In today’s fast-paced world, managing one’s finances effectively is crucial for a stress-free life. Bad money habits can often lead to crippling debts, causing anxiety and stress. But the good news is, you have the power to break these habits and pave your way to financial freedom.

In this post, we’ll explore 15 bad money habits to break in 2024, along with eight examples that you can overcome to eliminate debt and manage your finances better.

1. Overspending on Non-Essentials

Example: Frequent shopping sprees or dining out.

Have you ever gone out shopping and upon returning home, you realise that you have bought a lot of stuff that you didn’t plan for? Months later, those items are still either in your cupboard unopened or in your wardrobe with the tag, still unused. Breaking this habit means setting a strict budget for discretionary spending, sticking to it, and focusing on paying down debt and consistently saving.

2. Ignoring a Budget

Example: Not tracking your income and expenses.

Create a realistic budget, monitor your spending, and adjust it as needed to avoid overspending and accumulate savings. Download a free NDNS budget and start monitoring your spending.

3. Relying on Credit Cards

Example: Using credit cards for everyday expenses.

As much as credit cards are easy and very convenient to use, they are also very easy to rack up the costs associated with using them. I would suggest if you are struggling with constantly relying on your credit cards to switch to using cash or debit cards to curb excessive debt accumulation and avoid high-interest charges. I restrict my spending and use my Monzo card account, and transfer a budgeted amount each month and leave my other cards at home.

4. Neglecting Emergency Savings

Example: Having no emergency fund.

It’s always best to have something saved and put aside for that rainy day and trust me the rainy day will come. Think of something that could be an emergency for you. For me, it used to be my teeth, I had an emergency pot for it, but now I have a sinking fund for it. What would happen if you lost your job next week, would you have enough money saved to live for at least 3 months – 6 months? It helps to just have that cushion to fall back on when stuff happens. Prioritise saving for emergencies, so unexpected expenses don’t lead to more debt.

5. Paying Only Minimum Payments

Example: Only paying the minimum on credit card bills.

Paying the minimum on your credit card bills means that the amount you pay in the long run will increase due to the additional interest you will incur. Increase your payments to reduce the principal and save on interest in the long run.

6. Not Investing in Your Financial Education

Example: Ignoring financial literacy.

Unfortunately, a lot of us were not exposed to financial literacy when we were younger. So, we got a job, worked and got on with life and did not have a plan. This can be risky; it is like waking up one day and you decide to go and buy a car.

You get the car and start driving. Guess what would happen and why?

You either crash the car, get points on your licence, have to pay a fine, because you did not have any driving lessons, you did not acquaint yourself with the rules of the road, no insurance etc etc. You get the gist of what I am trying to say.

If you are old enough to be working and earning, you should start finding out about the best way to navigate your financial life. It’s one of those things that can creep up on you without you even realising it. One day, you wake up and think, crumbs, what happened there. Then you start asking yourself, what, why, how, if I knew, should have done, could da, shoulda, nah, educate yourself now. One is never too young or never too late.

Educate yourself about personal finance, investments, and debt management in order to make informed decisions. Robert Kiyosaki said in his book Rich Dad Poor Dad. We all know how to make money, but we do not know how to make money work for us. Read this book and learn how. Read it to or with your children and it will set them up for life. After reading it, years ago, I was like wow!, bought it and gave it to 2 of my friends and my son. Has my son read it, hmmm, another story for another time.

7. Borrowing from Retirement Funds

Example: Tapping into your retirement fund for non-emergencies.

Your retirement fund is what is going to replace your income when you stop working, or when you decide to reduce your hours. Now most people don’t think about this because we are too busy living for today and worrying about stuff we don’t have etc etc. Following on from the point above, if you find out about financial planning, you would have come across retirement and what it means. Protect your retirement savings by finding alternative ways to cover your non-essential expenses.

8. Neglecting High-Interest Debt

Example: Ignoring high-interest credit card debt.

Credit card debts can climb out of control very quickly. If you ignore your high-interest credit card debt, interest charges will continue to accrue, and you could create a more costly problem that makes getting out of debt more difficult. To pay off high-interest credit cards, pause spending on the card and commit to paying more than the minimum each month. At the same time, consider ways to lower your interest rates, or add to your income so you can pay down even more debt each month. It is a good idea to prioritise paying off high-interest debt first to save money in the long term. You’ll typically save the most money if you get rid of high-interest debt as quickly as possible. The longer interest accrues on a balance, the more you’ll pay. Compound interest makes this even more of a challenge because it means you’ll pay interest charges on top of your existing accrued interest each month.

9. Living Beyond Your Means

Example: Maintaining a lifestyle you can’t afford.

It’s very easy to fall into this “trap” especially if you are a high earner or get an increase in your wages, although it is not limited only to high earners. The best way to ensure that you live within your means is to do an audit of your needs and wants and eliminate those that seem excessive. Downsize your expenses and live within your means to free up funds for debt repayment and future savings.

10. Impulse Buying

Example: Purchasing items on a whim.

This takes a mindset shift. Make a list before going shopping, reflect before buying and stick to your shopping list. Adopt a “pause and reflect” approach to control impulsive spending.

11. Failing to Negotiate Bills

Example: Not seeking discounts or negotiating bills.

There are huge savings to be made, particularly on broadband and line rental packages. Negotiate with service providers and explore discounts to reduce monthly expenses.

12. Disregarding Financial Goals

Example: Having no financial goals or plans.

It is a good idea to write down your goals. Set your goals using the S.M.A.R.T. method and do this one at a time. Set clear financial goals and create a roadmap to achieve them.

13. Avoiding Financial Discussions

Not discussing finances with your partner, if you have one. Or not reviewing your finances and being realistic and truthful to yourself about money if you do not have a partner. Open and honest communication about money is vital to becoming financially resilient and solvent.

14. Missing Bill Due Dates

Paying bills late and incurring late fees. Set reminders and automate payments to avoid late fees.

15. Neglecting Your Credit Score

Ignoring your credit report. Regularly review your credit report to check for errors and maintain a healthy credit score. What this simple act also does is psychologically help to inspire you to keep paying your bills and debts. Once you see the score increasing it acts as a motivator.

Conclusion

Breaking these bad money habits might seem challenging at first but remember that small changes can lead to significant financial improvements. By eliminating these habits, you’ll pave the way for a debt-free and stress-free future. Start today, and watch your financial situation improve, one step at a time.

Let us know of any tactics that you have used to break any bad money habits which you had in the past.