Intro
When it comes to personal finance, we often hear the mantra, “Spend less, save more.” But it’s not always that simple. There are subtle, everyday habits that many people engage in, often without realizing how damaging they can be to their financial well-being. Let’s explore a few of these common money habits that keep the average consumer stuck in a cycle of debt and financial instability, and we’ll explore a couple of ways to change them.
Habit #1: Living Paycheck to Paycheck
The habit of living paycheck to paycheck can be one of the most challenging cycles to break. Without a savings buffer or an emergency fund, even a minor financial hiccup—like a car repair or insurance payment—can throw everything into chaos. Now, we know that economic times can be hard and the cost of living can be high, but we can’t let that stop us from prioritizing ourselves. Building an emergency fund, even if it starts small, can break this cycle and create breathing room. A little bit taken out of every paycheck and put into a separate account over time can grow into a sizeable amount.
Habit #2: Impulse Buying
In the age of one-click purchases and targeted ads, it’s easy to make spur-of-the-moment buying decisions. Impulse purchases, especially for non-essential items, quickly add up. With the rise of social media, the push to our subconscious to spend to keep up with our peers has never been tougher to resist. But if you’re struggling with your finances and Amazon boxes show up to your door multiple times a week, then changes need to be made. Here are a couple of practical steps:
- Remove remembered cards from your browsers and remove cards from apps like Apple Pay and Google Pay. Make it a little bit harder for you to pay for items.
- Give yourself 48 hours to decide if it’s something you truly need. Taking a step back and thinking about the purchase could result in you realizing you don’t need it at all.
Habit #3: Ignoring Small Expenses
Many consumers overlook the “latte factor”—those small, seemingly harmless daily expenses. Whether it’s a coffee run, snack, or subscription service, these small amounts accumulate over time. Now we’re not telling you to stop having coffee every week, but tracking these small expenses can be eye-opening and can reveal areas where you can cut back.
Habit #4: Not Budgeting
Without a budget, it’s nearly impossible to understand what your money is doing. A budget doesn’t have to be restrictive. It can act as a roadmap, helping you control your finances instead of them controlling you. Whether you use an app or a simple spreadsheet, budgeting helps ensure your spending aligns with your financial goals. Are you saving for college? Retirement? A vacation to celebrate your anniversary? Having a budget can help you see where you can save money for it and how quickly you can save it.
Habit #5: Relying on Credit Cards
You should be choosing to use credit, not needing to use it. If you can’t pay for the item in cash, then chances are you can’t afford it at all. Credit cards are convenient, but the ease of swiping often leads to spending more than you can afford. With many consumers only making the minimum payment, this is one of the most expensive poor money habits. Prioritizing credit card debt with a focused payoff plan can help break this habit and save a significant amount in interest payments.
Habit #6: Buying New Instead of Used
From cars to clothes, the allure of buying new often results in unnecessary spending. Many high-quality items can be found secondhand at a fraction of the price. By opting for gently used goods, you can save significantly without sacrificing quality. One of the biggest culprits of this are cars. With interest rates, cost of living, and base prices all high, buying a new car can be a poor financial decision when purchasing a 3 to 4-year-old used car could save you thousands.
Habit #7: Increasing Lifestyle Creep
This happens when your spending increases as your income grows. Now there’s nothing wrong with having a little more comfortability as your station in life increases, but this habit can be particularly dangerous because it prevents wealth accumulation. Instead of upgrading your lifestyle with every raise, try maintaining the same level of comfort and spending and funnel the extra money toward savings or investments.
Habit #8: No Financial Education
Many people avoid learning about personal finance because they think it’s too complicated. But a lack of financial literacy can keep you stuck in a cycle of poor money management. In America, half of all adults lack proper financial literacy, and this can have major repercussions in the way we save, invest, and comprehend financial risks. Increasing your financial literacy gives you the confidence and knowledge to make good money decisions, especially when it comes to things like investing, taxes, and even saving for retirement. There are plenty of free resources—blogs, podcasts, and even YouTube videos like this one—that can demystify the subject and help you take control of your financial future.
Habit #9: Delaying Investing
Time is money. But many people delay investing because they think they need a large sum of money to get started. The longer you wait to invest, the more you miss out on potential growth. Investing even small amounts early on can have a big impact due to compound interest. This is the concept that over time your money makes you more money. Time waits for no one, so don’t delay putting your money to work for you. Start small. It’s often advised to invest in a low-cost fund or ETF that follows an Index like the S&P500 or a Total Market Fund. As you build your financial knowledge, you can diversify and choose investments that align with your financial goals.
Habit #10: Emotional Spending
Whether it’s a bad day at work or a personal victory, emotions often drive financial decisions. Across our social media apps, we’ve heard this called retail therapy, but while it can feel good in the moment, it can leave lasting damage on your finances. Learning to recognize emotional triggers for spending and finding healthier coping mechanisms can help curb this habit.
Habit #11: No Financial Goals
Without clear financial goals, it’s easy to drift from one paycheck to the next. When you set out on a trip, you often have a start address and an end destination. You’re able to tell where you are along your journey, and how quickly you’re progressing. The same happens when you set financial goals. Whether your goal is to pay off debt, save for a vacation, or buy a home, having a clear target helps focus your efforts and keeps you motivated. Set both short-term and long-term goals to create a roadmap for financial success.
Habit #12: Ignoring Retirement Savings
Many consumers either don’t prioritize retirement savings or start too late. But failure to plan for your future self can have terrible consequences. Failing to contribute to a 401(k) or IRA means missing out on potential employer matches and compound growth. Start as early as you can, even if it’s a small percentage of your income. Over time, increase these contributions and they can grow into a substantial nest egg for your later, non-working years.
Breaking these habits won’t happen overnight, but awareness is the first step toward change. Even small changes can lead to significant financial growth over time. If you can conquer these 12 habits, you’ll be well on your way to financial stability and eventually, financial freedom.
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