What good money habits do you think you should cultivate? Quite a few but what about bad money habits? Bad habits do not add anything to your financial freedom but are only making us work more and long. I am here to tell you that you can change them to good money habits. How? The first step is to identify them and that is what this article is all about. Here are 6 Bad Money Habits to Avoid & How to break these Bad Money Habits.
What Bad Money Habits should you avoid at all costs?
1. Not saving every paycheck
The first of the Bad Money Habits to Avoid is quite straightforward. Cultivating a habit of saving only adds to your financial goals. It builds financial discipline. Even if you can save 10% of your take-home pay, you are coming close to your financial freedom goal. As the saying goes, “a penny saved is a penny earned”.
2. Not tracking your income and expenses
A lot of people do not bother tracking their money. I cannot blame them. I was the same before. In fact, every month end, I used to wonder where did my money go. It was only when I started tracking my income and expenses, I identified some bad money spending habits. In short, tracking your income and expenses helps you identify any bad money spending habits and help you take action to correct them.
3. Spending more than your income
This one is quite easy to understand. Your spendings must always be less than your income. Do not let lifestyle inflation get to you. Be very mindful in ensuring that you do not overspend. If you track your income and expenses, you can very much track and avoid any pitfalls in your spending habits.
Rule 1 : Income – Expenses = Savings
Rule 2 : Income > Expenses
4. Taking on unproductive debt
Debt can be good or bad. It completely depends on the situation that you use it for. If you use debts to build revenue-generating assets, it can be considered to be good debt. Whereas if you invest in assets that lose value over time, debt could be bad. A debt on a house can be good or bad depending on the purpose, the same goes for land, car, and so on. So, use debt effectively because taking debt may involve interest cost which can be really high.
5. Not having an emergency fund
We never know when the worst is to come, we may lose our jobs, our business may not be performing well. It is always best to be prepared for any unplanned situations. The thumb rule that most financial advisors recommend is having an emergency fund of 6 months of living expenses. Some even recommend 12 months, whereas some even 3 months. The amount of your emergency fund will vary based on your lifestyle. So build that emergency fund, you never know when it will be the saving cushion to an unexpected fall.
6. High-cost habits like Gambling, Smoking/Drugs, Lottery tickets, etc…
Although these habits are your personal choice, do you know how much they are setting you back on your financial goals? Each of these habits is not cheap and will definitely eat a huge chunk of your wallet over consistent consumption. We recommend you use the power of consistent habits to amplify your good habits, they will reap huge rewards instead of the other way around.
In this blog post of Bad Money Habits to Avoid & how to break them, we have addressed the bad habits, it is time for some ways to overcome them. Here we go:-
HOW TO BREAK BAD MONEY SPENDING HABITS?
These days, have you ever shopped online? How much money have you spent online? Have you come across thinking “how to stop bad spending habits?”, but are still not able to think of a way? Do not get me started on this. Almost anything that you can possibly imagine in consumption is available online these days. Imagine then, how many shops, restaurants and other places of entertainment are available in your local town too. With so much to buy and do, it is easy to get lost in consumerism and pretty much end up spending a lot. So, here I am today on giving you some simple steps on How to break bad spending habits?
1. Track your money
Tracking your income and expenses goes a long way in being aware of everything that you do. Infact in my own case, realize how much money I was spending on restaurants, partying, and clothes until I started tracking my finances three years ago. I am glad I started tracking my money. This helped me identify serious damaging habits in time and take action to work on them. Trust me, especially with electronic money via credit card, PayPal, etc..we do not even feel the voluminous transactions we undertake like actual physical money. So keep track of all your spending and eventually you will be consciously aware of any bad money habits and be motivated to stop them from draining your bank.
2. Make a budget and stick to it
Once you track the money, you will be able to review the different areas that you spend your money. You can identify expenses that you could have avoided because you did not really need them. Do not fret too much about the past but focus on changing the future. So the next step is to categorize these expenses and make a budget. Your goal is not to exceed the amount every month.
For example, when I used to review where I’ve spent my money, I had identified that I spend a lot on going out to restaurants, getting let of takeaways, purchasing clothes that I do not use most of the time, purchasing gym membership while not using it, getting parking fines, etc… You get the point. I used to spend a lot. So, What did I do? I have made budgets for all travel, home food, groceries, restaurants, wellness, petrol, and every month I review my budgeted amounts with the actuals. In some avenues, I manage to stay within limits but the others exceed by budget limits. It is small but steady progress for everyone after all. I’ve come a long way and the best advice I can give you in breaking your bad habits is to START doing something small consistently, and the rest all will follow from there.
3. Pay yourself first
You must have heard this advice many a time by all financial experts and advisors out there and this is very very important. Every month when you get your paycheck (or business income), pay your high yield saving account first, followed by your investment accounts, and only after that, use the remaining for your expenses. No matter how small the amount, remember, our goal is to create small good habits, which add to big ones. Little done consistently over a period of time can really be a lot especially when the compounding effect has gotten your back.
4. Every penny spent wrong, equals a longer time to retire.
Think that for every money spent, how much longer will you have to work to retire. Now, I have a goal to be able to reach financial independence early. I want to reach my financial number in my 30s, but I don’t want to retire from work necessarily. Living life knowing that money need not be a priority is very important to me. I do not know if it will be possible but I am giving it my all to reach there.
For example, I love coffee and I don’t mind splurging once in a while going to Starbucks. But sometimes I crave it a lot many times (especially when I am tired). To avoid over splurging, I remind myself that every additional coffee at my favorite coffee shop will cost me a dividend income that I could have earned if I had saved it instead. In fact, for my work days, I buy the coffee and make it myself. Imagine how much I would have saved for a whole year like this. This is just a small example but I’m sure that you get the point.
5. Create a bigger financial goal
Create a huge goal like buying a house, college education, business capital, or even that nice cozy vacation that you always wanted. At least you won’t end up spending your money on unnecessary clothes, accessories, and food this way. These investment avenues will help you stay aligned to your goals because you know it takes a huge financial outflow to get closer to these. Remember, an investment in yourself or your life is the best investment you can make.
We hope you enjoyed reading Bad Money Habits to Avoid & how to break them
Bad spending habits are just a result of repetitive consistent actions that you had taken. Remember it takes just 14 days to build a habit, so let us try to break bad spending habits and achieve financial freedom and money independence.
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