11 Bad Money Habits That Can Lead to Financial Ruin

Certain bad money habits can seriously hamper your chances of attaining financial success.

These habits can creep up on you from out of nowhere and, before you know it, you can find yourself in a situation where your chances of reaching your financial goals seem bleak. However, there is good news.

By learning about these "bad money habits," you can take the necessary steps to correct them and put your finances back on the path to prosperity.In this article, I will reveal these 11 bad money habits you don't even know you may have!

What are bad money habits?

Bad habits are things you do... Out of habit. Without even thinking about it. These bad habits may seem negligible at first, but they can add up to severe problems down the road.

Having bad habits can also pull you down and lead to financial ruin when it comes to money. The worst about having bad habits is that you're not even aware of them. They became second nature over time, and you no longer have to think about doing them.

It's like driving a car. After a while, you don't think about driving anymore. You just do it.

Same thing with money habits. You repeatedly do what you're used to doing. However, if you are not careful, bad money habits can creep up on you, and before you know it… you could find yourself broke and highly stressed!

11 bad money habits examples

Here are the 11 money habits and why each of them is very bad for your financial well-being. There are many others. But these most common ones I have come across.

By learning about them and being aware of them, you will be better prepared to recognize them in yourself or someone else and take steps to correct them.

Spending More Than You Earn

This is perhaps the biggest mistake any person can make when it comes to managing their personal finances. It is also one of the most common mistakes made by people, myself included!

Why do people spend more than they make? There are many reasons, and often, it is not because they are deliberately trying to spend more but because they do not understand how to manage their money correctly. They don't realize the difference between having the funds to make and afford the purchase.

One of the biggest reasons is they have no fundamental understanding of basic personal finance. Without this knowledge, it is almost impossible to have any financial security.

Living beyond our means is often a habit when you cannot distinguish between your "wants" and your "needs." As a result, you focus on short-term thrills and continuously spend money on things you want to buy just because you have the funds available.

As someone who used to keep up with the Joneses, I can safely say that it's not worth it!

No emergency fund

Many people live paycheck-to-paycheck with no safety net. They have no cushion in case of an emergency, such as losing their job or having their income cut off for some reason. This is a recipe for disaster.

If something like ever happens to you, it will create a massive financial shock for you and your loved ones!

The solution is simple: Set up an emergency fund. It should consist of at least three to six months' worth of your paychecks.

Not setting money goals

Too many people fail to set meaningful financial goals. Without knowing what you want to achieve financially, it is almost impossible to manage your money in a way that will get you to where you want to go.

We all have a vague sense of what we should do with our money. But, we don't have clear goals and plans to get there.

If you don't know where you're going, how will you know when you've arrived? And, without knowing where you're going, it's hard, if not impossible, to get there in the first place! Being aware is the first step to taking control of your finances.

The good news is that if you truly understand the basics of personal finance, it is easy to set goals that are both relevant and realistic. Once you do this, it will be much easier to stay on top of your finances and manage them in a way that gets you where you want to go.

It's not enough to have a goal to make more money. It would be best if you also had goals concerning what you will do with the money you do make. If you only spend it, you won't get very far.

Whether it be buying your dream home, caring for your family, saving for retirement or a big purchase, you need to set a goal for that.

Not Budgeting

Budgeting is one of the most important financial habits that can help you save money and get ahead. But, it's often the most neglected habit because it is one of the most common bad money habits.

It will be hard to manage your spending if you are not budgeting because budgeting enables how much goes in and out of your pocket.

It is essential to allocate your income by making a list of your dues, bills, savings and other essential expenses.

A good first step toward budgeting is to keep a running tab of your monthly income and expenses. This way, you'll have a basic idea of where you stand financially and what you need to do to improve your situation.

From there, you just have to stick to it until it becomes second nature, and you can quickly tell if certain purchases fit in your budget or not.

The 50/30/20 budgeting rule a great place to start if you're looking to begin budgeting without too many constraints!

Lifestyle Inflation

Lifestyle inflation is a recurring issue for many young adults, and this habit can quickly become unbearable! Too many of us get trapped by our lifestyle!

Lifestyle inflation is when your lifestyle changes because you decide to spend more money as you begin to earn more money.

It starts with a seemingly small upgrade; however, it doesn't stop there.

I'm not going to lie; upgrades are fun. But they are usually not necessary, and they are costly. And the more life upgrades you make, the less you can save and the more catching up you'll have to do.

