I have spent the last decade of my life immersing myself in the field of finance and money. And one of the most life-changing skills I have learned through it all is how to handle my own finances, recognize my bad money habits, and break free from them. So in this article, I’m going to share with you nine of the most common bad money habits that keep you poor and hold people back. I’ll also share some tips on how to break out of them.
Money Habits That Keep You Poor
1. Paying Yourself Last
I first heard of this in the book Rich Dad Poor Dad by Robert Kiyosaki, and it’s one of the blueprints in achieving Financial Freedom. Robert explains that the way people pay their bills can be broken down into two types.
The first way is the Poor People’s habit, and that is through paying yourself last. So as soon as your paycheck comes in, you then pay your rent, your phone bill, your subscriptions, you fund your social plans, and then you’ll save whatever’s left over, if there is even any money left to save.
The second method he talks about is the rich people’s habit, and they do the complete opposite. They pay themselves first, and that is what you want to do. Take 10% minimum and put that into your savings account the minute you get paid. Treat it like paying a bill. This is so important, and by doing this, you’re guaranteeing that you’re buying their things before you pay yourself.
2. Getting Comfortable With Bad Debt
The second bad money habit is getting comfortable with bad debt. It seems that debt these days is actually the norm. People are using debt to buy the smallest of things, to buy presents, to buy clothes. That is, unless I can afford to pay for that thing outright and cash, I shouldn’t be buying it with any form of debt.
Remember, credit card companies want you to be bad with your finances because that’s how they make money. From this, the average credit card interest rate is 22%, which cancels all kinds of benefits and rewards these credit card companies are providing if you’re not able to pay them off.
3. Not Having An Emergency Fund
This third one is about paying yourself first and essentially it’s saving enough so that you buffer this six months of buffer. It’s through that paying yourself first, start putting that 10% away, and once you have your stockpile, then you can start using the additional money you save to build into your investment fund and looking at investments.
4. Not Knowing Your Income And Expenses
The fourth one is not knowing your income or expenses properly. Until you know what your starting point is, how do you know where you want to be? There’s something called lifestyle inflation, and that is your spending will rise as your income rises.
The more money you make, the more you spend, and it’s a cycle. Make more money, buy a bigger house, buy a fancier car. So people who are on top of their income and expenses financially, they know their assets, they know their liabilities. They have a clear goal on where they want to go financially and all the steps they need to take to get there.
They are more likely to get a lot of money and build wealth compared to people who just fantasize about money but have no idea how to go about it, how they plan to acquire it, or how to manage it. Just being mindful of their stuff and seeing those numbers in black and white will trigger you into action.
5. Having Expensive Hobbies
The fifth bad money habit is having expensive hobbies. A lot of people like to shop, and I guess, yeah, part of this is consumerism. But if you want to improve your financial position, you can first save more of your existing income, or you can make more money and create more income streams, and the ideal combination is a mixture of both.
You can’t build wealth if you’re making more money and spending all, but you also can’t if you’re just focusing on the saving side because there is a cap to how much you can save. Using those cashback sites will only get you so far. So to truly build wealth, you have to think of both sides of the equation, both how you will save a larger percentage of your income, but also how you will make more money.
The saving money side has a cap; the making money side does not. It’s infinite. There is unlimited potential upside, whether it’s investing in the stock market, asking for a pay rise, starting a side hustle. You want to break the bad money habit of thinking that saving money is going to massively increase your wealth.
Paying Too Much In Taxes
Taxes are going to be the single biggest expense in your life. Whilst everyone has to pay tax, a lot of people just pay the basic amount. Wealthy people, they have knowledge of legal corporate structures that come with tax advantages. They hire tax advisors that help them minimize their tax bills. So if you want to get one step ahead, one of the best ways to increase your wealth is through understanding tax rules in a way that stacks up in your favor.
For example, investing through an ISA or a Roth IRA, which is an investment account that shelters your dividend and profit from taxes, or operating under a business instead. If you are someone who disagrees with this and prefers to pay more taxes regardless of whether or not you can reduce it legally, then it doesn’t hurt to understand the tax rules. And also reduce that tax bill so that you can instead use the money to give back to things that directly align with your values, instead of letting someone else decide where that money should be going.
If you want me to make an article on tax, I was planning to. I already have a summary of what I want to include, but I have been a bit skeptical about whether to release this. It’s a topic that can go either way, so let me know in the comments section below if you want to see that.
Waiting Too Long To Invest
When you start having savings, you have that stockpile, that buffer that we spoke about, then you want to start looking at investing that money so that your money starts working for you. And you want to diversify those investments so you can weather different situations that come around in life. But you want to avoid leaving that money in a bank account because inflation is a thing, and it means that you’re essentially losing money every year.
So I have a mixture of safe investments, of riskier investments that I’m willing to lose as well. Start looking at different investment strategies once you’ve saved up enough. Don’t leave any additional money than you need to in a bank account.
This is another article on what you can be doing with your money in times like the current recession, you can check it out. There are always going to be reasons why you can’t invest because you don’t have time, you don’t have enough money, and you don’t know where to start. But the longer you put off investing, the harder you will have to work to get that same financial freedom. Not caring about money. You may also enjoy this article on building wealth and making money work for you.
Recommended: 10 Habits That Keep You Poor | Poverty Spending Habits (2023)
