Many of us were never taught much about finances during our childhood. Now as an adult, keeping track of the money you spend can be the most challenging thing ever. There seems to be a lack of transparency regarding finances that is hurting us all.
It is finally time to address the bad financial habits that have been draining your bank account. You are 5 minutes away from improving your relationship with money and taking control of your future.
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What is a bad money habit?
A bad money habit is a habit that puts you farther away from your financial goals. Many bad financial habits surround things such as convenience, ignorance, and a lack of planning.
Habits are done repeatedly and bad financial habits are actively working against you. With each decision you make that puts you in the hole, you will need to make up for it to reach your goals.
Breaking bad financial habits is critical for you to see your money grow and for you to achieve success with your finances.
How do you overcome bad money habits?
The easiest way to overcome bad money habits is to make it difficult for you to continue them.
If you have trouble paying off your credit card in full at the time your payment is due, then you may need to switch to a debit card or use cash exclusively.
Now this may seem like an extreme option to some of you; however, if you want to see your finances change for the better, you’ll need to make sacrifices.
How to break bad money habits?
Breaking bad money habits requires persistence and consistent sources of inspiration.
Breaking any bad money habit requires planning on the front end and mundane action after that. Once you establish your plan, the biggest challenge you will face is the time it takes for your plan to fully execute.
Finding something productive to do in the meantime that will not thwart your progress is the key to breaking bad money habits.
The Bad Financial Habits You Should Leave in 2023
Here is a list of the bad financial habits that you can and should leave in 2023. Now is the best time to start working on your finances because you will have the most time to improve them.
Waiting even a year to begin will diminish your returns and be another year that you spent practicing bad financial habits.
Know that EVERYBODY in finance wishes that they had begun earlier or learned how to manage their money sooner. Do your future self a favor and start today.
1| Not Checking Your Bank Account
This bad financial habit has to be one of the worst that you will see today.
Refusing to check your bank account is you ignoring the problem.
Banks have made it exceedingly easy for you to access and understand your bank account. If your bank has a website, chances are they have blog posts explaining virtually every question that you may have concerning your account.
It is essential that you check your bank account because you must know where you stand financially. You don’t want to bet your future on the hope that you have enough to cover your bills this month.
Not checking your bank account also increases the probability that you will incur fees on your account, which is a huge mistake.
It is also more difficult to track your progress and assess if your systems are actually working when you don’t know what is in your bank account.
Your bank account balance does not define you and is nothing to fear. A few good money habits can increase the balance dramatically and reduce the stress you feel when it comes to money.
You don’t want your money to feel like a tornado and you are left to pick up the pieces from each month. Checking your bank account can give you peace of mind and make money less scary.
2| Not Knowing Your Numbers
You would be shocked at the number of people who don’t know how much they make in a year, especially those who are self-employed.
This is a terrible money habit because this knowledge is the foundation of a good financial plan. It tells you whether the goals you set are realistic, it impacts the taxes you can expect to pay, and it is a good indicator of what you can afford.
Not knowing your numbers is a serious issue that will hurt you in the future. You can’t afford to not know how much you make as it impacts the life you choose to live.
Some basic numbers that you should know are:
Gross Pay: This is the total amount of money that you make in a year (before taxes, benefits, and other deductions are made from your pay)
Your gross pay can be used to determine whether you are a worthy renter or borrower. Common examples where your gross pay will be considered are on mortgages and tax filings.
Net Pay: This is the money that hits your bank account each pay cycle. Your net pay is the gross pay – taxes and deductions.
Your net pay is possibly more relevant to you than your gross pay. This is the money that you use to budget, withdraw from your checking account, and determine your financial goals.
In terms of everyday living, your power lies in your net pay. This is the money that touches your hands and you have to power to decide where it goes.
Total Debt and Interest Rates: Total debt is the amount of money that you owe. The interest rate is the percentage of the debt that the lender charges you for borrowing money.