Many find themselves in a vicious trap where they have to keep upping their spending to maintain their new lifestyle.

The unfortunate truth is that most people do not spend as much as they earn. Most people spend more than they make.

By living beyond your means, you are setting yourself up for a financial fall. This is especially true if you use credit to make big purchases or borrow money from friends and family.

With constant lifestyle inflation, you are putting your financial stability at risk and your family's!

It won't happen right away, but it'll be more significant than you imagined when this happens. And it is often the result of compounding interest working against you.

It's important to find pleasure in the things that you already have. Besides, no one cares about your material goods as much as you do. Most barely even notice or think twice about them.

Wanting to impress others

Worrying about what others have is one of the biggest money traps. It leads to impulsive spending. If you want to impress others, you'll worry about what they have.

This can lead to spending too much on things that don't matter, like fancy cars and gadgets and other elements of a "rich and fast life."

The more you spend on these things, the less you have to save for meaningful expenses, pay for emergencies, and invest for your future.

Irresponsible Credit Card Use

Have you ever wondered why so many people in the United States have difficulty managing their money?

It's because of credit cards!

Canadians are one of the most significant users of credit cards globally, and with such use comes credit card debt.

Why? Because using credit cards helps you buy things you cannot afford at the moment. The only thing is that you will eventually have to pay for it! It's not free money.

There are many good reasons to use credit cards: convenience, cash-back benefits and travel rewards, and credit score improvement. But, using them irresponsibly can seriously set you back from any savings or important loans you will need in the future.

Such credit card use can quickly have you go into debt. You may then get overwhelmed with all the hassles of paying off your credit card debt.

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Here are some examples of irresponsible credit card use:

1. Spending more than you can afford to pay back

2. Spending more than you can afford to "max out" your credit card and get the maximum credit card reward

3. Using a credit card to buy something you "want" instead of something you "need"

4. Not keeping enough money in your bank account to cover your monthly expenses

5. Spending money on flashy things you see on tv and social media (like expensive clothes, big-screen TVs, or luxury cars) to impress others

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Credit cards are not bad. They can provide great benefits with proper usage.

It's a double-edged sword that depends on its user. Use it well, and you will be rewarded handsomely. Use it irresponsibly, and you will set yourself up for a financial disaster and a whole lot of stress in the future.

If you are struggling with your finances and susceptible to overspend, the last thing you should get is a credit card. A few points here and there are not what is going to make you rich.

Not paying yourself first - investing your money

Not paying yourself first is one of the many everyday money habits that lead to financial ruin. You should always allocate your money into savings and investments before spending it.

This way, you are always saving money for the future and not just living paycheck to paycheck.

Although this seems obvious, many people still struggle with this concept.

It may not seem like it, but this can make a big difference in your quality of life. It will give you more money to spend on things that bring you joy and less stress.

It will also allow you to take more vacations, go on more expensive adventures, and give you the ability to buy the things you really want.

Investing your money before spending it can also help you achieve important financial goals. By investing your money, you will be building up a financial cushion that will allow you to reach your goals with more ease and comfort.

Not investing in yourself

Another common money mistake is not investing in yourself. We tend to forget the greatest asset we could ever invest in; ourselves.

Think about it, at the end of it all; you're the one who makes all the decisions from the moment you wake up until you sleep at night.

The more efficient you are at living during your waking hours, the more results you will get. This doesn't come naturally for any of us! It's essential to be learning and growing as a person constantly. It's the only way to improve.

Investing in yourself is not just about generating more money but more health, happiness and fulfillment in your life!

Investing in yourself means learning and growing across many areas of your life, such as:

- Health and fitness

- Skills

- Attributes

- Friendships/Relationships

- Family

- Life Experiences

- Career

- Personal Finance

As you can see, the financial benefit is just one of the many by-products of your improvement. Learning to invest in yourself is by far the most profitable investment you can ever make because the returns are limitless and mutually beneficial.

An improvement in one area will ripple into other areas of your life and so on. Likewise, a deterioration in one place will affect others.

This is not as clear as a stock indicator that tells you the % gains or losses of a portfolio, so we tend to forget about it.

But, if you zoom out and compare the status of your "life portfolio" to what it was last week, month, year, or even decade, you'll see what kind of returns you got.

On the other hand, not investing in yourself means little to no improvements in life. This happens to many of us over time as we become complacent and start living on autopilot, reacting instead of planning and preventing.

