8 Bad Money Habits That Are Keeping You Broke - The Coverage

8 Bad Money Habits That Are Keeping You Broke

Most people have at least one bad habit. While some are relatively harmless, others can have a negative impact on your health or your life. When bad habits spill over to your finances, it can make getting ahead a major challenge.

Learning how to break these bad money habits can help you get your finances back on track so you don’t end up being broke all the time.

Here are 8 bad boys that can disrupt financial security:

Broke Habit 1:

You spend too much on housing.

Housing costs, of course, start with rent or a mortgage but also may include property taxes, utilities, insurance, repairs and maintenance. Housing costs normally constitute the largest component of your spending, so it’s imperative to keep them as low as possible.

The total housing costs should be no more than 25 percent of your net monthly income. Sixty-four percent of the wealthy kept their housing costs below 25 percent. Study also found that those who spent more than 40 percent of their net income on housing costs struggled more financially.

So how can you reduce housing costs? The solution is to downsize, find less expensive housing or share housing with family members or friends.

Bringing your housing costs closer to that magic 25 percent target means you will be able to save. If you change only one money habit, make it this one. Control of housing costs has to be your No. 1 financial priority if you want to prosper.

Broke Habit 2:

You spend too much on cars.

Like housing costs, spending on cars can eat up far too much monthly net income. New cars lose value as soon as they roll off the lot. So the smart strategy is to buy high-quality used vehicles to avoid losing the big bite of the initial depreciation. Forty-four percent of the rich purchased used cars, typically a 2- or 3-year-old vehicle coming off a lease. And these wealthy individuals then kept their cars for a long time.

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Yes, as a car ages, you’ll incur repair costs; those typically kick in at 125,000 miles. After this point, expect to cough up about RM 6,642.00 a year for repairs, which is still significantly less than the cost of a loan or a lease for a new car.

Be smart: Buy quality used cars and drive them until the wheels fall off. That’s what 94 percent of the self-made millionaires did. It’s a good money habit.

Broke Habit 3:

You develop habits by association.

We pick up almost all of our habits from those in our environment: parents, teachers, family, friends, co-workers, neighbors, mentors, celebrities, coaches, etc. When it comes to money habits, this could be positive or negative. If you have less-than-stellar money habits, it’s likely that many of the individuals you associate with on a regular basis also have trouble managing money.

Think long and hard about how your friends and the people you associate with daily (co-workers and family members, for instance) affect your spending and savings habits. After all, if you surround yourself with good spenders, you’ll likely become one, too.

If you want to adopt good money habits, associate with individuals who possess positive habits and pull back from those who don’t. If all of the close friends, relatives and role models in your life share your desire to live below their means, their good money habits are almost guaranteed to become your good money habits.

Broke Habit 4:

You rely on credit cards to finance your lifestyle.

When you spend everything you make, obviously you’re not saving. What’s worse, spending more than you make forces you into debt to maintain your standard of living. If you resort to the use of a credit card to meet your monthly living expenses, you are by definition living beyond your means. When you do this, you are essentially using future earnings to finance your current lifestyle.

So what do you do? Track 100 percent of your spending for one month. This will create awareness of what you spend on. After a month of tracking your spending, you can create a monthly budget. Set monthly goals or targets for each spending category in your budget, which will give you the ability to then compare what you actually spent during a given month for each category and then compare it to the goal to see whether you were on, over or under target for each expense.

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Broke Habit 5:

You spend on a whim.

During the mid-1970s, a team of behavioral scientists, psychologists, health professionals and experts from other disciplines embarked on an ambitious study of more than 1,000 children born within the same one-year period in Dunedin, New Zealand. The researchers’ goal was to analyze each child’s self-control and determine, 30 years later, how the children were doing in life. They found that the kids who exhibited the greatest self-control grew up to become wealthier. Self-control emerged as the single greatest predictor of financial success from the study.

Spontaneous spending is driven by emotions and a lack of self-control. You’re worn out after 30 minutes of wheeling a cart around the store, something not on your list catches your eye at the checkout counter, and you suddenly buy an item that wasn’t on your shopping list.

So what do you do? Spontaneous spending is a subconscious act, so the remedy is awareness. Awareness turns on the conscious part of your mind, which can overpower your subconscious. When you are tuned into this marketing ploy, you’ll find it easier to stick to your list. That leads to a feeling of control over your spending. With repeated triumphs, you strengthen your self-control muscles so you’re less susceptible to retailers’ tactics for enticing you to spend more.

Broke Habit 6:

You gamble too much.

According to a study, 77 percent of poor people gambled on the lottery every week, and 52 percent gambled on sports every week. The odds of winning the Powerball are 1 in 290 million. Bob Martin, the late manager of Las Vegas’s first casino sportsbook, was once quoted as saying the number of bettors who win betting pro football is so small that “it is virtually the same as if no one won.” According to Bet Labs, a sports bettor has only a 2.3 percent chance of winning 53.2 percent of bets on games.

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Accumulating wealth is an ongoing process, not something that happens overnight. Save the money that you might ordinarily spend playing the lottery or gambling on sports. Slow and steady always wins the financial-fitness race.

Broke Habit 7:

You overspend on entertainment.

Spend no more than 10 percent of your monthly net income on entertainment. Entertainment includes vacations, hotels, recreational travel, restaurants, bars, movies, theater, toys, games, entertainment equipment such as TVs and speakers, etc. Most who struggle financially spend far more than 10 percent on entertainment. These individuals have a live-for-today mindset, which may sound appealing, but that mindset becomes tricky if you live a long life. Plan on living a long, financially secure life and reduce your entertainment spending today.

Broke Habit 8:

You don’t track your spending.

Knowing where your money goes gives you control over your finances. You may find you are paying for things you don’t use—club memberships or subscriptions, for example. Also, many expenses can change over time.

If you’re not tracking what you spend, you’ll never know you can purchase something for less money. A good example of this is insurance. Insurance costs often change up or down over time. Make sure you pay the lowest insurance rates for homeowners, auto and life insurance. Internet and cable costs can increase or decrease without you being aware of it; calling your providers to secure the lowest fees available should be an annual process.

Periodically shop smartphone plans, too. Increased competition in the cellular industry is driving down monthly rates. Make sure you don’t pay more than necessary for your phone service—and all of your other recurring costs.

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