10 Money Habits That Keep You Poor
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Do you live paycheck to paycheck? Have you ever wondered where your all your money went? Well, if you have, you’re not alone!
What’s important, however, is to determine what may be causing you to struggle with your finances and, in turn, make the necessary adjustments to reverse your fortune.
Regardless of your income, good money habits help to build your wealth and set you up for financial success, while bad ones dwindle your savings and create a vicious cycle of not being able to save. Of course, you may not even be aware of what money habits are acting as a detriment to your financial success.
So, with this in mind, here are 10 money habits which may be eating away at your hard-earned money and keeping you poor – and how to overcome them.
1. Not Having, and Sticking to, a Budget
- Creating a budget is the first step towards achieving financial independence and involves understanding your income and expenses, tracking all your spending, and setting realistic limits for different categories.
- By creating a budget and sticking to it, you can identify areas where you can cut back on monthly expenses, thereby increasing your savings.
- And, doing so also helps you to avoid spending money on impulse purchases and, thus, wondering where all your money went at the end of the month.
- In turn, you can then set financial goals.
- So, simply stated, make and budget and stick to it!
2. Not Keeping a Record of Your Money
- In keeping with the idea of creating a budget, one necessity in this process is to knowing where you spend your money.
- For some people this may be as simple as writing down your monthly bills, utilities, expenses, etc., while for others creating a spreadsheet may serve the same purpose.
- No matter how you decide to do this, what’s most important is you have it documented.
- After all, how can you possibly keep on top of your finances if you don’t know where your money goes?
- While you may be aware of your major expenditures, often-times it’s the smaller ones that are forgotten and contribute to potential financial woes.
- That’s why keeping track of all expenses is essential to your financial well-being, proper budgeting and breaking habits which keep you from your goals.
3. Relying Too Heavily on Credit
- Having access to credit via a credit card can be a good thing.
- Not paying off your monthly credit card balance or making late payments, however, can have a dramatic impact upon your money.
- Simply stated, not paying off a monthly credit card balance in full results in APR (Annual Percentage Rate) charges, which grow monthly thanks to compound interest.
- For example, if you have a credit card balance of $6,194, which is the average credit card debt for Americans, at a rate of 16.61%, which according to the Federal Reserve is the average credit card APR, making minimum payments would result in the following dollar amounts being paid.
- Pay off $6,194 – $0 of accumulated interest
- Minimum payments for 5 years – $2,264 of accumulated interest
- Minimum payments for 10 years – $6,540 of accumulated interest
- Minimum payments for 15 years – $10,657 of accumulated interest
- What this information shows is that after 10 years interest surpasses the initial credit card balance.
- And should you make a late payment, then expect to pay even more due to fees.
- Of course, you can avoid all of this by simply paying off your monthly credit card balance!
4. Prioritizing the Wrong Things
- As with most things in life, saving money and building wealth doesn’t come without a few sacrifices.
- For instance, if you want to take a vacation, make home improvements, or buy an investment property, then you will have to control your expenses in other areas.
- This requires discipline!
- So, instead of buying coffee at Starbucks, Dutch Bros., or Dunkin’ Donuts, you may have to settle for brewing some at home.
- Instead of throwing out those leftovers, you may have to eat them as a second meal.
- While these changes may seem small and insignificant, they do, indeed, add up and can make your financial goals a reality.
- So be sure to not only be clear about your goals but, more importantly, take the small steps necessary to make them happen.
5. Ignoring Your Debt
- The only thing worse than racking up unnecessary and expensive debt is ignoring it altogether when it comes time to paying it off.
- For some people, this can become overwhelmingly worrisome resulting in their completely ignoring it.
- This only leads to the problem becoming worse and eventually spiraling out of control.
- Rather than “sticking your head in the sand,” it is important you address your debt before it begins controlling more aspects of your life than just your finances.
- Consolidating your debt as well as paying off a small amount in regular intervals can do much to assist you in these efforts.
- Also know there are debt professionals and debt-relief attorneys whose mission is to assist you.
