Bad Money Habits:
Break These to Build Wealth

Bad money habits, like most ingrained behaviors, are difficult to break. But from a financial standpoint, they might actually spell disaster for your future. 

This article will help you diagnosticate 10 bad money habits that you need to quit in order to start making progress toward a better financial future. 

If you habitually spend more than you earn or you don't have a solid savings strategy, you're not alone. Read on... 

Two women on a shopping spree; excessive spending and other bad money habits will prevent you from building wealth.

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Gaining wealth and setting yourself up for financial success can be done by developing sound money habits. These include things like learning how to set up a budget, saving money, and moving forward with your financial objectives.

Naturally, developing new financial habits or breaking bad ones takes time. But, you can start converting to better habits and enhancing your finances if you are persistent and diligent.

Recognizing your bad spending habits and making a plan to break them are excellent places to start.

Why Bad Money Habits Set You up For Financial Failure

Bad financial habits almost always keep you from achieving your financial objectives or, worse, put you at risk for crises that can be avoided.

These habits can destroy any opportunity for creating a secure financial future. From not budgeting your money to having unrestrained spending tendencies, and from not saving money to having a recurring high credit card debt, these tendencies create financial havoc.

They force you to live paycheck to paycheck and leave you open to unforeseen emergencies. Bad money habits have the potential to ruin your financial future and leave you penniless in your golden years.

Bad Money Habits to Drop

Do you already know what your bad money habits are? Check out the list below to determine which ones you need to break right away in order to start managing your money more wisely.

1)  Spending More Than You Earn

One of the most important aspects that can make or break your financial situation is how much money you earn vs how much you spend.

Always aim to spend less than you earn, and try to set aside at least 20% of your monthly income for savings.

Obviously, this is easier said than done as life can sometimes get in the way. For example, you might experience a few unforeseen expenses that wreck your budget, or you might not quite have enough money coming in each month to cover all your essentials. 

That said, when it comes to getting your finances in order, spending less than you make should always be your m.o., even if you currently find it difficult to achieve.

2)  Racking Up Credit Card Debt

Ah, those magic plastic cards that make it all too easy to buy that luxury item you’ve been dying to have. Racking up credit card debt is one of the most destructive bad money habits you can have.

High-interest credit cards can literally cost you tens of thousands of dollars in interest.

In fact, adding interest paid on all loan categories (home, auto, education, credit lines), it is estimated that Americans spend on average $130,000 in interest alone over a lifetime. That is literally a small fortune wasted in interest payments!

Having high balances on your credit cards definitely contributes sometimes unnecessarily to those figures. They can also damage your credit score.

To avoid wasting money in interest, aim to pay your balance in full every month. This prevents credit card debt accumulation and saves you a ton of money.

3)  Having No Emergency Fund

The overwhelming majority of people would have no solution if an unexpected financial crunch hit them. Many have never built an emergency fund at all, or have ended up prioritizing other financial goals, leaving little to their emergency fund.

It is always critically important to make room for emergency savings. These savings are what help to ensure that you can cover unexpected expenses should an emergency present itself.

To start building an emergency savings fund, see where you can make minor changes across different categories of your budget to stash more, and also save any windfalls (such as a tax refund).

Consider keeping your emergency savings in an account that you don’t frequently access to eliminate the temptation of using the money.

4)  Waiting Until You Have "More Money" to Invest

If you  take advantage of the power of compound interest, time is on your side when it comes to investing. Just start early and let it work its magic!

Contrary to popular belief, you don't need to be a financial expert or even earn a massive paycheck to get rich. Time and consistency can make anyone richer.

There are apps that aim to make investing simple and accessible, such as Acorns, which lets you invest your "spare change". You might also be interested in automated investing services known as robo-advisors.

Many experts, including Warren Buffett and Tony Robbins, recommend investing in index funds, which allow you to own a small piece of a select group of highly performing companies.

The key takeaway: Don't wait. The sooner in life you begin, the better. Even if you can't invest a ton of money, establish the habit of setting aside at least a little bit each month as investment discipline.

Whenever you get a windfall or bonus, reevaluate how much money you can comfortably set aside.

5)  Not Sticking to a Budget

Making and sticking to a budget is the simplest way to keep at least a bird's eye view of how much you can spend each month while staying within your means.

