As I reflect on the last decade of my life, I can’t help but feel a sense of accomplishment and gratitude for the journey I’ve been on in the field of finance and money. Through a degree in finance, a qualification in accounting, and a career in Investment Banking, I’ve gained a wealth of knowledge and skills that have helped me navigate the often-complicated world of money management.
One of the most transformative skills I’ve learned is how to handle my own finances, recognize my bad money habits, and break free from them. And in this post, I want to share with you nine of the most common bad money habits that hold people back and tips on how to break out of them.
1. PAYING YOURSELF LAST
I first heard of this concept in the book Rich Dad Poor Dad by Robert Kiyosaki, and it’s one of the blueprints for achieving Financial Freedom. Robert explains that the way people pay their bills can be broken down into two types: the poor people’s habit, and the rich people’s habit. The poor people’s habit is through paying yourself last, as soon as your paycheck comes in, you pay your bills, your subscriptions, and then you’ll save whatever’s left over – if there is even any money left to save. The rich people’s habit, on the other hand, is the complete opposite – they pay themselves first. And that is what you want to do! Take 10% minimum and put that into your savings account the minute you get paid. Treat it like paying a bill. This is so important, and by doing this, you’re guaranteeing that that money will be saved and won’t just slip through your fingers through spending. A lot of people are probably thinking there is no way I can do this, I live paycheck to paycheck. But the surprising thing is when you take that 10% and put it away, your mind will think of ways and structure your spending and structure your finances to last for the whole month. And you won’t even realize that you’re saving in the background.
2. GETTING COMFORTABLE WITH BAD DEBT
It seems that debt these days is actually the norm. People are using debt to buy the smallest of things, from presents to clothes. I have a strict rule that unless I can afford to pay for that thing outright and in cash, I shouldn’t be buying it with any form of debt. Remember, credit card companies want you to be bad with your finances because that’s how they make money. The average credit card interest rate is 22%, which cancels all kind of benefits and rewards these credit card companies are providing. If you’re not able to pay them off in time, you’re in trouble. There are exceptions to this rule, such as emergency Healthcare, property, and education, which fall into a different category. But you still want to be managing your debt and paying off your high-interest debt as soon as possible.
3. NOT HAVING A STOCKPILE
This ties into Point number one, which is about paying yourself first, and essentially it’s saving enough so that you have a buffer behind you of about three to six months. This is super important, and it will give you peace of mind just by having this buffer kept to one side and available to tap into if you need it. You free up that mental energy to designate to more important things. So, how do you gather this six months of buffer? It’s through that paying yourself first and start putting that 10% away. Once you have your stockpile, then you can start using the additional money you save to build into your investment fund and looking at Investments.
4. NOT KNOWING YOUR INCOME OR EXPENSES PROPERLY
Until you know what your starting point is, how do you know where you want to be? There’s something called lifestyle inflation and that is your spending will rise as your income Rises. The more money you make, the more you spend, and it’s a cycle – make more money, buy a bigger house, buy a nicer car, spend more, make more. It’s crazy how easily we can fall into this trap without even realizing it. That’s why it’s essential to know your income and expenses properly. Track your spending, create a budget, and stick to it. Knowing where your money is going is the first step in taking control of your finances.
5. NOT INVESTING YOUR MONEY
Investing is one of the most important things you can do to secure your financial future. When you invest your money, it has the potential to grow exponentially, and that’s something that saving alone can’t do. Not investing your money is like leaving it in a savings account and watching it slowly lose value to inflation. Don’t be afraid to educate yourself on different investment options and find something that works for you.
6. LIVING BEYOND YOUR MEANS
Living beyond your means is a surefire way to get yourself into financial trouble. It’s easy to get caught up in the rat race of keeping up with the Joneses, but it’s important to remember that your income and expenses should be in balance. Don’t take on more debt than you can handle, and don’t spend more than you make. It’s that simple.
7. NOT HAVING A FINANCIAL PLAN
A financial plan is essential to reaching your financial goals. It’s a roadmap that guides you towards financial success. Without a plan, you’re just wandering aimlessly, not knowing where you’re headed or how to get there. Create a plan that includes short-term and long-term financial goals, and make sure to revisit and adjust it regularly.
8. NOT PROTECTING YOURSELF FROM FINANCIAL DISASTERS
No one likes to think about disasters, but they can happen to anyone at any time. Whether it’s a job loss, a medical emergency, or a natural disaster, it’s essential to have a plan in place to protect yourself and your family financially. This includes having an emergency fund, insurance, and a will.
9. NOT SEEKING PROFESSIONAL ADVICE
Money can be complicated, and it’s not always easy to know what to do. That’s why it’s essential to seek professional advice when needed. A financial advisor can help you create a plan, invest your money, and navigate the complexities of the financial world.
In conclusion, breaking free from bad money habits is not easy, but it’s worth it. By paying yourself first, managing debt, investing, creating a plan, and seeking professional advice, you can take control of your finances and achieve financial freedom. Remember, it’s never too late to start making positive changes in your financial life.