15 Bad Money Habits to Break in 2022

A new year is around the corner, and this is the time when we often start vowing to do better. One way to do better, financially speaking, is to quit some bad habits. Bad financial habits can hold you back from reaching your goals -- and sometimes they can land you in a heap of trouble, too.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

A good example of the kind of bad financial habit that can land you in big trouble is racking up a lot of debt -- of the high-interest-rate kind, such as you'd get with credit cards. It's not at all unheard of for some credit cards to charge some borrowers interest rates of 20% or 25%, and some have even charged more than 35%! Meanwhile, the average credit card rate was recently around 16%, which is still quite steep -- especially in a period when many savings accounts don't even pay 1%. If you have accumulated, say, $20,000 in credit card debt and you're being charged 25% on that, you're looking at $5,000 in annual payments for interest alone. Pay off that debt pronto -- it may be hard, but it can be done.

Next is living beyond your means -- a bad habit that will lead to the previous one, racking up debt. Ideally, we all need to be spending less than we earn and living below our means, so that there's extra money that can be invested for our futures. Think about how much of each paycheck is left over each month -- if the answer is a negative number, you're living beyond your means.

Not using a budget can lead to problems -- such as spending more than you bring in. Most of us would benefit greatly by spending a little time figuring out just what we are spending our money on. Get out your credit card statements, utility bills, and check registers, and jot down all your expenses. You'll likely see some spending that's much more than you expected and that you may be able to rein in.

ALSO READ: Budgeting 101: How to Start Budgeting for the First Time

A great strategy that leads to good money management is paying yourself first. That means making saving and investing for your future a priority -- and taking that money out of your paycheck first. An effective way to do this is to automate it: You may be able to have your employer automatically route a specified sum directly from your pay to a financial account you specify.

It's easy to assume you don't need an emergency fund, because your life's circumstances may seem secure. But millions of people have unexpectedly lost their jobs, and millions end up facing unexpected costly medical bills or suddenly need an expensive car repair. Having an emergency fund stocked with around three to nine months of living expenses can prevent you from going into debt or worse (such as losing your home), should the unexpected happen.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Here's an insidious bad habit that can hurt your financial health: just coasting along at work, doing the minimum (or close to it) of what's expected of you. That may seem safe enough, but it could make you vulnerable to being let go. And even if that doesn't happen, it's not likely to lead you to promotions or better jobs, and promotions and better jobs can vastly improve your financial health, if you put much of that money toward investing for your future.

You might even be shortchanging your financial future if you're working hard -- but not asking for a raise now and then. Many people have found that they got a nice bump just by asking.

ALSO READ: How to Negotiate a Raise in 7 Steps

A full third of American workers have socked away less than $50,000, and about two-thirds have saved less than $250,000, according to the 2021 Retirement Confidence Survey. That bodes very poorly for them. Even retiring with a nest egg of, say, $400,000 may make retirement challenging. You may not realize it, but the average monthly Social Security retirement benefit was recently just $1,560, or about $18,700 per year. If you plan to apply the "4% rule" and withdraw 4% from your nest egg in your first year of retirement and then adjust future withdrawals for inflation, you're looking at withdrawing just $16,000 in your first year of retirement. Take some time to figure out how much you'll need in retirement, because you may not be on track to get there.

If you're not saving for your retirement via IRA and/or 401(k) accounts -- or other tax-advantaged accounts -- you're leaving money on the table. The two accounts come in both traditional and Roth varieties: The traditional offers an up-front tax break, reducing your taxable income by the amount of your contribution for the year -- with taxation happening when money is withdrawn in retirement. Roth accounts accept post-tax money and offer a back-end tax break: If you follow the rules, your withdrawals in retirement can be entirely tax-free.

ALSO READ: Roth IRA Rules

A common financial mistake is when we entertain ourselves by going shopping -- which often leads to multiple impulse purchases. Ideally, you should only go shopping when you need to buy something, and you should refrain from impulse buys, unless they're rather necessary. You can stray from this rule on occasion, but routinely shopping for fun can be disastrous to your financial health.

Do you sometimes (or often) pay your bills after their due dates? That may seem harmless enough, but if those slips are reported to credit agencies, as they often are -- especially with the likes of credit card bills -- they can result in your credit score falling. That's very much to be avoided, as a low credit score means you won't be offered the best interest rates when you want to borrow money -- for a house, car, or just a loan. It can also disqualify you from getting some of the best credit cards.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Millions of Americans are unknowingly paying too much every month -- in fees. These can appear all over your financial life, and they can often be avoided or minimized. Your bank, for example, likely charges you a bunch of fees, perhaps for overdraft protection, account maintenance, or wire transfers, among other things. Check your statements for fees, and if you don't like what you see, consider changing banks. Your brokerage might be charging you per trade -- when there are lots of good brokerages charging $0 per trade. You might be invested in mutual funds that are charging you 1% or 1.5% or more every year -- when low-cost index funds might perform better while charging less than 0.1%. Your 401(k) account may also be levying fees. Look for all the fees you're paying in your financial life and see how you might reduce them.

You can also be paying too much in interest across your financial life. If your mortgage interest rate is above average, it might be worth looking into refinancing it. If your credit cards are charging you above-average rates, changing cards might be in order -- or at least calling the card companies and asking them to reduce your rate. That actually works much more often than you'd expect.

ALSO READ: What Is a Good APR for a Credit Card?

Speaking of credit cards, it can be good financial management to have several cards that offer generous rewards -- such as for travel expenses or groceries or even a blanket cash-back percentage on all you charge. But be careful to not overspend in order to rack up more points or gather more cash-back dollars. Spending $100 more to earn $2 or $5 back isn't saving money -- it's spending $98 or $95 that you may not have needed to spend.

Ignoring available tax breaks can also be costly. For example, there are lots of tax deductions and tax credits you may be able to take advantage of, which could significantly shrink your annual tax bill. For example, there's the Child Tax Credit (worth $2,000 per qualifying child), the Child and Dependent Care Credit, the Earned Income Tax Credit (EITC), the Retirement Contribution Savings Credit (Saver's Credit), the American Opportunity Tax Credit (AOTC), and the Lifetime Learning Credit (LLC). There's even a federal adoption tax credit of up to $14,440 per child. Deductions are available for mortgage interest, charitable contributions, and more.

One of the biggest financial blunders people make is not having a plan. You need to know how much money to have saved by retirement, and that will likely require you to be saving and investing certain sums regularly -- and investing them effectively. Take some time to read up on retirement topics and even to consult a financial advisor -- your financial future is important enough to warrant that.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

The more financial blunders you avoid, the more money you'll likely be able to keep in your pocket -- and we're talking thousands of dollars, if not tens of thousands or much more. You might profit by talking to friends and relatives about financial mistakes they regret -- it's best, after all, to learn from others' errors instead of your own. But learn from your own errors, too, so that you can avoid repeating them.

The Motley Fool has a disclosure policy.