We all have those little money habits that we know probably aren’t doing us any good – but can’t seem to break. Whether picking up that daily coffee on the way to work or always buying the latest fashion trends, our bad money habits can add up and put a dent in our bank accounts.
Here are 9 of the most common bad money habits and how to break them:
1. Not Tracking Your Spending
It’s hard to make wise spending decisions if you don’t know where your money is going. Track your spending for a month so you can see where your money goes and where you can cut back.
Use only a card and track your credit card and bank statements.
Use cash instead of credit.
Regardless of which method you choose, it’s ultimately most important to track your spending consistently. You’ll be better able to identify patterns and areas where you can cut back. Armed with this knowledge, you can make better choices with your money and improve your overall financial health.
2. Impulse Buying
Did you know that the average person spends $314 per month on impulse purchases? This year’s data is up from $276 in 2021 and $183 in 2020.
Impulse shopping can be motivated by many different factors. It may be a way to cope with boredom or stress for some people. For others, a way to feel good in the moment, even if it leads to regret later. Whatever the reason, impulse shopping is a bad habit that can be hard to break.
Fortunately, you can do a few things to stop impulse shopping. First, try to become more aware of your triggers. What situations or emotions tend to lead you to impulse shop? Once you know your triggers, you can start to avoid them or find other ways to cope with them.
Another helpful tip is to create a budget and stick to it. Knowing how much money you spend makes you less likely to overspend on impulse purchases. Finally, try to give yourself some time before making a purchase. If you can wait 24 hours before buying something, you’re more likely to make a thoughtful decision instead of an impulsive one.
3. Paying Late Fees
There’s no way around it – late fees are a waste of money! And with the average American household paying $132 in late fees every year, there’s room for improvement. There are a few main reasons why people tend to pay late fees; understanding these can help you break the habit.
One of the most common reasons people pay late fees is because they don’t have a spending plan. If you don’t know how much money you have coming in and going out each month, it’s easy to overspend and find yourself in a tight spot when it comes time to pay bills. Creating a spending plan (or budget) helps you keep track of your spending, feel better about your money, stress less, and ensure you have enough money to cover your expenses.
Finally, some people pay late fees because they’re simply forgetful. If you constantly forget to pay bills on time, it might be helpful to set up automatic payments. That way, you won’t have to worry about remembering to make a payment each month.
4. Not Saving for Emergencies
Don’t have an emergency fund? You’re not alone. In fact, a recent study found that nearly 60% of Americans don’t have enough savings to cover a $1,000 unexpected expense.
And that’s a big problem.
One minor financial setback can quickly become a major financial crisis without an emergency fund.
Here are a few pro tips for getting started with your emergency fund:
Automate your savings.
One of the best ways to ensure you always have money in your emergency fund is to automate your savings. Set up a direct deposit from your paycheck into a separate savings account, and you’ll never even see the money.
You don’t need to save thousands of dollars overnight. Start with $5 or $10 and build from there.
Why do we do it? There are a few reasons. First, we live in a culture that values material possessions. Second, ads bombard us with messages telling us that we must buy this or that to be happy. And third, our brains are wired to seek short-term pleasure rather than long-term satisfaction.
What sets off your urge to spend? Is it hanging out with friends or seeing a sale? Boredom? Stress? You can start to avoid your triggers once you’re aware of them.
Here are a few tips to help you break the habit of overspending on luxuries:
Be aware of your triggers.
What sets off your urge to spend? Hanging out with friends? Is it seeing a sale? Boredom? Stress? Once you know your triggers, you can start to avoid them.
Set aside money for fun.
Put some money into a “fun fund” that you can use for things like movies, restaurants, and other activities. This will help you stay within your budget and still have some fun.
Find other ways to relax.
Like many others, you might be tempted to spend more when stressed. Try finding other ways to relax, such as reading, walking, or taking a yoga class.
Talk to someone.
If you’re struggling to break the habit, talk to a friend, family member, or money coach. They can offer support and help you stay on track.
6. Not Investing for the Future
Investing can be a great way to grow your money. But many people don’t invest because they don’t understand it or they’re afraid of risk.
Not investing is a terrible money habit because it means you’re not taking advantage of one of the best ways to grow your money. Investing allows you to put your money into something that has the potential to grow over time, which can help you reach your financial goals.
There are plenty of resources available if you’re not sure where to start when it comes to investing. You can talk to a financial advisor, research online, or even invest in an index fund through a low-cost platform like Vanguard or Fidelity.