This leads to stagnation, and stagnation eventually leads to failure. This is how people become dissatisfied with their lives and feel stuck, unable to make changes.

So think about, when was the last time you made an effort to invest in yourself?

When was the last time you picked up a book, signed up for classes, honed a particular skill, or pursued a hobby?

Whether you have been actively investing in yourself or not, continue or begin today! Do it for yourself and your loved ones.

It's never too early or too late to begin investing in yourself.

Not educating yourself about personal finance

Not educating yourself about personal finance and the consequences that come with it can lead to a severe financial disadvantage.

However, this is not a disadvantage that has to happen. With just a little bit of effort on your part, you can avoid this pitfall altogether.

It's not a lot of work, and it's the only real way to build wealth unless you already come from a wealthy family.

However, if you're reading this post, the chances are that you are not and that you are looking for resources to learn about personal finance. This is the first and most crucial step of all!

If you want to get ahead financially, you have to know how to manage your money.

While personal finance may not be the most exciting subject to learn about, knowing just the basics goes a long way!

Trust me, I dreaded learning about personal finance at first; until I've had enough exposure and began to enjoy it.

Just like when you are learning a new skill or hobby, start small. Learn the basics and apply them until you feel ready to dive deeper.

People underestimate the power of personal finance and how it can help them succeed. Again, a little goes a long way; make sure to educate yourself about personal finance!

Hanging with the wrong crowd: high-spenders

This happens to almost everyone at some point in their lives. Those who continue to hang out with the wrong crowd over time often become the same as them.

If your friends play sports, you probably do too. If they play video games, you also probably do!

And if they don't care about their money and blow it every weekend, the chances are that you probably do the same.

After all, you are the average of the five people you hang out the most with!

This is perhaps the most dangerous of all the bad money habits. Habits can also be developed through the influence of people close to us, so it's crucial to pay attention to those around us.

It's easy to have bad money habits when you are around people who have them.

These people will often spend more money than they can afford to. They'll have credit card debt, a lack of savings, and an over-reliance on their income.

They'll be living paycheck-to-paycheck just like millions of other Americans. And, they'll be using this as a way of life, and you may too.

Why are these bad money habits so dangerous?

Besides the obvious fact that they are bad for your bank account, these bad money habits can also harm your health!

These poor habits can lead to higher stress levels due to high debt levels, financial instability, and living paycheck-to-paycheck. They can reduce your chances of having freedom and have you feeling trapped. This happens to so many of us.

Many people give up on their dreams because of this. They get stuck in a rut and never move forward because they are scared or unable to take risks needed to make their goals come true.

Over time, if this happens to you, it will rob you of your joy and leave you feeling stressed out, miserable, and unfulfilled.

Chronic stress is one of the top reasons for disease and illness today. And if your finances are not in check, you will constantly stress about bills and having enough money to pay for emergencies and other vital expenses.

How to change and break these bad money habits?

If you don't deal with these bad money habits, they will control your life.

The truth is, it only takes a minor lapse in judgment to get you into a lot of trouble. Repeat self-defeating actions over time, and it'll become much harder to catch up.

Therefore, it's essential to develop good money habits from the ground up. And, the best way to do this is by educating yourself.

So, if you want to get ahead financially, I suggest educating yourself about personal finance. This way, you'll be able to avoid these bad money habits altogether.

Once you educate yourself, you'll be able to make better financial decisions without getting too caught up in the "details."

You'll be able to make decisions that are right for you instead of making decisions that other people think are right. You'll be able to make decisions that are in line with your values.

Recognize your bad money habits and understand why you have them in the first place.

Breaking out of these habits can be broken down into three simple steps:

a) Identify the habit

b) Break the habit

c) Replace it with a better habit.

Start with one habit. If you try to correct multiple bad habits at once, there's a chance that you'll just give up and go back to your old ways.

The Takeaway

Most people don't manage their money correctly or even have a basic understanding of personal finance. Unfortunately, they often learn these lessons the hard way. But, it's never too late to change your financial situation for the better.

Whether you are just starting or have been managing your money for a long time, you can change your money habits even if you don't know a thing about money management.

The first step to fixing your finances is by acknowledging that you have a problem. Once you do that, the next step is to create a plan to improve your situation.

By paying attention to your spending habits and changing them, you can avoid a lot of unnecessary pain. Have you made any of the changes suggested? If so, great! If not, maybe now is the time to start making them. What are some other changes you've made?

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