Another thing that may shock you is that many people do not know how much money they have borrowed (debt). Between credit cards, personal loans, student loans, mortgages, and heaven forbid payday loans, there are many ways that you can get money.
Borrowing money is NOT free, actually, it can be quite expensive when you consider the time that you will spend repaying the money.
You will not get the money you spend in interest back, ever. This is why it is so important to really consider acquiring new debt.
Having debt impacts your credit and a key way to improve your credit is to consistently make debt payments on time.
Net Worth: Your net worth equals your assets – minus your liabilities, also known as, what you own – what you owe.
Your net worth is a good metric to track because it can give you a general sense of how you are doing financially. Having a positive net worth can be an indicator that you are improving.
You should be aware that your net worth can only tell you part of the story. For example, if you have a house (asset) that is worth 500,000 and you have a total debt of 450,000 (including your mortgage), then you have a positive net worth of 50,000.
Your net worth does not tell you how much someone has in their bank account or in investments. Having a positive net worth does not indicate how someone may feel about money. You can have a positive net worth and have no money in the bank, which may still lead to you feeling stressed and unsure about your financial future.
On the contrary, having a negative net worth does not mean that someone is necessarily doing poorly with their finances. A law student with a -$200,000 net worth that consists of student loans may not be stressed because their salary will make up for the debt.
There are many factors that impact how you feel about money like, risk tolerance, amount of money in savings, upbringing, and percentage of money spent on fixed costs. To get a full picture of someone’s money psychology, you will need to go below the surface.
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3| Being unorganized with your finances
This bad financial habit can lead to confusion and missed payments.
Knowing your numbers, like the ones mentioned above put you further than the average American and make a huge difference in terms of being organized with your money.
Some things that you can do to begin getting organized with your money are:
- Creating a budget
- Documenting your payment due dates
- Declaring beneficiaries for all of your accounts
- Tracking your expenses
- Set up automatic payments
- Set up automatic savings
Getting organized with your money is the easiest way to keep track of it. We have all experienced the feeling of burning through our last paycheck and wondering how we are going to get to the next one.
Setting up systems to direct your money will help you maintain and sustain a financial plan that will ensure that you reach your goals.
4| Not knowing your monthly expenses
This is one of the bad financial habits because it makes it difficult to manage your money.
When you go to a store to get groceries and pick up items without checking the price and pay whatever the total is at the register, you may not realize how much these groceries are costing you.
Do you know how much you spend on groceries a month, or gas, or eating out?
If you do not know, you may want to check your last bank statement. When you see what leaves your account and how often, you may reconsider your spending priorities.
Knowing your monthly expenses can help you anticipate the amount of money that you can put towards saving, investing, or fun money.
You don’t want to guess what you have available because knowing what you need to spend every month will make you more efficient with your money.
5| Watching Amazon Hauls (Keeping up with the Joneses)
Social media has made it ever-so-easy and enticing to spend your money. The videos where people show you what they have purchased can be entertaining and show you all of the things that you didn’t know you needed.
If these items were not on your wishlist to begin with, chances are that you do not need them. Trying to keep up with the Joneses is one of the best ways to drain your bank account. Amazon hauls are great ways for bloggers and influencers to get paid through their affiliate links.
Watching content that is explicitly intended for you to spend money is not a great way to build restraint.
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6| Not saving money
This is a financial habit that people think they can avoid. It is easy to push saving money to the bottom of your priority list once you have spent your money on your wants and needs.
There is a concept of “paying yourself first” that explains this further. If you want to get ahead financially, you need to plan to save and invest your money. Many people save what they have left after they spend, but it should really be the opposite where you spend what is left after you have saved a portion.
it is a good practice anyway to live on less than you make because you will be better prepared to last through any financial difficulty.
This is always easier said than done, but saving money is absolutely a necessary step in leveling up your finances.
7| Incurring fees in your bank account
This bad financial habit is a HUGE no no.
