Does it ever feel like you’re spending money without thinking about it, and suddenly you’re looking at your finances and having no idea where your money went? Well, let’s face it — money mistakes are almost a given at any point in our lives. We have all been there either — spending more than we have earned, acted on bad financial advice, spending instead of saving, even overdrawn on a checking account or some combination of the aforementioned. Well I dare say these things can and do happen, you are perfectly human. However, when you do make a monetary blunder, the first step is to recognise that it’s not catastrophic, and that many others have faced similar situations. The fact is most people are not taught about money management while growing up. It’s seldom discussed within the family unit, and it is not taught in schools, which is unfortunate because learning basic money concepts and management from an early age is an excellent way to help set people up for future financial success. The faster you can get a handle on how to responsibly manage your finances, the better off you will be — now and further down the road. However, here you are. But have no fear, we are here to help you on your journey to financial independence by unearthing some of the bad money habits that are working against you and replacing them with healthy ones that can set you on your way to unlocking wealth and a rewarding financial future. Remember, no one is perfect; we just have to work until we get it right, starting with the steps listed below.

1. Stop Keeping-Up-With-The-Joneses

One prevalent money mistake that many individuals fall into is the trap of trying to keep up with the Joneses. This concept revolves around the tendency to compare your financial status and possessions with those of others, often leading to excessive spending to maintain a certain image or lifestyle. Succumbing to this pressure can result in financial strain, as individuals may find themselves overspending on items they don’t need or cannot afford, simply to appear wealthier or more successful than their friends or peers. However, this mindset can lead to a cycle of debt and discontentment, as true financial stability and health come from living within one’s means and prioritising personal financial goals over external appearances.

The Recommendation: Live within your means. Prioritise personal financial goals and values over external comparisons and appearances. This involves cultivating a mindset that is focused on financial health rather than materialism. Additionally, practising gratitude for what you already have and recognising that true wealth is not solely determined by material possessions can help shift your perspective away from comparisons with others. Surround yourself with like-minded individuals who prioritise financial responsibility and support each other in making sound financial decisions as this can provide encouragement and reinforcement in resisting the urge to overspend for the sake of appearances. Ultimately, embracing a mindset of financial mindfulness and living within your means can lead to greater financial stability and peace of mind.

2. Stop Impulse Buying

This is another bad money habit strongly related to keeping up with the Joneses. Impulse buying, however, is what people like to dress up in finery and call “retail therapy”. It has an emotional component because the thinking behind it is that if you are feeling blue, you should do a bit of shopping to chase the blues away and restore your emotional lustre. Impulse buying might just lead to a habit of excessive credit card use and subsequent debt because of the compound interest on that debt.

The Recommendation: Impulse buying makes you lose sight of your goals by keeping you living pay cheque to pay cheque or even put you in debt. To combat this tendency, it’s essential to practise discipline and be aware when it comes to spending. Create a budget and stick to it. Further, by pausing to consider the true necessity and long-term value of an item before purchasing, individuals can avoid unnecessary expenses and work towards more prudent financial management.

3. Stop Excessive Credit Card Use

Finance guru Warren Buffett once said, “I have seen more people fail because of liquor and leverage — leverage being borrowed money. You really do not need leverage in this world much.” He was not saying that credit cards or other forms of debt are not good. He was warning about the real possibility of credit card debt spiralling into serious debt which, in order to pay it down, reduces your ability to save and invest money to achieve short-, medium-, and long-term financial goals. Used right, both in terms of amount and the specific type, debt can be a powerful tool for wealth creation. Credit cards provide ease and convenience for purchasing goods and services; however, make no mistake, unchecked usage can lead to accumulating high-interest debt and financial strain.

The Recommendation: Credit cards offer convenience, security against theft, and you can even benefit from the rewards offered by various cards. However, research shows they can lead to higher spending due to their ability to activate reward centres in the brain, making people happier when they use them. There are alternative methods though, such as rewarding yourself for good financial habits that help you to reach your long-term financial goals, especially rewards that can be done without increasing your debt. Consider enjoying a staycation by exploring local attractions or embarking on a nearby weekend getaway to rejuvenate, when you reach an intermediate goal. You can also indulge in self-care activities such as a spa day or a yoga session or designate a day free from work and household chores, allowing yourself to focus solely on personal enjoyment. It is important to reward yourself for good financial habits, just resist the urge to overspend. Remember your credit card is not free money, credit card debt can grow rapidly if you do not pay it off or pay as much as possible each month. Make your mantra: ‘I only buy what I need.’

4. Avoid Lifestyle Inflation

Lifestyle inflation (sometimes called lifestyle creep) is the tendency of individuals to increase their spending (expenses) as their income rises, sometimes so gradually that they don’t notice it. This is generally not considered to be good because it means that regardless of how much you earn, you will never be financially free. For example, if you get a 10 per cent raise, this is an opportunity to boost your savings and investments. However, without being aware of their spending habits, most people will likely increase their spending in line with or sometimes above the rising incomes. So, if you can’t seem to save any money every month, it might just be because you’re inflating your lifestyle every time you get a raise. This has the potential to become a hindrance to achieving financial independence. Instead, you should endeavour to keep your expenses the same, where possible, no matter how much your income grows.

The Recommendation: There is nothing wrong with rewarding yourself when you get a promotion at work or reach a milestone in your life. What is important is to avoid upgrading your lifestyle each time you get a windfall or an increase in your income. This approach can get you caught up in a cycle of financial indebtedness. By acknowledging it and taking proactive measures, you can cultivate more enduring financial habits. For example, that increase in your monthly salary could go towards savings and investments. This can be done by automating it, whether through salary deduction or automatic transfer into another account.

Navigating the realm of personal finance can often feel like a precarious journey, riddled with potential pitfalls. Yet, from time to time, we all make financial missteps. Whether it’s overspending, succumbing to societal pressures, or falling into the allure of impulse purchases, these missteps are a part of the human experience. However, the journey to financial independence begins with a single step, and it is never too late to embark on that path by identifying and addressing bad money habits. Next week we explore four more bad financial habits to break and alternative habits that can build your financial health.