You ought to keep track of necessities like groceries, housing, transportation but also include monthly categories for savings and discretionary spending or "fun" activities if your budget allows it.

Nowadays, budgeting is a simple and painless process thanks to apps like PocketSmith and others.

6)  Relying on Cash Advances

While cash advances may be necessary in some cases to make ends meet, relying on them too often can lead to an endless cycle of debt.

Cash advances may also be concealed by banks' tricks like overdraft protection, certain money transfers, early payday loans, or even some buy-now-pay-later (BNPL) services. It's easy to not catch this in the fine print.

Also, they frequently come with excessive interest rates and costly fees. Overdraft fees, for example, can set you back a whopping $30 each and every time!

Of course, cash advances will eventually need to be paid back, and you may find it difficult to do so, leading to increased financial strain and debt load.

Instead of relying on cash advances, consider other ways you can make way for expenses. Establishing an emergency fund or taking on a side gig are two ways that can help you tackle unexpected expenses.

Also consider eliminating traps such as overdraft protection if you frequently overdraw your account. This will save you to a lot of money as overdraft fees are sometimes turned into a cash advance.

Cash advances may temporarily give you an easier time with your spending, but if you're not careful, they will come back sooner or later as a bitter pill to swallow.

7)  Not Saving for Retirement

Once you’ve stashed away some money for an emergency fund and put together a budget, your path to financial wellness should also include saving for retirement.

If you work for an employer that matches retirement contributions, it is especially important that you take advantage of those benefits.

You are basically leaving free money on the table if you don’t contribute up to the employer’s matching limit.

If your employer doesn’t offer any retirement savings options, you can contribute via a traditional or Roth IRA. Once you’ve maxed out your retirement contributions allowed for the year, save or invest any additional cash that’s leftover.

For help with the ins and outs of investing for retirement (or other), investment services like Blooom - which helps you manage your IRA or 401(k) - or Public (investment app), make investing accessible even for beginners. 

Not Having Savings Goals

If you want to save effectively and successfully, you need clear goals and then set a specific plan to achieve them.

Start by determining exactly what major expenses will be in your future. Is it a home? Is it a car? Your kids' education, or moving to a tropical paradise?

Figure out how much you need to save for these goals, and how long that's going to take you.

Then, set up a recurring automatic transfer into your savings account to ensure that you'll stay consistent with your savings plan. Increase your deposits when possible.

8)  Not paying Attention to Savings Account Rates

You might not realize how much interest rates fluctuate on savings accounts, but the gap between the lowest and highest savings rates has been growing wider and wider.

It may not make a big difference when your savings are small, but it most definitely matters when you have large sums of money saved.

Among some of today's highest-yielding accounts, you may find annual percentage yields (APYs) of about 3 percent, sometimes higher. However, many traditional big banks are still offering savings account rates of only 0.01 percent APY.

If you don’t know your savings account rate, you likely don’t know what other financial institutions are offering on their accounts — and what you might be missing out on.

Moreover, keeping an eye on savings rates will help you determine where to keep more of your savings to maximize the return you’re getting on your savings balance. As your balance grows, the more informed you ought to be about this. 

9)  Not Acquiring Insurance

When your budget is already tight, it can be tempting to forego insurance in favor of making ends meet. But going without insurance can put you in an even worse financial situation when you need help the most.

If you’re able to, you should invest in insurance including health insurance, home or renter’s insurance, and auto insurance to make sure that you’re covered in the event of an emergency.

Insurance marketplaces like Policygenius can show you various ways to find affordable insurance so you can protect yourself. 

10)  Burying Your Head in The Sand

As much as you may want to ignore financial red flags, you're better off dealing with any issues right away.

Check your bank account and credit score, no matter how low you fear the number may be.

Don't put off dealing with your debt till tomorrow. Debt repayment methods like the Avalanche or the Snowball instruct you to start with one debt (even the smallest one) and keep knocking them down gradually.


And in closing, don’t neglect to take advantage of workplace perks and benefits, or discounts, cashback and rewards, all of which adds up and could save you thousands of dollars a year.

You don't need to have all this done to perfection right away. But, ridding yourself of even a few bad money habits now may pay dividends for the rest of your life.

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