Similar to interest, you will not receive this money back, especially if you have made a habit of incurring fees on your bank account.
Fees can result from over-drafting your account, not meeting the minimum requirements for your bank account, and late payments. Fees will eat at your account balance and slow down your progress.
With a little research, fees are totally avoidable and you can call to have certain fees waived.
You should avoid bank account fees like the plague. They do not help you in any way.
8| Not automating your finances
You should avoid bad financial mistakes like not automating your finances.
Automating your finances requires you to have some level of organization to coordinate your bank account with the money required to make your payments.
This is one of the best ways to lighten the mental load that it takes to remember all of your payment due dates and worry about all of your money being where it is supposed to be at the correct time.
Automating your savings and investments, specifically, is great because it increases the likelihood that you will actually save your money. You can avoid the emotional impulsivity that comes with changing circumstances. Automation also prevents you from straying from the plan that you set at the beginning.
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9| Waiting too long to make your returns
This is a financial mistake that people may forget about.
In this online shopping age, it has become easy to have anything arrive at your door and even easier to return it. Returning items that you have purchased online may seem like a major inconvenience.
However, you should return the items that you do not intend to keep as soon as possible. Why? Because you have already decided that you do not want the item in your brain and by waiting to return the item, you increase the chances of you missing the return window.
Keeping items that should be returned is not only a waste of money but more work for you to do in the future. You will either need to sell the item or donate it and you won’t receive the amount that you bought the item for.
A good financial habit is to be intentional about the purchases you make and not waste money. We can all benefit from being slower to swipe our cards and really consider if each item we see is worth our hard-earned dollars.
10| Not paying off your credit card in full
According to Clever, a staggering 61% of Americans today are in credit card debt. The total credit card debt in the United States has surpassed 1 trillion, with a “T”, dollars!
This is a frightening statistic as it shows that Credit Card companies are profiting off of consumers’ bad financial habits.
Paying off your credit card in full, on time, every month ensures that you can take advantage of the full benefits of using a credit card. The amount of points and perks that you receive from using a credit card will NEVER surpass or justify the amount of interest that you are charged for carrying a balance.
Credit Card debt is one of the worst and most common debts that consumers run into. It is even more difficult to get out of once you are in the hole.
Credit cards can easily cloud your judgment by making spending more accessible. You can buy anything without considering whether you can actually afford these purchases.
Not paying off your credit card in full also perpetuates the bad financial habits you build when you don’t consider what you can actually afford. You may start making unnecessary purchases just because you know that you don’t intend to pay off the balance in full anyway.
Do your future self a favor and stay out of credit card debt. It is SOOOOO much easier to move forward financially when you do not have debt in your way.
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11| Disregarding retirement
This is one of the absolute worst bad financial habits you can bring into 2024. The illusion people have about retirement is that it is far away. You have time, so why rush???
Do not be one of these people. What most people do not understand is that the key to a solid retirement IS time. Your retirement account is not going to grow to its full potential in a few years, and it certainly won’t grow well overnight.
You need a LONG time for your retirement accounts to work for you and compound interest to begin. I am talking about DECADES of time is necessary for you to take full advantage of retirement.
I am saying that you cannot afford to wait to start thinking about retirement. The earlier you begin, the easier it will be to grow your account. If you don’t believe me, I encourage you to try out this retirement calculator. If you put in your information, you will see the estimated amount of money you will have at retirement age.
What you should really pay attention to is the “Age of retirement” section. You can see that the less time that you have to retire, the less your money will grow. Time can cost you hundreds of thousands of dollars, so you cannot afford to delay your retirement.
Conclusion
The bad financial habits need to go!
The future is bright, especially for those who are prepared. If you want to be able to survive any economic downturn, recession, or job loss, these tips are a great place to start.
Use your new-found knowledge to take control of your finances and let me know the bad financial habits you’ll be leaving in 2023 in the comments!