The truth is that most of us fall into bad financial habits easier than we’d like to admit. There are those routines we may not even notice, at least initially, that nibble away at our savings, destroy our budgets, and keep us from achieving financial security. The impact of many of these so rampant habits is difficult to notice because they have become so normal.
While these are common money mistakes, by taking a closer look we can make small changes that can have a big impact on our financial health. Below are some of the most common bad financial habits and what you can do about them before they become larger issues.
Living Paycheck to Paycheck
Living paycheck to paycheck can feel like there’s no way out, but it’s usually because you’re spending more than you can afford. The first step of breaking this cycle is to create a financial cushion, even if it’s just a small emergency fund to start. Even if it’s just $20, setting aside a portion of each paycheck can put some breathing room in your budget.
Paying the Minimum on Credit Cards
If you only pay the minimum on your credit card, you’re allowing interest build up, and you’ll actually end up paying a lot more than you originally owed. When customers make minimum payments, credit card companies love it because they make more in interest. Experts suggest paying more than the minimum whenever possible to avoid getting trapped in the debt trap and getting your financial health back on track.
Not Having an Emergency Fund
Emergencies happen, and if you haven’t planned for them, they can be a financial disaster. If you don’t have an emergency fund, a sudden car repair or medical expense can throw your finances out of whack. Putting aside even a small amount of money each month can help you build an emergency fund over time and also give you peace of mind.
Impulse Buying
The rise of online shopping has caused one of biggest financial pitfalls: impulse buying. Those little “treats” add up fast, and before you know it you have useless things and a dwindling bank balance. Next time you are about to make an impulsive purchase, take a step back and wait 24 hours before making that purchase to see if you really need or want that thing. The reason for this delay is to help you make better thought-out spending decisions.
Ignoring Budgeting
Although budgeting may not sound like the most fun thing to do, it’s one of the best ways to keep your finances in check. A lot of people shy away from budgeting because they think it’s too restrictive or too complicated. However, if you don’t track your income and expenses, you can end up overspending, in debt, and anxious. In fact, a 2022 survey by Debt.com found that only about 32% of Americans stick to a monthly budget. A simple budget will help you track where your money goes and where you can save.
Using Credit Cards for Daily Expenses
If you’re not careful, using credit cards for everyday purchases can get you into financial trouble. Also, credit card interest rates are usually high, and using credit is something you can easily fall into a debt cycle you can’t escape from. So, try to use cash or a debit card for daily expenses. It can also keep you on a budget and away from a run of credit card debt.
Skipping Regular Savings
If you’re only saving ‘what’s left over’ at the end of the month, you might not save anything. Saving can also be built as a habit, so regularly put some cash aside even if it’s just a small amount, and see how it adds up over time. One easy way to make saving a priority is to automate your savings by setting up the direct deposit from your paycheck into your savings account.
Not Investing in Retirement Early
A lot of people put off investing for retirement because they think they have plenty of time, but by waiting to start, you’re missing out on the magic of compound interest. Saving small amounts from your 20s and 30s can turn into big amounts by the time you retire. Starting a retirement fund early can mean a lot more savings because of compounding.
Keeping Up With Others Spending
The classic trap of trying to keep up with the Joneses can result in overspending on things you don’t even want or need. Trying to match someone else’s lifestyle or comparing yourself to others can leave you in debt and no real happiness. Don’t concentrate on what others have but on your own financial goals.
Never Reviewing Your Finances
If you don’t review your finances on a regular basis, you can miss bills, spend more than you should, and waste money. By taking a bit of time every month to review your finances you will notice trends, come across any errors, and readjust your budget if necessary. To stay on top of your goals, and catch any errors early, financial experts recommend a monthly check in with your accounts.
Overpaying for Convenience
We waste extra money for convenience without realizing it, whether it’s meal delivery, subscription services, or impulse buys at the store. It’s okay to splurge every now and then, but paying more for convenience all the time can really add up. Give yourself a few minutes to imagine if there’s a cheaper way to achieve what you desire; your savings will add up over time.
Not Shopping Around for Deals
Insurance, phone plans, and other things are things that many people stay with the same provider for years without shopping around for a better deal. This loyalty can cost you money that could be easily saved with a little research. You can save hundreds of dollars a year by comparing shopping for things like insurance or utility providers.
Skipping Insurance
In the short term, skipping insurance—health, home, or auto—can save money, but it’s a gamble that can cost a lot more if something goes wrong. If you’re uninsured, medical bills, car repairs, or a house repair can wipe out savings. Be sure you have enough coverage to cover you in the event of an unexpected expense.
Big Expenses and Failing to Plan for Them
A lot of people forget to plan for big expenses, like vacations or home repairs, until they’re right around the corner. Many times, these costs end up on credit cards and become more debt without saving in advance. Instead, try to set up a “sinking fund” in which you set aside money each month for upcoming big ticket items. That way, you’ll have funds already available when you need them.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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