Want to get better at managing your money? Try fixing your bad money habits. Here’s a list of 13 of the worst, with ideas for fixes.
13 BAD MONEY HABITS TO BREAK AND FIX IN 2020
One of the best things I ever did to really get to grips with managing my money was to fix my bad money habits.
I’ve always been very good at tracking our family finances, but I still felt I was falling short when it came to making the most of every cent we earn. So I looked at ways we could change the way we spend, what we do with our money once we’ve earnt it and how we could manage our money better.
BAD SPENDING HABITS DRAIN YOUR FINANCES
It was quite eye-opening to see how much of a drain bad money habits can be on your finances. How bad habits can cause you to live paycheck-to-paycheck, without an emergency fund or missing out on financial freedom.
Take a look at the list of bad money habits below and see which of them you need to break and fix.
13 BAD MONEY HABITS TO BREAK AND FIX IN 2020
1. SPENDING MORE THAN YOU EARN
Spending more than you earn is the worst bad money habit. Why? Because more money going out than is coming in will have a waterfall effect across every aspect of your personal finances. For one, you will be relying on credit, which will cost you interest. Interest that will compound if you don’t pay it all off. You won’t have any money to put build up your savings, let alone have enough to build up an emergency fund.
You can’t underestimate what a negative effect this can have on your emotions, it’s stressful being endlessly in debt.
FIX: There are two main ways to fix spending more than you earn. The first is to start managing your money better and look at how to curb your spending. The second is to look at how you could earn more money. Whatever you do, make sure you stop this habit in its tracks.
2. SPENDING EVERTYHING YOU EARN
It’s a rookie error. You may well feel you are in a much superior position to people who spend more than they earn. But the reality is that spending everything you earn each month means that you aren’t building up your wealth so you can reach financial independence.
FIX: Take a look at what you’re spending and be realistic about what you could cut. Set yourself a monthly budget and stick to it. Put any savings you make straight into your savings at the end of each week or month.
3. POOR MONEY MANAGEMENT
If you don’t keep track of your money then how do you know what it’s doing? How can you save for your future, for financial freedom or keep yourself out of debt if you don’t do more than take a quick look at your bank account once in a blue moon. Poor money management will keep you poor.
FIX: Read my post on How To Manage Your Money Better to get started with a simple money management system that will put you in charge of your money and your future.
4. NOT PAYING OFF YOUR CREDIT CARD EVERY MONTH
I am a big fan of credit cards because there are some great benefits to using a credit card. But read these words carefully and imprint them on your brain:
ALWAYS PAY OFF YOUR WHOLE CREDIT CARD BILL AT THE END OF EACH MONTH. ALWAYS. ALWAYS. ALWAYS.
The best way to do this is to set yourself a maximum spend on your card each month and then check your balance regularly through the month. After a while, you get to know the ebb and flow of your spending and it becomes second nature to know whereabouts you are with your spending.
If you use your credit card wisely it means you can take advantage of keeping your own money in your bank account for as long as possible, you may get cashback or points and you have more consumer protection than buying stuff any other way.
Neglect to pay your credit card off in full at the end of each month and you will be paying a huge amount of interest, which compounds every month that you don’t clear the entire debt. Compound interest means that you end up paying interest on your interest. Crazy!
5. TAKING OUT PAYDAY LOANS
Payday loan companies make my skin crawl. Payday loans are one of the worst forms of debt. The whole raison d’etre of these companies is to profit from you not being able to pay the loan back. They are the easiest way to spiral into debt.
FIX: It’s simple Never, ever take out a payday loan. Try to save up an emergency fund so that you’re covered if you have to make an unplanned payment. Look at ways you can start earning extra money from home.
6. COMPULSIVE SPENDING / SPENDING ON UNNECESSARY THINGS
We live in a consumerist society. Fact. We live in a ‘now or faster’ world where we see something and we want it immediately. We all need to change our mindset when it comes to what is important in life and what isn’t. We need to be able to tune out of all the marketing messages that tell us that the stuff they are advertising will bring us happiness/kudos/status/nirvana. In short, we need to stop spending on unnecessary things.
