15 Bad Financial Habits That Could Be Causing Money Problems

Do you want to know how to swap out bad financial habits and usher in the good ones? I have a blog for the latter, so let’s focus on the “Breaking Bad” of the bad ones! I promise only actionable and helpful advice and none of the generic stuff.

“Don’t tell me where your priorities are. Show me where you spend your money, and I’ll tell you what they are.”

This quote by James W. Frick perfectly captures how our good and bad financial habits, both big and small, paint a clear picture of our financial reality. (1)

Daily lattes, impulse online buys, and neglecting to buy generic and comparing brands can all add up to a significant change. 

Did you know that according to a recent study, the average American spends almost $2,000 annually on unnecessary impulse purchases? (2)

This blog talks about the world of financial mismanaging habits to avoid, helping you identify hidden money leaks and put your hard-earned cash towards your true priorities.

15 Financial Mismanaging Habits To Avoid

1. Impulsive Shopping

Every time you buy 10 more items instead of the 2 that you went looking for, you end up becoming a victim of self-loathing.

This impulsive buying behavior leads to long-term financial instability and mental stress. 

According to an article released in April 2024, 84% of all buyers have made impulse purchases. If you do not want to be a part of this majority anymore, here’s how you can swap out this bad financial habit: (3)

• Create a shopping list and stick to it. Its purchases reduce the temptation of impulse buys.
• Employ the 48-hour rule. Waiting a day before buying something non-essential often changes your mind.
• Reduce exposure to promotional offers that trigger impulsive purchases by unsubscribing.

2. Keeping up your ‘Social Status’

We all heard of the “reality” TV serial, ‘Keeping Up With The Kardashians,’ but never heard of keeping up with Joneses.

It’s not a serial, but rather an expression to always try to compare your materialistic possessions with someone you know and try to surpass them.

The social comparison that is enabled through baseless societal norms leads to, what you might call, ‘social status’. 

To avoid this financial mismanaging habit, you can take the following steps:

• Focus on experiences, not possessions. Shared adventures with loved ones create lasting memories, unlike materials that are worn out.
• Celebrate others’ successes to strengthen your relationships.
• Compare your progress to your past self, not someone else’s.

3. Living beyond means

Most of you may not be aware of how much you spend over your limit just because you think ‘everything is under control’.

This month, make a list of your “honest” expenses, or withdraw an e-statement from your bank and you will see that your spending exceeds your income. 

This can lead to bank and personal debts, the former being worse than the latter, and long-term financial instability. This is also the easiest bad habit to fix your financial problems and here’s what can be done:

• Recognizing your spending habits is the first crucial step. 
• Prioritize needs over wants. This involves focusing on essential expenses first.
• Look for freelance opportunities or consider a side hustle to create a financial cushion.

4. Paying only the Minimum Amount Due (MAD)

Stop exploiting your credit card privileges, especially the Minimum Amount Due (MAD). This feature exists to support us, but it can also bury us under enormous compound interest over time. 

Don’t think of it as a benevolent feature to help you. It is designed to increase the interest on the remaining amount every month, leading you towards the financial ‘black hole.’ Instead of exploiting this option, switch towards the following frugal habits:

• Develop a realistic repayment plan that considers your budget and minimizes interest accrual.
• Prioritize paying off high-interest credit card debt first, as it can quickly snowball.
• Consider a debt consolidation loan to simplify your payments and potentially secure a lower interest rate.

5. Stop underselling yourself

This is one of the most common mistakes, and also a bad habit among a few. Instead of asking for a raise, or suggesting your salary range, do complete research. 

It is important to know your self-worth and how to negotiate for the value you will bring to your workplace or freelance project. Remember, people will respect you when you learn to respect yourself. (4)

Here are a few tips to negotiate your work’s worth:

• Research industry benchmarks for your position and experience level. 
• Highlight your accomplishments and the value you bring to the company. 
• Practice your negotiation by role-playing with a friend or colleague to polish your communication skills.

6. Not investing your savings

Checking your savings into a standard savings account is a huge mistake. Most probably you will end up losing that money because the inflation rate is mostly higher than the interest rates. 

The wise thing to do is to invest your savings into long-term plans. Learn how to leverage compound interest to your advantage. It’s often called your money making its own money, and here’s a beginner’s guide on how it can be done:

• Consider a Roth IRA for retirement savings. It offers tax-free growth. (5)
• Research low-cost index funds for a diversified and hassle-free approach. 
• Talk to a financial advisor for personalized guidance tailored to your risk tolerance and goals. (6)

7. Avoiding lifestyle inflation

Some people find themselves struggling, living paycheck to paycheck, even with their increasing income. This is often attributed to lifestyle inflation. 

When you get a raise, your spending amount increases compared to your savings. You may buy a luxury car, or move to a bigger house, just to keep up with that ‘social status’ we discussed. 

