7 Bad Money Habits Keeping You in Debt

We’re all creatures of habit. Some habits we form are great for us. But others, not so much — especially when it comes to money. 

Before I identified my own bad money habits, I was $200,000 in debt and wasn’t investing in my financial future. But once I took the time to figure out the habits holding me back, I was not only able to pay off my debt, but also stay out of debt, save, invest, and even build passive income. 

If you’re going to change your financial situation and build actual wealth, you have to change your money habits. Changing those habits starts with pinpointing them, and then changing them into good ones. 

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1. Not Knowing Where Your Money Is Going Each Paycheck

If you’re like most people, as soon as your paycheck hits the bank, you pay your bills and necessities. I’m talking about things like rent, groceries, student loan payments, cellphone bills, etc. 

Then, you start spending on the fun stuff — new shoes, eating out, aka the stuff you want and want to do. 

After all that, as the end of the pay period draws near, then you look at what’s left over and think about maybe saving or investing some money. 

That’s where you’re going wrong! 

It needs to be the total opposite. Start by paying yourself. Treat your savings and investments like a monthly bill. Just like you would with your cellphone bill, set aside money in savings and investing. 

Once you’ve done that, dive into your other bills and necessary expenses. Variable expenses like shopping and entertainment should be the final priority on the list. 

Breaking this bad habit will help you beat lifestyle creep and build a habit that contributes to a thriving financial future. 

READ MORE: How To Budget: 5 Simple Steps

2. Relying Too Much on Credit Cards 

Credit cards are a great financial tool. They offer some amazing protections and rewards, and can enhance our lives when used properly. 

Unfortunately, too many of us use them in a way that turns them into a burden instead of an asset. 

I’m talking about interest charges. Credit cards have notoriously high APRs (annual percentage rates), which means that if you don’t pay off your entire credit card bill each month, you’re going to start owing a lot in interest. 

Credit card companies are hoping you’ll do just that — so that the interest you pay outweighs the benefits you get from them. 

Make sure you’re not using your credit cards to fund a lifestyle you wouldn’t be able to pay in cash. Ask yourself, “Could I pay cash or use my debit card for this purchase?”

If the answer is a hard no, you definitely shouldn’t use your credit card to make the purchase. 

3. Focusing Only on Savings

Building wealth means we have to both save more money and make more money.

But so many of us only focus on the saving part of the equation. Which makes sense — that’s probably the only part that was taught and modeled to us. 

But there’s only so much money you can practically save, and over time inflation makes the money you save worth less. 

To actually build wealth, we have to think about how to make more money, and look at how we can make our money work for us. 

This might mean negotiating a salary raise, seeking out a higher-paying job, starting a side hustle, or throwing your efforts into investing to create additional income streams. 

4. Ignoring Your Debt

We live in a country where debt is normalized, from credit card debt to student loan debt. 

But it can create a cycle where you feel trapped. It can seem easier to ignore it altogether, rather than tackle it head-on. 

With my own debt, I felt completely overwhelmed by it, so I just froze and didn’t do anything because I was so defeated. 

I had to break this habit. When I faced my debt everything changed. It wasn’t fun. It was hard. But it forced me to create an action plan, which in the long run made everything more manageable. 

Try breaking your debt into smaller goals, rather than staring down the total insurmountable number. 

Me against my $200,000 in debt felt like trying to go against Mike Tyson in the ring. But when I broke it into smaller goals, that felt more attainable and suddenly I felt like the champion whenever I hit one. 

READ MORE: How I Paid Off $220,000 in Student Debt

5. Not Investing Early Enough

I get it — investing can be intimidating. We’re not taught about it in school, and even though there’s a ton of information out there, it can be a lot to wade through and figure out on your own. 

Often, we treat investing as a “one day” thing. 

One day… When I pay off my debt I’ll start investing. 

One day… After I buy a house I’ll start investing. 

One day… When I have a better job I’ll start investing. 

But the longer you put it off, the harder you’ll have to work to play catch-up. You’ll have to put more money in at a faster rate.

The earlier you start investing, even just small amounts, the more compound interest you’ll build, and the more money you’ll have come retirement. 

Start investing now, even if all you can afford is $50 a month. Or even if all you can afford is $10 a month. Start now and you’ll make life easier down the road. 

READ MORE: How Much Can I Afford to Invest?

6. Spending Money To Impress People

When I was in college, I wanted to fit in with all the other girls who had so many nice things. 

So, I used my paycheck from Subway to buy the $200 Coach purse. Having that bag made me feel like I finally fit in, but when I got to law school, no one was carrying Coach purses. They all had Louis Vuitton purses. Suddenly, I was right back where I started. 

It all came down to my own insecurities. Instead of spending my money on something useful, I spent it to make myself feel better and to keep up with other people. If that’s how I was seeking validation, it was a game I was never going to win. 

Be open with your friends about your goals and constraints. Good friends will be understanding and accommodating. They will want you to succeed. 

If the people around you make you feel inferior for not keeping up, it might be time to reassess who you surround yourself with. 

Focus on being rich instead of looking rich. 

7. Not Figuring Out How to Legally Avoid Taxes

Warren Buffet famously said he paid a lower tax rate than his secretary. The super-rich can afford the best tax lawyers to help them keep from paying taxes. 

Now, you may not have the resources that the uber-wealthy do to avoid taxes altogether, but there are things you can do to pay less. 

An accountant can help you find all the deductions you qualify for to get more back. Making use of the rules of retirement accounts can also help you negate your tax burden. 

Even the small savings make a difference on the tax front. 

TL;DR: How To Create Better Money Habits

Now, if we try to tackle all these habits at once, we’re setting ourselves up for failure. So, start with one change and build on it.

Maybe your first step is simply tracking your spending. Maybe it’s putting money into savings first instead of last. Maybe it’s making a game plan for your debt. 

Start with one, find some success, and then build on it. 

You can do it! 

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