- In doing so, debt settlements can be made without doing damage to your credit score.
- The main thing to remember is this – get on top of your debt before it gets on top of you and you end up losing it all!
6. Poor Shopping Etiquette
- Simply stated, we all respond to stress and adversity differently.
- So, while some people may go the gym, take a car ride, or head to a place of solitude, others respond to such moments by going shopping.
- Keep in mind, we aren’t talking about the type of shopping needed for daily essentials but rather the type of activity you do when you’re sad, stressed, or just plain bored.
- In other words, impulse shopping!
- Regardless of the cause, the short-term fulfillment received from impulse shopping can have more severe, long-term consequences.
- According to recent data, Americans spend an average of $150 per month on impulse purchases.
- Obviously, this number will vary depending upon how you, personally, respond to anxious situations but if you are like most Americans, approximately $1,800 of your income each year goes towards purchases you can really do without.
- Be aware of this, as it may be a major money habit that is keeping you poor!
7. Not Putting Money into Savings
- One of the main differences between poor people and self-made millionaires is the latter makes a habit of saving regularly.
- Keep in mind, saving money takes a conscious effort – it doesn’t just happen!
- And when doing so, here are a few things to keep in mind:
- Don’t Try to Save Everything at Once! Instead, start small with a specific goal that is measurable and achievable. For some individuals this may be $100, while for others it could be $500. Whatever the amount, be sure it is something you can achieve within 60 days.
- Once this first goal – whatever it may be – is achieved, quickly add to it! So, $100 may become a new goal of $250 or $500 may become $750, and so on.
- Pay Yourself First! Be sure to set aside savings at the time you have it, such as when you receive your paycheck. Don’t wait to do this at the end of the paycheck period, as this never works.
- Whether saving a rainy day, retirement, or a big ticket item, the best time to start doing so is NOW!
- Start today!
- And the more you can save at an early age, the more wealth you’ll accumulate.
8. Not Investing
- Saving money is one thing, but if you don’t invest it then you can only go so far.
- Whether it’s stocks, bonds, or exchange-traded funds, it’s important to invest your funds!
- In fact, one of several common habits of self-made millionaires is they invest what they have.
- In doing so, most of them have the funds needed for their investments automatically taken from their paycheck or checking account.
- That way they never miss the money because they never see it!
- Instead, it is put directly into their investment account(s), and they live on the remaining funds.
- The invested funds are then used for future car purchases, vacations or other types of goals.
- As a general rule, 20% of their income each month goes towards savings plans, retirement and investments.
- Should you decide to do the same, it is important to first of all “Know Your Money Psychology” to better understand your natural financial tendencies as well as risk tolerance.
- That’s exactly what self-made millionaires do!
9. Spending More as Your Income Increases
- It’s only natural for someone to increase his or her budget, as well as accompanying spending, when his or her pay increases.
- After all, there’s nothing wrong with someone enjoying the fruits of his or her hard-earned labor.
- While there’s no harm in doing this, however, it’s also important to remain disciplined!
- Remember, if you were doing all the right things prior to a pay increase taking place, you can do the same post-raise as well.
- One major key to success is to keep expenses and spending at a constant level even after your income increases.
10. Living Beyond Your Means
- At some point in our lives, this is something many of us have been guilty of.
- What does it mean to live beyond your means?
- Well, if you have ever sat down to work out a budget – which is highly recommended, see #1 above – you start by first putting aside money for mortgage/rent, car payment(s), bills, and generally living costs.
- After you have done this, if you do not have any money left for food and basic necessities, then you are living beyond your means.
- Also, if you find yourself making ends meet by using your available credit then, once again, you’re probably living beyond your means.
- Simply stated, this is the easiest way to stay poor.
- How do you avoid this?
- Well, you can start by following the previously presented nine money habits that keep you poor!
Always remember, the best things in life – walking, jogging, hiking, biking, swimming, exercising, playing in the yard, conversation, worship, smiling, hanging out with loved ones, etc. – are all free! So, if you focus on these treasures of life, then you’ll have a better time conquering some of the money habits that keep you poor.