10 Bad Money Habits That You Need to Stop Right Now
Money is complicated these days. Bad money habits sure don’t help.
As of 2018, 1% of the people control 82% of populations wealth. Global debt is in the trillions. The average American household has over $130,000 of debt. Individual American credit card debt is around $6,000. One of the main causes of divorce is directly related to money.
Where does that put us as individuals with our personal financial situation?
The stats aren’t looking too good. Many people live above their means and spend money they don’t have. With access to credit cards and loans, it has become easier and easier to adopt bad money habits and neglect financial responsibilities.
We all know that person, or maybe we are that person, who literally lives paycheck to paycheck eagerly waiting for Friday’s so they can replenish their empty bank account.
I remember shopping with a friend a few years back when she lightly commented that she only had $12 in her bank account and needed to wait until payday Friday to buy the clothes she was shopping for. Mind you, these were clothes she did not need, she wanted them. There is a huge difference between needing and wanting something.
I couldn’t believe my friend was so careless with her spending and was probably going to be fined by her bank for not keeping the minimum balance of $35 in her checkings account. It felt so careless that she could have a good paying job and spend all her money on unnecessary things.
Within the months that followed, we talked more and more about her financial situation and I realized something important. My friend didn’t like her financial situation, but she felt too far gone to correct it. She didn’t know what steps to take in order to stop her bad money habits and she assumed that she was destined to be bad at handling money.
So, how do you take control when the odds seem so grim?
Just because the statistics don’t look great doesn’t mean you have to succumb to the financial burden many people find themselves in.
The biggest and most important step in changing your financial dynamics is to cut out your bad money habits.
By adjusting your spending habits, recognizing your financial patterns, and changing your overall mentality about finances, your wallet and bank account can be a thing of happiness, not a burden.
Here are 10 bad money habits that you need to stop right now.
1. Not having a budget
Budgeting is not a bad word.
People of all financial incomes have budgets. They are helpful and necessary for good money tracking habits.
If you’re spending is out of control, or you simply don’t have a grasp on what you are buying each month, you need to have a budget.
To learn how to make a budget, check out this post: Create a Monthly Budget to Kickstart Your Savings
Now, it isn’t enough to just create a budget. The most important factor is that you have to make up your mind that you will stick to it. It might be hard at first, but in order to get yourself financially stable, you need to be monitoring every single purchase you make.
With a budget, you will be able to see your spending habits and adjust them to work for your finances.
So, stop what you are doing and go make a budget. It’s really easy, quick, and painless. I promise! Read the post here: Create a Monthly Budget to Kickstart Your Savings
2. Not having a savings
My absolute favorite quote regarding finances is from Warren Buffett, “Do not save what is left after spending; instead spend what is left after saving.”
I cannot express enough how important a savings account is. Your money should not sit in your checking account. Even if you feel like you have a grasp on your spending habits, money needs to be frequently set aside into a savings account.
The reason it’s a bad money habit to not have a savings account is that we live in a random world. At any moment, you could have a financial emergency. Would you be prepared?
A savings account helps to minimize money risks. While you can’t avoid things like cars breaking down, medical emergencies, or hidden fees, you can be prepared with money that was intentionally put into a savings account.
Personally, I have two savings accounts. One is for fun, and one is for emergencies. I tend to stick by the rule of thumb with havings 6 months of living expenses saved in my emergency fund. My other savings will just grow and grow until I want to take a trip or buy something big like a house (or a wedding… March 2019!).
3. Treating yo’self too often
Any Parks and Rec fans? If you’re familiar with the show, you probably remember the ongoing gag, “Treat yo’self”. If you are unfamiliar with the show, there was this great ongoing saying that gave the characters an excuse to buy ridiculous and expensive things because they deserved to treat themselves.
While I don’t disagree with that motto, I do think people, especially American’s, tend to take it too far.
Nowadays, it seems like every purchase is a treat yo’self purchase. People splurge too often, typically using credit cards, on items that they don’t need. This bad money habit is one of the fastest ways to dig yourself into a hole of debt.
To counter this mindset, let treat yo’self actually represent what it was initially intended for: a treat. Treats don’t happen every day. If they did that wouldn’t be a treat, just a lifestyle.
Instead, allow yourself a treat when you truly deserve it. It’s a reward for accomplishing something, regardless of how big or small. Just don’t overdo it.
4. Keeping up with the Joneses (also, FOMO)
Who are the Joneses and why do we have to keep up with them?
Well, the Joneses are an imaginary family who magically has everything you ever wanted. They have the best cars, gadgets, clothes, vacations, and appearances. Basically, the Joneses are #goals. So, why do we want to keep up with them? Easy, it’s the fear of missing out (FOMO).
Some could argue that it’s human nature to want to fit in. But, fitting in can lead to really bad money habits.
How many times have you or a friend gotten a new phone when it wasn’t time to upgrade? What about keeping up with expensive fashion trends, or buying specific name brands you can’t really afford?
The problem with keeping up with the Joneses is that we will always be one step behind. After all, they are an imaginary family that has everything we have ever wanted in life.
But with social media, the Joneses have materialized into influences who never repeat outfits, high school friends who seem to always be on vacation, and people who have new everything even though they probably don’t have jobs. It’s easy to want to keep up and fit in.