This cycle often leads to disproportionate spending habits, which often leads to living an expensive lifestyle that is difficult to sustain in case of a sudden drop in your income. Here are a few ways to break this cycle: 

• Fight lifestyle inflation by automating your savings. 
• Set a fixed amount to transfer directly to your savings account each payday.

8. Keeping money under a mattress

This may sound unusual, but it is more hurtful than most.

You may have this habit, or see your parents hoarding the same amount of money in cash now and then, thinking it will make them rich after retirement. (4)

In developing countries, where the value of money often declines, only causes them loss. The fix for this bad habit has already been discussed.

Invest your savings and keep yourself informed and updated on the current inflation rates and how they might affect your long-term investment plans.

9. Lending money to a deadbeat

I have a very interesting perspective on this problem. It is not the person who never pays his debts (also known as a deadbeat) with a bad habit, but the one who keeps lending him money.

Most of us know someone who always asks for ‘a small’ amount that he will ‘pay as soon as possible,’ but never does. If we don’t break this cycle, it will not only affect our relationship with the borrower but also put a financial constraint. Not to mention the bad precedent it sets for them.

Saying no can be difficult, but here are a few ways that can help you break this cycle: 

• “I’m not comfortable lending money right now” is perfectly acceptable.
• Don’t let guilt trips manipulate you. Your financial security matters.
• Suggest a budget plan or point them towards resources that can help them manage their finances.

10. Not paying taxes

Taxes are a way to keep societies functional. By paying taxes, you not only fulfill your duty to your country but also rid yourself of the financial burden of interest and legal penalties in case of unpaid taxes. (4)

Doing taxes can be a thorny problem which can lead you to develop this bad habit of always delaying it. Here’s what you can do to swap out this bad habit:

• If you’re self-employed, avoid a year-end scramble by paying estimated taxes quarterly.
• File on time, even if you can’t pay. This minimizes penalties and allows you to explore payment options.
• If tax filing feels overwhelming, a qualified tax professional can ensure accuracy and guide you through the process.

11. Not Having a Side Hustle 

Relying on a single income source is not a smart move in this age.

If you have time and skill at hand, or a property that you can leverage, why not put it to work and earn that extra cash? 

Not having a side hustle these days is like putting all of your eggs in one basket. If anything goes wrong on the road, you have no other source to rely on. Here is a list of simple, high-paying side hustles that you can adopt:

• Writing – blog writing, copywriting, research writing.
• IT – web development, graphic designing, creating apps.
• Property flipping – intellectual property like web templates or physical property like a piece of land.
• Rental services – car rental, space rental.

12. Not tracking expenses

Budgeting should be a must-do in every earner’s life. 99% of the money problems arise because of not tracking your income and expenditures. 

Creating a budget can be fun if you use apps that help you track your income by categorizing all your expenditures.

This way, you can stay updated on how much money you need for your splurge account to satisfy your buying needs. Here is a step-by-step beginner’s guide on how to create a budget.

• Use a free budgeting app or a simple spreadsheet to record income and expenses.
• Divide expenses into fixed costs (rent, bills) and variable costs (groceries, entertainment).
• Track your progress monthly and adjust your budget as needed.

13. Neglecting your physical and mental health

Don’t underestimate the financial impact on your health. Studies show chronic conditions can add an extra $1,700 a year to healthcare costs, while mental health struggles can zap your earning power by 20%. (7)

To break the cycle of this bad habit, take the following steps:

• Regular checkups, healthy eating, and exercise can significantly reduce your risk of chronic illnesses.
• Don’t hesitate to seek professional help if you’re struggling. There are many resources available, including therapy and medication.

14. Neglecting personal and professional development

Investing in yourself is an investment in your earning potential. Sharpening your skills can be a secret weapon.

Research shows college grads earn more, and staying up-to-date with in-demand skills can prevent stagnant wages or even job loss.

• Identify in-demand skills: Research your industry and identify skills that are highly sought after.
• Explore online learning platforms: Many affordable online courses can equip you with valuable new knowledge.
• Seek mentorship: Connect with experienced professionals in your field who can offer guidance and support. (8)

15. Gambling Is A Facade

Don’t indulge in gambling, as it is one of the worst financial habits you can get stuck in.

Sure, there are a few big wins that get you rolling, but then there are dry periods where you lose all you have earned and more. Gambling hubs feed off of your winning streak to benefit themselves.

No one other than Naval Ravacant could have put it in a better way: (9)

“There are no get-rich-quick schemes. That’s just someone else getting rich off of you.”

Forget the “keeping up with the Joneses” mentality. You need to prioritize experiences over possessions and find fulfillment that doesn’t drain your wallet.

From conquering impulse buys to building a side hustle, you need to equip yourself with the tools to transform your financial reality.

Building healthy financial habits takes knowledge, struggle, sweat, and blood. So if anyone tells you otherwise, turn back, and run as fast as you can!

Want more meaningful financial advice? Visit my blog:

https://selfcraze.com/

You will find guidance on ‘Passive Income Ideas,’ ‘Financial Management 101,’ and ’15Healthy Financial Habits.’