Are these 10 counterproductive behaviors sabotaging your financial future? To do more with your money, you have to acknowledge (and lose) your bad habits.
For most people, success doesn’t come without first developing good financial habits. But sometimes what’s more important is acknowledging bad financial habits that need to be dropped. When you recognize counterproductive behaviors and eliminate them, you can achieve much more with your money.
Here's more about 10 horrible habits that can keep you from growing rich and sabotage your financial future.
1. Living without an emergency fund
Life is full of financial surprises and costly emergencies. The antidote is having cash in an FDIC-insured savings account, known as an emergency fund.
Even a tiny emergency fund is better than nothing.
Having a cash cushion to fall back on helps you reduce stress, navigate financial hardships, and avoid going into debt. Even a tiny emergency fund is better than nothing.
Commit to putting away a set amount on a regular basis, such as $100 a month or $50 a week. Automate your savings with a separate direct deposit that puts a flat amount or a percentage of each paycheck in the bank. Just ask your employer to set it up.
If you’re self-employed, create a recurring transfer that moves money from your checking into a savings account on a monthly or weekly basis. Out of sight means out of mind.
If money is tight, try working overtime, getting a second job, or starting a business on the side. It doesn’t have to be forever—just until you reach a savings goal. I recommend having a minimum of $1,000 on hand; however, working up to three to six months’ worth of living expenses is the best goal.
2. Forgetting about retirement
It can be difficult to think about your golden years when you’re a new graduate or in an entry-level job. But when you start investing early, you lock in your ability to grow rich. In fact, it’s almost like getting your retirement at a fire sale.
One of the most important factors in how much you accumulate depends on when you start investing, even if you don’t have much to invest.
One of the most important factors in how much you accumulate depends on when you start investing, even if you don’t have much to invest. Getting an early start allows your money to compound and grow exponentially over time.
Let’s compare two people who each invest $250 a month with an average annual 7% return. If Sam starts at age 25, he’ll have over $650,000 by age 65. But if Lisa doesn’t get started until age 45, she’ll only have $130,000 by her 65th birthday. To end up with as much as Sam, she’d have to invest $1,260 per month.
So, don’t delay making investing for retirement a habit. It’s a huge mistake to believe that you can’t afford it or that you can catch up later. If you wait for a someday raise, bonus, or windfall, you’re burning precious time. You’re never too young to begin planning for your future.
3. Not maxing out a savings match at work
If your employer matches some amount of 401(k) or 403(b) contributions, always save enough to snag the full match. This free money is designed to incentivize plan participation.
Even if the market drops, you can earn impressive returns when you’re getting matching money.
Even if the market drops, you can earn impressive returns when you’re getting matching money. It may come with a vesting schedule, but even if you leave your job without all your matching, it’s money you didn’t have to work for. Do I need to say more?
4. Being too conservative with your investments
Though we tend to use the terms saving and investing interchangeably, they’re not the same thing. Savings is cash you keep on hand for short-term, planned purchases, and unexpected emergencies. Investments are for big, long-term goals (such as retirement) that require growth.
In general, I don’t recommend investing cash reserves because the value could drop at the exact moment you need to spend it. But if you make a habit of keeping all your money in no-risk accounts, such as a bank savings account or CD, inflation will rob you of spending power over time.
5. Making impulse purchases
Spending too much on impulse purchases is the reason many people have too much debt. If you’re addicted to shopping, spending to boost your mood, or making many large unplanned purchases, it’s time to break the habit.
Create a mantra or short phrase that can help you remember your financial goals and nip impulse spending in the bud, such as:
- I only buy what I budget
- I always wait 30 hours before buying anything over $30
- I only buy what I truly need
6. Not being a savvy spender
Sometimes the way we buy is a bad habit that needs to be stopped. For instance, not comparing prices for everyday goods and services. Online retailers, insurance companies, and utility providers make it easier than ever to shop and even negotiate, when possible.
Consider dropping services, such as landline phones, premium cable TV, and gym memberships to see how it works out.
Create a bills spreadsheet with each company’s name, your monthly payment, and your account number. At least once a year, block out time to review your bills and see how you can cut back, request discounts, or switch providers in order to save.
Consider dropping services, such as landline phones, premium cable TV, and gym memberships to see how it works out. You can always buy them again in the future—and may even pay less as a new or returning customer.
Also remember that there are plenty of sales, coupons, and deal sites that help you avoid paying retail prices. Try shopping at an online auction site, new wholesale club, or Facebook Marketplace before your next big purchase.
7. Only paying the minimum on credit cards
Paying the minimum monthly credit card payment doesn’t mean that you’re paying down debt. In fact, your balance could actually increase creasing if you’re accruing more interest.
So, make it a habit to pay off your entire credit card balance every month. When you use credit cards responsibly they come with many benefits, such as rewards, purchase protection, and convenience, at no cost to you. But when you carry a card balance from month to month, it can be an expensive habit.
8. Carrying high-interest debt
Having high-interest loans or credit card debt makes it difficult to achieve financial success. If you accept credit card debt as a way of life it can rob you of the ability to save and invest.
Consider refinancing installment loans, such as mortgages and auto loans, for a lower rate when possible.
So, as I previously mentioned, make it a habit to pay off your entire credit card balance every month. Also, consider refinancing installment loans, such as mortgages and auto loans, for a lower rate when possible.
9. Not having a debt-reduction plan
Oftentimes not having a debt-reduction plan is a bad habit that needs to be reversed in order to improve your financial life. If you have multiple debts, focus on the highest interest accounts first. That allows you to save the most so you can pay down all your debts faster.
The more you know about your debt, the better prepared you’ll be to manage it properly.
You may not like your debt, but you do have to acknowledge it and tackle it head-on. The more you know about your debt, the better prepared you’ll be to manage it properly. With a clear plan in place, managing your debt becomes much less overwhelming and stressful.
To learn more about ways to get out of debt and create a financial plan, check out Laura’s best-selling debt course, Get Out of Debt Fast—A Proven Plan to Stay Debt-Free Forever. It’s available at 50% off for a limited time.
10. Caring what others think
If you have friends or family who spend lavishly or live beyond their means, don’t get caught in the habit of caring about what they think about your financial life. That psychological competition is what triggers poor spending decisions and gets many people into debt in the first place.
Make a commitment to make some small sacrifices and set aside some money for a few months so you can get ahead.
If you’re financing a lifestyle that you can’t afford, make a commitment to make some small sacrifices and set aside some money for a few months so you can get ahead. Try waiting a little longer, saving more, and focusing on getting and staying out of debt in order to build your financial freedom.
As with all bad habits, the first step is recognizing that you need to change your behavior. But don’t try to break all of them at once. Pick one that is hurting you the most and move on to another one. Knowing that you’re sabotaging your own ability to grow rich might inspire you to kick these 10 horrible financial habits.