But, financially, it’s not worth it. If your phone is in good condition, it’s probably not worth it to buy a new one. If your closet is jammed packed with clothes, just window shop and save your money.
Trust me, it’s not worth it to spend all your money trying to uphold an image because you’re afraid of missing out.
5. Not using credit cards to your advantage
I love credit cards and am a huge advocate for them. With that said, credit cards have to be used the right way into order to work in your favor.
There are a few ways to use credit cards to your advantage. The first way is to get a cash back reward credit card.
I swear by cash back reward credit cards. Every single purchase I make is on a rewards credit card that earns me points. During the last few years, my fiancé and I have earned hundreds of free dollars just by using our cashback reward cards. With our travel rewards credit card, we have been able to get free hotels, Uber’s, and flights.
The next and more important way to use a credit card to your advantage is to always pay the card off, every month. By doing this, you never pay the interest rate.
Interest rates are how people get into such bad debt.
Credit cards can easily top the list of bad money habits because many people use it as free money. Credit cards are not free money. I repeat credit cards are not free money! They must be paid off. Every month that they go unpaid, or the minimum only gets paid, you are losing money. It’s not worth it.
That is why I pay my credit card off in full every month. I have never paid interest on a credit card and I never will.
I simply use my credit card because of the benefits of earning free money. It has been amazing.
6. Not paying down student loan debt
One of my favorite topics to talk about is student loan debt. I can literally talk about it for hours without getting bored.
In a nutshell, when I graduated with my undergraduate degree, I was in $30,000 of debt. I made a goal to pay that off entirely in 2 years. I succeeded. No one thought I could do it. I got called frugal, prude, and uptight. But, now I’m 100% financially free and people ask me all the time how I did it.
I go into details about my repayment method in the following posts. Be sure to check them out.
- How I Paid Off $30,000 of Student Loan Debt in 2 Years | Financially Free by 23
- 8 Ways to Prepare for Student Loan Debt Repayment
- How to Save Money as a College Student
7. Overspending on monthly bills
Some bills are necessary such as rent, car payment, and health insurance. Other bills such as frivolous subscriptions and cable can lead to bad money habits.
The easiest way to cut back on your monthly bills is to list them all out. Yep. Every single bill.
My fiance and I did this recently and we were shocked by some of the things we were paying for such as a forgotten gym membership and a service we weren’t even utilizing anymore.
It’s so easy to sign up for something cheap and forget that those little expenses add up. We live in a subscription-based world where we can have access to movies, tv, makeup, food, clothes, and so much more for what seems like an affordable rate. The only problem with that is that it adds to our monthly bills and we end up getting sucked into debt over it.
Cut this bad money habit out asap and you’ll start seeing more money in your wallet (or savings account!).
8. Not tracking your spending
Remember when I said having a budget wasn’t enough? You have to keep track of your spending in order for a budget to work.
Tracking your spending is not the easiest thing because it is kind of time-consuming. However, it’s extremely eye-opening.
You don’t realize how many days of the week you buy a burrito or burger (super guilty) until you see the itemized purchases in your online banking.
I once talked to a couple who tracked their spending and realized that they were averaging $700 a month just on eating out! Now, that’s bananas! Talk about bad money habits.
However, the only reason they were able to see that bad money habit was that they started to track their spending.
It might be hard to do at first because you might not want to admit to yourself that you sometimes go crazy with spending. But, remember, we don’t want to be another debt related statistic.
So, block out some time to take a realistic look at your habits and start fixing it!
9. Living above your means
Don’t spend more than you make. Overspending is a very bad money habit.
If you make $2,000 a month and spend $4,000 a month, there is a huge problem. If you make $10,000 a month and spend $15,000 a month, there is a problem. Even if you make $100,000 a month and spend $300,000, there is a problem.
It doesn’t matter if you make a lot or a little. What matters is that you aren’t spending money you don’t have.
Living about your means is a terrible trick that too many people fall into. Just because we have access to loans and credit cards doesn’t mean we should use them to live bigger than we can.
It’s perfectly normal to save money in order to afford the things you want to buy.
If you need a car, buy used and not new. If you need a place to live, only get the number of bedrooms you need and can afford. The whole idea is to stay within the price ranges you can afford.
You might seem ‘cooler’ if you get the new car or the huge house, but none of that matters if you have to spend the next 10 years in crippling debt. It’s just not worth it.
10. Eating out too much
Even though it’s last on the list, eating out too much is probably the number one bad money habit.
We live in a society of food, food, food. There are fast food restaurants literally on every corner and delicious restaurants always surrounding us.
It’s so easy and convenient to eat out for every meal. You know what’s not convenient? Meal prepping.
If you know anything about me, you know that I hate cooking. Seriously. I hate it.
But you know what I love? Being out of debt (and eating somewhat healthy). So, I meal prep every Sunday, and I do my best to eat out on the weekends only.
It really does save so much money. Remember the couple I mentioned earlier who spend $700 a month just on eating out? Don’t be that couple! If you feel like you are, make the necessary adjustments so that you can start saving that money.
Groceries are way more affordable and they last longer than constantly eating out.
I challenge you to tally up the amount you spend in a single month just on eating out. It’s probably going to shock you.
Eating out too much = very bad money habit.