Poor financial habits are behaviors that negatively impact a person’s ability to manage money effectively. These habits can prevent people from reaching their financial goals, like getting out of debt, buying a house, or retiring comfortably. Some examples of poor financial habits include overspending, not budgeting, relying heavily on debt, and not planning adequately for the future.
Overspending
One of the most common poor money habits is spending more money than you earn. This could involve frequently dining out, shopping for unnecessary items, buying the latest gadgets, taking extravagant vacations, and more. Overspending leads to racking up credit card debt, missing bill payments, or having to use savings to cover everyday expenses.
Not Budgeting
Failing to budget and track expenses is another poor financial habit. Without an intentional plan for income and spending, it’s easy to overspend without realizing it. Not knowing exactly where your money is going each month makes it extremely difficult to reach financial goals.
Not Saving
Saving money protects unexpected expenses and future financial goals. But many people don’t make saving a habit and priority. As a result, they have no financial cushion when emergencies arise or big life goals approach. Having little to no money saved can lead to relying heavily on credit cards or loans.
Relying on Debt
Using debt itself is not necessarily bad – mortgages, student loans, and reasonable car loans can be helpful. However, relying too heavily on high-interest revolving debt like credit cards indicates poor money management. Carrying excessive debt reduces available income each month, makes you vulnerable to interest rate hikes, and costs more over time.
Not Planning for the Future
Failing to plan financially for predictable life events demonstrates poor financial habits. This includes not saving adequately for known future costs like college, weddings, house down payments, retirement, etc. Not looking ahead leads to being financially unprepared when those events happen.
Not Tracking Expenses
Finally, not keeping track of daily, weekly, and monthly spending is a problematic money habit. When you don’t monitor where your money goes, it’s impossible to create a realistic budget, identify waste, or make beneficial spending adjustments. Keeping expenses in the dark prevents important financial insight.
Common Poor Financial Habits Among Students
College students often exhibit particularly poor financial habits that originate from a lack of experience managing personal finances. Some examples include:
Overusing Credit Cards
Many college students open multiple credit cards and max them out without understanding interest implications. Carrying high credit card balances results in hundreds of dollars wasted on interest payments.
Not Working While in School
Studies show over 60% of US college students don’t work during school. Without income, students rely entirely on loans, family support, or savings to cover steep college costs and living expenses. Working even just 10 hours per week provides cash flow and teaches budgeting skills.
Paying Full Price for Textbooks
Textbooks often cost hundreds of dollars each, but many students pay full price instead of buying used, sharing, or renting texts. A small effort to explore cost-saving textbook options reduces this major school expense.
Eating Out Too Much
Dining out is convenient but expensive, especially on a student budget. Developing skills to cook quick, inexpensive meals at home saves a lot of time.
Not Applying for Scholarships and Aid
Every student should apply for scholarships, grants, work-study, and available financial aid, but many don’t take the time and effort. Free assistance that reduces reliance on loans and out-of-pocket costs is left on the table.
Consequences of Poor Financial Habits
Continuing poor financial habits as a student and into adulthood can have serious long-term consequences that impact financial health, stability, and freedom.
High-Interest Debt
Credit Card Debt
Racking up credit card debt results in money wasted on interest payments, especially once low introductory rates expire. U.S. households with credit card debt pay over $1,000 a year in interest on average.
Student Loan Debt
Student loans easily spiral out of control without smart borrowing habits, careful tracking, and planning for repayment. The average student loan balance is $30,000, with total U.S. student loan debt over $1.5 trillion.
Delayed Financial Independence
Poor financial habits extend reliance on family for housing expenses, cell phone bills, groceries, utilities, etc. This dependence delays true financial independence.
Financial Stress and Anxiety
Money issues are a top cause of stress. Carrying excessive debt, living paycheck to paycheck, and managing cash flow problems create mental and emotional strain.
Poor Credit Score
Damaged credit scores from late payments, collections, and high balances prevent approval for future loans with favorable rates. Poor scores mean higher interest costs.
How to Break Poor Financial Habits
Breaking unhealthy money habits requires conscious effort, but doing so alleviates financial stress and grants freedom to use money more purposefully.
Create a Budget
Use Budgeting Apps
Applications like Mint, You Need a Budget, and EveryDollar simplify creating budgets based on regular expenses. They sync accounts, categorize spending, and track progress.
50/30/20 Budget
This easy budget method allocates 50% of income to needs, 30% to wants, and 20% to debt payments and savings. It ensures needs are covered before wants.
Prioritize Needs vs Wants
Distinguish essential needs like housing, utilities, and groceries from discretionary wants. Reduce spending on wants until basic needs are funded.
Start Saving Automatically
Automate transfers from checking accounts or paychecks into savings and investment accounts. Effortless saving helps build reserves and financial growth.
Limit Use of Credit Cards
Avoid relying on credit cards without the means to quickly pay balances. Use debit cards or cash instead to halt overspending. If you do use credit, pay in full each month.
Cook Meals at Home
Preparing affordable meals and limiting restaurant dining saves thousands yearly. Packaged lunches also cut daily costs.
Set Financial Goals
Define specific, measurable money goals for debt payoff, retirement savings, home down payments, etc. These provide direction and motivation to shape spending.
Seek Accountability Partners
Share financial goals and spending habits openly with trusted people. Accountability partners provide support, advice and encouragement for positive progress.
Tips for Developing Good Money Habits
Building positive financial habits requires effort but pays off tremendously over time. Here are some top tips for creating good money management habits:
Spend Mindfully
Cultivate awareness of needs vs wants and make intentional spending choices aligned with values. Don’t mindlessly swipe credit cards or spend as therapy.
Pay Off Debt Aggressively
Commit to rapidly paying down credit card, auto, and student loan debt with focused payments above minimums. This saves heavy interest costs over time.
Build an Emergency Fund
Savings provides a buffer for unexpected expenses. Set aside 3-6 months’ worth of living costs.
Invest Early
Time enables investment earnings to compound. Start regularly investing even small amounts into retirement accounts in your 20s.
Give Back
Make charitable giving a habit. Volunteering time and donating money to causes brings joy and teaches selflessness.
Conclusion
Developing positive personal finance habits requires self-reflection, planning, discipline, and perseverance, but doing so alleviates money stress and brightens financial futures. Avoid overspending and credit reliance. Create budgets that distinguish needs and wants. Make savings and debt payments priorities. Automate transfers into investment accounts. Establish accountability and seek financial guidance when needed. With conscious money management choices, anyone can overcome poor financial habits and establish firm foundations for financial wellbeing.
FAQs
What are some examples of poor financial habits?
Some common poor financial habits are overspending without budgeting, racking up credit card debt, not saving adequately, and failing to plan for predictable future expenses.
How can students break poor money habits?
Students should track spending, create budgets distinguishing needs and wants, work to earn income during school, limit dining out and credit card use, apply for all available financial aid, and explore cost-saving options for textbooks.
What percentage of income should go towards needs vs wants?
The 50/30/20 budget plan recommends 50% of income covering needs, 30% going towards wants, and 20% to debt payments and savings. Needs like housing and food should be funded before wants.
What steps can help someone pay off debt quickly?
Making payments well above the minimums, requesting lower interest rates, consolidating multiple debts, temporarily reducing expenses, and using windfalls like tax refunds to make extra debt payments all enable faster debt repayment.
How much should someone try to save in an emergency fund?
Experts often recommend saving 3-6 months’ worth of total living expenses in an emergency fund to help cope with unexpected expenses or income loss. The exact target amount depends on individual circumstances.
