No one said the road to financial independence would be easy, but replacing bad money habits with good ones can help.
Recent studies reveal that people don't realize how much their habits control their actions. While we usually think our feelings and plans decide our actions, science shows that our habits mostly guide us.1 That's why creating habits that align with life goals and financial goals is so important.
Below, we outline six common bad money habits that you can replace with healthier behaviors to help meet your financial goals faster.
1. Not Budgeting or Tracking Spending
If you've been coasting from paycheck to paycheck without a budget, it's time to stop. A household budget outlines where and how to spend your money to best meet the financial goals you set for yourself.
More specifically, a budget determines how much money comes in and out of your household. It tracks your monthly fixed expenses—like your rent/mortgage and car insurance payments—that are essential living expenses. It also shows you how much money you can allocate toward discretionary spending on things like entertainment, as well as savings and debt repayments.
You can make your personalized household budget using a free online budget template. If you prefer some tech to help you track, you could also download a budgeting app to your phone to monitor your daily spending. Or go old school and try an envelope system.
Just the act of tracking your spending could prompt you to spend less. It becomes easier to see your financial patterns, uncover opportunities to cut back on expenses and boost savings if you track your spending.
After all, it's easy to overlook small expenses if you don't record them. Even a few dollars a day for a coffee at break time can add up to a busted budget if you overspend.
2. Incurring Late Payment Charges
How much money have you lost to late payment charges on your credit card or credit line bill?
This happens when you don't pay your credit card or line of credit bills on time. And that money could have been put toward paying down your debt or even your retirement savings.
According to the Consumer Financial Protection Bureau, the most common maximum late fee is $25 per late payment, but the fee could be higher, depending on your financial institution.2
Avoid late payment charges by setting up automatic payments—meaning your bill is scheduled to be paid each month. This can help you save on those costly charges and potential negative impacts on your credit score.
3. Socializing With Spendthrifts
We all know them: friends and family members who effortlessly make you open your wallet for a good time. Whether they want you to go for drinks after work or join them for a last-minute dinner at the new trendy sushi bar, socializing with spendthrifts can lead to more spending and less saving.
In fact, according to a 2022 survey by Credit Karma, 24% of people reported spending more than they could afford to try to keep up with others.3
To minimize overspending, try to reduce socializing with people who encourage you to spend more than you budgeted for. Or, replace spendy social outings with free or inexpensive ones. For example, counter that Saturday sushi dinner date with a potluck dinner at your house and invite your friends to bring their favorite dish to share.
4. Making Impulsive In-App Purchases
While smartphones can be a powerful tool for money management, they can also provide a dangerous temptation for anyone who struggles with impulse buying. If this sounds like you, be mindful of the apps on your phone and how you use them.
For example, a grocery list and delivery app can help you save time on your weekly shopping, but watch out for adding suggested items that might pop up on the list if they aren't in your budget. And if you enjoy relaxing with an online game or app, avoid in-app purchases for extra gaming credits that could bust your entertainment budget.
Some apps, such as a ride share app or a restaurant order and delivery app, are so simple to use that you might find you need to remove them from your phone completely to help curb an impulsive buying habit.
5. Borrowing for Big Expenses
When you let big expenses sneak up on you instead of planning ahead, paying for them with a quick credit card swipe can be pretty tempting. Yet this could lead to hefty credit card interest charges unless you have the cash to cover the payment in full.
Instead, when you know you'll have a significant expense, such as a wedding or home renovations, plan and start saving your money now.
This is another case of automating your savings to help establish good financial habits. Start an automatic transfer from your checking to your savings account. Set the auto transfer to deposit a monthly amount that fits your budget and matches your goals. Alternatively, match the auto-save with your biweekly or weekly paychecks so the money isn't sitting in your checking account, tempting you to spend it.
Another option to try is a round up and save app, such as Acorns. With this feature, each purchase transaction is rounded up to the closest dollar. The difference then gets automatically deposited to your savings account.
6. Succumbing to FOMO on Social Media
Do you relax by scrolling through your favorite social media platform? While this might seem harmless, it could be a bad habit if you spend more than you planned because you have a fear of missing out (FOMO) on a great deal, experience or new product.
Combat this temptation with a phone app that limits your time on social media apps or that shuts down your phone at a certain time every night. Or go cold turkey and remove all social media apps from your phone completely.
The Bottom Line: Start a New Financial Chapter for a Brighter Financial Future
When you identify and replace your bad financial habits, you can set yourself on a better financial path. Start by budgeting and tracking your spending, and set up automatic payments for your credit accounts. Stop socializing with spendthrifts, save for upcoming large expenses, and avoid social media scrolling that tempts you to spend more than you should. Master these habits, and you'll be on your way to meeting your financial goals.
Riverstones Vista Capital is always here to help you meet your financial goals. Explore our handy tools—like this savings calculator—today.
Sarita Harbour is a personal finance writer and former financial advisor. She has over 20 years of experience helping families manage their money to meet their goals.
LEARN MORE: Learning to Budget Helped Her Find Her Footing
Sources/references
1. A. Mazar and W. Wood. Illusory Feelings, Elusive Habits: People Overlook Habits in Explanation of Behavior. Psychological Science. March 28, 2022.
2. Credit card late fees. Consumer Financial Protection Bureau. March 29, 2022.
3. Breaking Bad Financial Habits in the New Year. Credit Karma. December 19, 2022.