We are habit-creating machines, and bad money habits are the hardest to steer out of. The good news: experts say it is never too late to break a habit — here are seven to drop before you go broke.
Human beings are habit-creating machines, craving any mental or physical shortcut that lets us focus on higher-level thoughts, such as what’s for lunch or developing theories about Netflix dramas.
Bad money habits are more difficult to steer out of than other automated behaviors like driving a car. Why? Financial peace of mind is a much more subtle reward than the satisfaction of navigating a half-ton piece of metal through city streets without death or injury.
Still, every person who is good at money learned good habits, which means you can, too. “What we know from lab studies is that it’s never too late to break a habit. Habits are malleable throughout your entire life,” Charles Duhigg, author of “The Power of Habit,” told NPR.
Here are seven financial habits you should break before you go broke.
1 Stop Spending More Than You Earn
Who do you think you are, the U.S. government? America’s fiscal deficit is projected to be $559 billion in fiscal year 2017, according to the Congressional Budget Office.
How is your own personal deficit? About one in five Americans spend more than they earn and 38% break even, research from the National Financial Capability Study shows. Your goal must be to join the 40% of Americans who spend less than they earn.
2 Stop Ignoring Your Bills
Here’s how not to handle your obligations: When a collection agency calls, you pay the bill. This kind of financial firefighting only guarantees you’ll veer from crisis to crisis as your credit score burns.
Payment history carries huge weight on your financial future; more than one-third of your credit score is judged by your ability to pay your power bill, car insurance and credit cards on time. If you can’t, work out a payment plan with your creditor before it goes to collections.
3 Stop Using Credit Cards Like Free Money
Credit cards are a weapon in your financial arsenal. Like all armaments, they can be used in strategic defense or to shoot yourself in the foot. Too often, it’s the latter — the average U.S. household with credit card debt has $16,748 of it.
That plastic in your pocketbook is the greatest enabler of bad money habits, allowing you to spend on a whim and forsake all budget plans. Sticking to a budget should be your most faithful money habit.
4 Stop Thinking You're Not Smart Enough
Today, consumers must take control of their own financial lives, whether it’s understanding health insurance or guiding their own 401(k) plans to invest for retirement. Even so, during the rollout of the Affordable Care Act, many consumers struggled to understand basic health insurance terms such as “deductible,” a survey by the Kaiser Foundation found.
Learn the lexicon of finance to manage your money better. “I used to catch myself saying, ‘Investing is hard. I just don’t understand it.’ This gave me permission to avoid learning how to invest,” wrote Ann Marie Houghtailing, author of “How I Created a Dollar Out of Thin Air.” “Now I say, ‘Investing is a skill. You just have to start small.’”
5 Stop Making It Hard to Save
Old habits die hard, and one of the oldest habits is using checks to pay bills or make savings deposits. “Personal finance habits take longer to change than the way you might switch from one smartphone to another. That’s because money is so important to us,” Fred Davis, a professor of Information Systems at the University of Arkansas, told Marketplace.
Set up automatic transfers for bill payments. Also automatically have 10% or more of your paycheck sent directly to your savings account. These two steps will go a long way toward building good money habits and credit scores with little effort.
6 Stop Complaining About Your Paycheck
Whatever energy you’re spending complaining about the size of your paycheck takes energy away from finding ways to improve your bottom line. Think you’re being underpaid? Negotiate a raise or at least talk with your boss to understand what’s needed to see a bump in pay. If you’re valued, your supervisor will see the implicit threat that you may leave for a higher-paying job. Start looking for that more lucrative gig while you’re at it.
In the meantime, investigate ways to build other streams of income and seek ways to improve your skills.
Breaking your go-to financial routines will take time and effort. Subbing in habits that improve your bottom line — paying bills on time, using technology and increasing your income and savings — will be worth the work in the long run.
Billshark · Bill Negotiation Experts Helping consumers and small businesses stop overpaying on recurring bills.
Frequently Asked Questions
Is it ever too late to break a bad financial habit?
No. According to Charles Duhigg, author of "The Power of Habit," lab studies show it is never too late to break a habit, and habits stay malleable throughout your entire life. Every person who is good with money once learned those good habits, which means you can change yours, too — it simply takes time and effort.
How much does spending more than you earn affect Americans?
According to the National Financial Capability Study cited in the article, about one in five Americans spend more than they earn and 38% break even. The goal is to join the roughly 40% of Americans who spend less than they earn, so you stop running a personal deficit.
Why does ignoring your bills hurt your credit score?
Payment history carries huge weight on your financial future. More than one-third of your credit score is judged by your ability to pay your power bill, car insurance and credit cards on time. If you can't pay, work out a payment plan with your creditor before the debt goes to collections, rather than waiting for a collection agency to call.
What are the easiest steps to make saving automatic?
Stop relying on checks to pay bills or make savings deposits. Set up automatic transfers for bill payments, and automatically send 10% or more of your paycheck directly to your savings account. These two steps go a long way toward building good money habits and stronger credit scores with little ongoing effort.
Does more money actually make you happier?
Money does bring happiness, but only to a point. The article notes that purchasing experiences and giving to charity have a much longer shelf life for our well-being than simply accumulating more cash, according to research. Replacing the chase for more money with experiences and generosity is a healthier financial habit.
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Break 7 bad financial habits that keep you broke, from overspending and ignoring bills to credit card debt, and build smarter money habits starting today.
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We are habit-creating machines, and bad money habits are the hardest to steer out of.
Human beings are habit-creating machines, craving any mental or physical shortcut that lets us focus on higher-level thoughts, such as what’s for lunch or developing theories about Netflix dramas.
