6 Money Habits Keeping You Poor
Just as there are habits that will make you rich, there are others that will make you poor. Habits aren’t always easy to break, but when you see the damage caused by these common practices, you’ll be motivated to get them out of your life!
Here are 6 common money habits holding you back:
1. Carrying credit card balances.
No one can consistently invest well enough to offset credit card interest. Take a look at your last statement to see just how much your credit card is costing you. Depending on your interest rate and balance, it can easily be thousands of dollars a year. I personally treat my credit cards just like cash. A good rule of thumb is: if you don’t have cash in the bank to pay for your purchase twice, then don’t buy it. I, along with most people in the FIRE community, treat credit cards just like cash in our bank account and pay credit cards in full every month. They can be a great tool for leveraging points and travel perks. But all of those benefits mean nothing if you carry a balance.
2. Not saving.
If you pay everyone else first every month, there never seems to be anything left over to save. Pay yourself first, and then pay your bills with what’s left. Many employers can have earnings automatically deducted from your paycheck and put into a separate account. Save some money every month.
I personally have 20% of each paycheck automatically directed into a high-yield savings account. That’s in addition to my investment accounts and other avenues of building wealth. But simply directing a portion (how about just starting with $50 or $100?) of your paycheck automatically can help you take a small step in the right direction.
3. Buying new cars.
A new car loses an enormous amount of value in a very short period of time. Look into certified used cars that are only a couple of years old. Frequently, you’ll be able to find a car at half the cost of a new one, with minimal wear and tear. These cars usually have warranties, too. I personally have always bought used cars. I’ve even been enough of a planner and saver that I have been fortunate to pay cash for each vehicle which has saved me thousands in interest over the years.
4. Letting the small stuff get out of control.
You will never hear me give advice about making a budget. I don’t think budgeting works for most people, myself included. It is, however, important to be mindful of how you spend. Take a close, honest look at how much the small stuff is hurting your bottom line. How much are you spending on fancy coffee in the morning? (tip: read my post on how I get free Starbucks) Do you go out to lunch every day? How about subscription services? Drinks with dinner at a restaurant? Look at your bank statement to see what’s really going on.
Small leaks can sink ships. Fix your leaks before they get out of hand.
5. Not taking advantage of your employer’s matching contributions.
I’m always surprised to talk to young women early in their careers and hear that they aren’t contributing to their 401ks. They often say that they’re worried about cutting into their paychecks too much because they have things like school loans to pay. But, If your employer will match your 401k contributions, you’re leaving a LOT of FREE money on the table. Many employers will match 3-5%. Think about how much that really is, and then consider the effect of compounding interest. Over time, the money they give you becomes worth a lot! Future you will thank you.
Employer contributions should be viewed as free money because that’s exactly what they are. Would you pass on money that someone handed you on the street, with no strings attached?
6. Not investing.
Time truly is money. The earlier you start investing, the more time your money has to grow and build wealth for early retirement. An easy step into investing is simply creating a Roth IRA and start adding a little bit every month. Get your IRA set up as soon as possible and put some money in it. The funds you’ll have at retirement are heavily dependent on when you get started. And IRAs are wonderful retirement tools. I personally have had a Roth IRA for many years and have been fortunate enough to be able to max out the annual contribution. This is in addition to my 401k investments and it’s a nice cushion to build on my fat-FIRE journey.
I believe in you!
As you read through the list above, think about your own money situation. Consider which habits are having a negative impact in your life and resolve to eliminate them immediately. Accumulating wealth can take time, so it’s important to start as soon as you can. Fight these bad habits with everything you’ve got, and watch your monetary success grow year after year.
