesn’t get questioned as much as it should, there’s not much we can do about it.
Over time, you could end up owing much more than your original tax bill if you don’t pay your taxes. This is because interest and fines add up on unpaid taxes.
You could also get into major legal trouble, which is something you definitely want to avoid.
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Investing in Things You Don’t Understand
Investing in something you don’t understand is like driving in the dark without headlights.
Sure, you might get lucky and reach your destination, but you’re also more likely to hit a wall or fall into a ditch.
When you invest in what you understand, you can make informed decisions based on your knowledge of the market, the product, or the industry.
Without that understanding, you’re essentially gambling, not investing. You could lose all your money because of some risk or factor you didn’t even know existed.
Hence, this is such a bad money habit to keep on.
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Not Maximizing Tax-Advantaged Accounts
Just a pro tip for people who don’t want to pay taxes they don’t need to.
Individual Retirement Accounts (IRAs), 401(k)s, and Health Savings Accounts (HSAs) are all tax-advantaged accounts that can help you build wealth more quickly.
For instance, you can deduct money you put into a standard IRA or 401(k) from your income, which lowers your tax bill for the year.
In the meantime, the money in these accounts grows without paying taxes on it until you take it out in retirement.
HSAs are used to pay for medical costs and have three tax benefits:
- contributions are tax-deductible
- the money grows tax-free
- withdrawals for qualified medical expenses are also tax-free
If you don’t put in as much as you can or don’t use these accounts at all, you’re basically leaving money on the table because you’re paying more in taxes than you need to.
But keep in mind that this only works in the US.
If you work in other countries, you might want to talk to a financial advisor to find out if there are similar programs there.
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Relying On A Single Income Stream
If you only have one source of income, it’s like putting all your eggs in one basket. If something goes wrong with that basket, you’re in trouble. Here’s why this is a really bad money habit and why you need to diversify ASAP:
If you lose your job or run into a financial problem out of the blue, you won’t have any other money coming in to help pay your bills.
On the other hand, if you have a part-time job, rental income, or investments that bring in money, it’s like having several smaller bags.
Even if one basket falls, the others can keep you up.
This spreads the danger and helps you build a financial safety net.
On top of that, you’ll have more money. There is nothing bad about this at all.
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Ignoring Budgeting
People don’t keep track of their spending and won’t make a budget, which causes 9% of all money problems.
In fact, this is the first thing you should do if you want to change all of your bad money habits.
You have to know what’s going on with your money, there’s no way around it.
And if you think you are too lazy to do that or that you can just budget in your head, we have bad news for you:
It won’t work, and it shows that you don’t care about your money.
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Gambling And Investing In Get Rich Quick Schemes
We’ll explain this last point by quoting Naval because he said it better than we ever could:
There are no get-rich-quick schemes. That’s just someone else getting rich off you.
This goes back to the world being an efficient place.
If there’s an easy way to get rich, it’s already been exploited.
Building wealth is a skill and it takes time, effort, knowledge, and a lot of sweat.
And anyone who tells you otherwise is only looking to take advantage of you.
If you don’t break these bad money habits soon, you might find yourself in a lot more trouble as time passes. So make sure you put all this info to good use! See you next time