Whatever you do, don’t let the fear of losing money keep you from investing. While there is always risk involved with investing, there’s also the potential to make a lot of money – if you’re smart about it. So if you’re not investing, ask yourself why not, and then take action to change that terrible money habit.
7. Relying too much on credit
It’s no secret that debt is an enormous problem in today’s society. In fact, it’s estimated that the average American household has over $15,000 in debt. And credit card debt, arguably one of the worst forms of debt, is often the one to which many turn.
Credit card debt is often referred to as “revolving debt” because you can continually add to it. And while it may seem like carrying a balance on your credit card is no big deal, the truth is that it can be a very costly habit.
Here are a few reasons why carrying a lot of credit card debt is a terrible spending habit:
If you carry a balance on your credit card, you’re likely paying a lot in interest. In fact, the average credit card APR is over 17%. That means that for every $100 you owe, you’re paying $17 in interest each year.
That interest really adds up if you have a lot of credit card debt. Unfortunately, it’s not uncommon to pay more in interest than you ever pay off your actual debt.
It’s a vicious cycle.
Carrying a balance on your credit card can be a vicious cycle. That’s because the more debt you have, the more interest you’ll have to pay. And the more interest you pay, the more debt you’ll have.
It can be very challenging to break out of this cycle, and it’s easy to end up owing money you’ll never be able to pay off.
It can damage your credit score.
Lenders use your credit score to determine how likely you are to repay a loan. One factor impacting your credit score is your debt-to-income ratio, the amount of debt you have compared to your income. And if you have a lot of debt, it can hurt your credit score.
It can lead to financial problems.
Carrying a lot of credit card debt can lead to financial problems. That’s because the interest you’re paying can make it difficult to make ends meet. If you’re struggling to make your minimum payments, you may miss payments or default on your debt.
It can be stressful.
Debt can be a significant source of stress. Being constantly worried about your debt can take a toll on your mental and emotional health.
If you’re struggling to break the habit of relying on credit, these quick tips can help.
1. Make a list of all the times you’ve used credit in the past month. Include everything from big purchases, like a new TV, to small things, like taking an Uber instead of walking.
2. Take a good hard look at that list and ask yourself if you really needed to use credit for each of those items. Start planning to break the habit if the answer is no.
3. One of the easiest ways to stop relying on credit is to use cash more often. Whenever you’re tempted to put something on your credit card, ask yourself if you have the cash to pay for it outright. If not, consider whether you truly need that item.
4. Another way to break the habit is to start automatically transferring a set amount of money into savings each month. This way, you’ll have a cushion to cover unexpected expenses without turning to credit.
5. Finally, ensure you stay on top of your credit card payments. It’s easy to get trapped in a cycle of debt if you’re constantly carrying a balance. Pay off your balance in full each month to avoid that trap.
8. Living Paycheck to Paycheck
Living paycheck to paycheck is one of the worst money habits. It’s a constant cycle of relying on your next paycheck to cover your expenses, leading to late fees, overdraft charges, and other financial problems.
You can make a few simple changes to break the cycle and get out of the habit of living paycheck to paycheck. As we’ve mentioned a few times, make a spending plan and stick to it. Decide what expenses are essential and which ones you can cut. Second, start saving money each month as a cushion to fall back on in case of an emergency. Finally, make a plan to pay off any debt you may have so you can start fresh with a clean slate.
Breaking the cycle of living paycheck to paycheck is not easy, but it is possible. With some willpower and planning, you can take control of your finances and get on the path to financial freedom.
9. Not Talking About Money
Money is one of those things that everyone knows they should talk about, but no one actually wants to. It can be uncomfortable, awkward, and sometimes even a bit taboo.
In truth, avoiding talking about money is one of the worst money habits you can have. Here’s why:
If you and your partner or spouse aren’t on the same page about money, it can cause a lot of tension and conflict in your relationship. Talking about money openly and honestly is the only way to ensure you’re both on the same page about your finances.
If you’re not talking about money, it’s harder to make joint financial goals and stick to them. Regular money conversations will help you stay on track with your finances.
4. It can create a sense of secrecy and shame.
Being uncomfortable talking about money can lead to a feeling of secrecy and shame around the subject. While this may be normal, it isn’t healthy or helpful. Talking about money should be empowering, not shame-inducing.
5. It can cause financial problems down the road.
It’s easy to let minor financial problems turn into big ones if you’re not talking about money. Catch minor problems before they become bigger by talking about money regularly.
Though breaking bad money habits can be challenging, it’s doable. With a little effort and planning, you can get your finances on track and start fresh with some good money habits.