Published in: Banks | July 24, 2019
6 Bad Financial Habits You'll Wish You Had Avoided
By: Lyle Daly
Staying away from these bad financial habits will pay off big time.
Many of us think that success is a matter of how much money you make or where you went to school. Although both those things do impact your life, what truly separates successful people from those who struggle is their financial habits.
There’s no shortage of advice on good financial habits out there, but it’s just as important to be aware of the bad financial habits that will prevent you from saving money and cause you to go into debt.
1. Spending money you don’t have
It’s so easy to fall into this trap, especially when you have a credit card with plenty of available credit to burn. You make a purchase that you can’t afford at the moment, because you figure you’ll be able to pay it off in a few weeks or months.
Consumers rarely give in to temptation just once, though. They usually continue to do so whenever they don’t want to wait before buying something, which is why the average person has $5,937 in credit card debt.
If you let yourself fall into this trap, what’s likely to happen is that you’ll keep financing purchases, paying interest, and have trouble saving because you’re constantly in debt.
2. Shopping to make yourself feel good
Retail therapy isn’t as benign as the name suggests. Buying something new can give you a momentary high, and if you’re not careful, this can turn into an addiction. It’s even more dangerous now that you can buy almost anything you want online and have it at your door within a day or two.
While it’s okay to splurge on yourself every now and then, you should be careful not to do it solely for that rush of buying something new.
3. Chasing credit card points
More and more consumers have jumped on the credit card rewards bandwagon in recent years, and for good reason. When used correctly, travel credit cards can offer a lot of value.
Unfortunately, the desire to accumulate as many points as possible can lead to poor spending decisions. The reality is that credit card rewards are usually worth between $0.01 and $0.02 per point, so the value of your points is never going to outweigh the interest that you pay if you get yourself into debt.
4. Trying to keep up with other people’s lifestyles
Peer pressure isn’t something we leave behind once we get out of high school. There’s always that urge to want what other people have, whether it’s a luxurious vacation, a new car, or the latest smartphone.
When you try to keep up with others, you’re probably going to end up overspending, and it’s unlikely to make you any happier in the process. After all, you’re not buying something because you want it, you’re buying it because someone else had it.
5. Overspending on vices
“Vices” in this case refers to unhealthy habits, such as smoking, drinking alcohol excessively, vaping, or gambling.
Now, this isn’t to say that you need to completely deprive yourself of anything. But you should limit your spending on these vices and be careful about the potential to gradually become more and more dependent on them.
Let’s say you take home $2,000 per month. It’s not necessarily a big deal if you were to spend $50 on alcohol or a night at the casino each month, assuming you’re out of debt and putting money into savings consistently. But if you’re spending $50 per week on alcohol, cigarettes, or gambling, that’s 10% of your take-home pay, which will make it hard to move ahead financially.
6. Neglecting your savings
I probably don’t need to tell you that it’s very easy to spend every dollar you make, and this tends to be the habit people get into when they don’t prioritize saving money.
That’s how you end up living paycheck to paycheck. You won’t have an emergency fund, so any unexpected cost can put you into debt, and you won’t have any savings to use towards big future expenses, such as a car or home.
The best move you can make for yourself financially is saving a portion of your income. Ideally, you should set up automatic transfers between your bank accounts so the amount you want to save gets sent to your savings account after each paycheck. Even if you can’t afford to save much, any amount is better than nothing.
Avoiding financial pitfalls
The danger of all these bad financial habits is that once they become a part of your routine, it’s difficult to break out of them. They’ll keep costing you money, and over the long term, even small extra costs here and there can add up.
If you recognized any of the habits on this list in your spending patterns, then it’s time to put an end to them. Once you see how much money you save and get to a healthier place financially, you’ll be glad that you did.
Savings account rates are skyrocketing -- Earn 23x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 25x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2019.