FIX: Wait before you buy. This is the simplest fix there is. Make yourself wait a set amount of time before you reconsider the purchase. You can also read my post on setting yourself a No Spend Challenge to help break the cycle and learn to be more intentional with how you spend money.
7. NOT HAVING A RAINY DAY FUND
One of the first things you should do when you start earning money is to start a rainy day fund. It’s there to cushion you in case of unexpected costs. Perhaps the washing machine needs replacing or you have to make an emergency trip to family. I keep our family rainy day fund at around $1000. I have a savings account set up solely for it. That way I make a little interest on the money to help offset inflation.
FIX: If you can’t afford to set aside
8. HAVING AN EMERGENCY FUND WHEN YOU’RE IN DEBT
I know that Dave Ramsey is a personal finance demi-god who believes we should all have an emergency fund. I know that he suggests we all start with a $1000 fund and then grow it to cover 3-6 months of outgoings in the event of losing a job or some other emergency.
But I tend to veer towards Mr Money Mustache’s take on emergency funds. Why on earth would you start one, and have cash sitting in an easy access account depreciating before your eyes, when you have outstanding debt to pay off?
Fix: Mortgage aside, use any emergency fund savings you have to pay down your debt, starting with the debt with the highest interest rate. Just make sure you have a rainy day fund set aside (see point 7. above). Then read my post on why you should think twice about emergency funds.
9. DELAYING RETIREMENT SAVING
The earlier you start saving for financial freedom the better. What? You’ve not even thought about retirement or being financially free? Well, think about this, how would it feel to not have to worry about working all the hours to bring in all the money you need to live? If you plan well you won’t have to wait until you are in your later years to retire. People like Mr Money Moustache retired way before they were 35.
FIX: Take a look at your goals in life and start being more intentional about how you live your life. Read my post on Financial Freedom to inspire you. Then start looking at how you can cut back your spending and start saving each month.
10. SUBSCRIPTIONS AND MEMBERSHIPS
Hands up who has had a gym membership that went on long after the commitment to going to the gym regularly vanished?! Yes, me too. Gym memberships are great if you are actively using them and they help you to stay motivated. Otherwise, they are a great way to burn cash.
Then there are other memberships and subscriptions that easily burn through your money each month. Cable and streaming subscriptions, magazine and website subscriptions, various online products and services you pay for each month.
FIX: Take an inventory of all your subscriptions and memberships and sanity check each. Close down any that you won’t miss or aren’t essential to your life. Then make sure to only start up new subscriptions or memberships if they fulfil the ‘need versus want’ criteria of really adding necessary value to your life.
11. PAYING YOUR BILLS LATE / NOT TAKING ADVANTAGE OF EARLY PAYMENT TERMS
Interest on missed payments can be huge. Conversely, there are times when a company will offer you a discount incentive to pay before a certain deadline.
FIX: Wherever possible always take advantage of early payment discounts. This could be one reason to dip into your emergency fund and then pay it back over a few months. Always make a note of due dates for bills as they come in, set yourself a reminder and make sure there is enough time for the payment to clear ahead of the deadline.
12. NOT TAKING CONTROL OF HOW YOU EARN MONEY
Whilst a lot of the bad money habits above revolve around what we all do and don’t do with our money once we have it, there is one big area we haven’t covered off. It’s how you earn money. Notice I didn’t say, how you manage your career. Though the two do go hand-in-hand. If you aren’t mindful about how you earn money you can miss out on opportunities and spend too many hours working to earn enough money. Life’s too short to spend more time than necessary earning money.
FIX: Start to lead a more intentional life. Take the time to focus on what it really is that you want from life. Use my post on Intentional Living and Why You Might Need It as a starting point. Once you have a blueprint for life, you can start to plan how you earn money around it.
13. NOT SPENDING ON OR SAVING FOR WHAT BRINGS YOU TRUE JOY
Wasting money on endless stuff isn’t likely to bring you any deep sense of happiness. Conversely, spending money on experiences and things that bring your family joy and contentment will. Plus That is if you are able to truly define what is important to you and your family.
FIX: Don’t get so caught up wasting money and getting into debt that you can’t spend on the things that will bring true happiness or financial freedom. Life is for living, money can be a tool for making life easier, you just need to know-how.
I really hope that these insights into bad money habits and how to fix them has helped you.