Last updated Jan. 12, 2023 by Peter Jakes
The path to wealth isn’t an easy one. On the contrary, it’s a challenge that requires some level of sacrifice, such as abandoning some of the usual financial habits we tend to enjoy. But while accumulating wealth is a difficult process, it’s generally worth it!
For one, it will help you to become financially independent, where you can afford the basic things of life without going broke. Rich folks like Elon Musk, Jeff Bezos, and Bernard Arnault did not build wealth overnight. It takes effort and actions, such as good spending habits, to build wealth.
Therefore, this post will discuss the 19 bad spending habits to avoid if you want to build wealth. Using these ideas as a guide will help you finally attain the financial freedom you seek.
1. Not Having A Financial Plan
Building wealth and financial security take time and effort. It is a process that requires effective and careful planning and implementation. So if you desire to build your wealth, you need a well-laid-down financial plan to achieve it!
Like anything else, if you don’t make a plan, you cannot achieve it. For one, having financial goals helps to set the parameters of your budget and spending and gives you a sense of direction. Besides, it can help you achieve your short-term and long-term goals.
However, your financial plan should be realistic, achievable, and efficient. For example, if you aim to pay off debt, buy a car, save up for a new computer and put away money for retirement, you’ll need to create a realistic plan on how to make that happen.
2. Not Tracking Your Spending
Tracking your spending gives you greater awareness of where your money is going. Without this knowledge, you may not know the habits that are preventing you from achieving financial growth. Besides, it’ll help you save more and spend less, which is necessary to attain wealth.
You may not know, but there are things you overspend your money on, and by the time you realize it, you may be already broke. Therefore, tracking your spending will expose this, so you may take the appropriate action in dealing with overspending. With this, you have taken a huge step to become rich.
There are apps that can help in monitoring and tracking your spending, such as:
- Nerdwallet.
- Mint.
- Every dollar.
- Personal Capital.
- Money Manager.
- Everlance.
- Expensify.
- SupportPay.
However, you can also use the traditional method of pinpointing your money habits. First, take inventory of all of your accounts, including your checking account and credit cards. Monitoring your accounts will help you identify the patterns of your spending.
3. Spending More Than You Earn
One of the habits that hinder financial growth is living above your means. Do not allow life to get the better of you; instead, try to get the most out of living. Deciding to live within your means may be difficult, but it’s the right step to take if you want to become wealthy.
On the other hand, spending above your means isn’t sustainable, as, over time, your bills will start piling up! So, you need to learn to be happy and content with what you have. Never allow the wrong influence or impulse to get the better of you when it comes to spending your money.
From now on, you need to practice spending less, avoid impulse buying, and live beyond your means. In the end, you’ll acquire financial freedom, which is much more empowering, gratifying, and satisfying than constantly trying to keep up with others.
4. Spending Without An Extra Source of Earning
Depending on a single stream of income will not afford you enough to spend. You’ll need that extra money to fund your emergency savings or purchase unexpected items or items that are not in your monthly budget. Using your paycheck to settle all your monthly expenses will not afford you more to save.
Therefore, having a side hustle that will cater to your other needs becomes essential. There are many side jobs you can do in your free time and earn extra cash. Moreover, you can turn your hobby or passion into a source of earning, such as painting, graphics designing, teaching, sawing, and so on.
5. Not Having a Monthly Budget
Creating a budget is an important foundation of your overall financial success and security. It allows you to oversee and better understand your earnings and spending. Besides, it is a tool used to track when and how you make or spend money, save money, and control your spending.
Additionally, budgeting can help you make great financial decisions, get out of debt, prepare for emergencies, and remain focused on achieving your long-term financial goals. It is a balancing act that helps you plan the best way to make the most of your income. Moreover, it can help you avoid living above your means and help balance needs and wants.
6. Living Off Credit Cards
Unless you’re financially buoyant to pay off the balance in full each month, relying on credit cards is one of the bad spending habits you need to avoid if you aim to build wealth. This is even worse if you’re using them to live beyond your means.
If you fail to pay the card in full each month, every dollar you deposit on the card will cost you more in interest charges. Moreover, you could even spend years of your life and thousands of dollars paying off purchases you don’t even remember making. So it’s best to avoid using credit cards entirely, even when you become wealthy.
7. Not Having an Emergency Fund
No one can avoid the occurrence of emergencies; they can happen to anyone and at any point in time. However, how prepared you are determines whether or not you’ll survive it. And the best way to be financially ready for an emergency without having to rely on your savings to deal with it is to have an emergency fund.
The unforeseen events that could occur can be anything from an unexpected car-repair bill to losing a job. Having an emergency fund can go a long way to protect you from crippling debt and give you breathing space while dealing with the situation. Many financial experts recommend saving at least three months’ worth of salary, and if possible more, for an emergency. You could include your emergency fund in your monthly budget until it’s fully funded.
8. Impulse Buying
Impulse buying is an unplanned or unintended purchase of a product or service. Impulse purchases are out of emotion. However, it is a habit that cripples your finances and hinders your chances of attaining wealth.
So if you are fond of buying without thinking rationally about whether you can afford or need it, you’ll need a change. Before buying an item, especially if it’s expensive, be sure that you need it, which is essential. In essence, don’t rush to buy something that you may not need after a short period.
The best way to curb impulse buying, stop to think if the item is a pressing need. Consider if you can use the money for a more important item instead. And check if you can afford it without going broke. Lastly, see if you have extra money to spend on the item before buying.
9. Eating Out Frequently
Another bad spending habit of avoiding if you want to build wealth is dining out.
Eating out is typically expensive and only gets you broke over time. Even fast food, which we tend to think of as an easy and cheap meal fix, isn’t healthy for our finances. More so, it is a typical example of overspending, which we’ve already established needs to end in other to build wealth.
So instead of relying on eating out or fast food, it’s best to invest in home cook meals, which are healthier and less expensive to cook. Notwithstanding, you can occasionally visit the restaurant for a nice time, but it shouldn’t be too often.
10. Not Building a Good Credit Score.
Working towards a good credit score is a good way to go if you desire to build wealth quickly. Building your credit score is key to applying for a credit card, renting an apartment, or getting a loan. There’s no specific time or age for improving your credit score; you can start now!
Generally, building a great credit score takes time and involves abiding by creditworthy habits such as ensuring all your payments are made on time. Avoid opening too many accounts at the same time.
Additionally, keep your credit utilization (the amount of credit used compared to your limit) as low as possible. Also, pay off your credit cards each month, or have a balance of no more than 30% of your credit limit.
11. Shopping To Impress Others
Getting into the latest fashion trends is what many always aim for. However, if you aim to build wealth, you’ll need to do away with these habits. Shopping to impress other people isn’t such a good habit, as the things you’re buying to impress are most likely expensive.
So don’t let your thoughts or desires get caught up in celebrity fashion in other to show people you can afford them. Once you start, you’ll have to keep up with the lifestyle as newer trends will keep coming up. Be real, and people will come to like you for who you are!
12. Not Investing Your Money
To build long-term wealth, you’ll need investment on the side. An investment is a form of financial security that you can rely on in the future. So not investing is one of the bad spending habits to avoid if you want to build wealth.
You don’t need a ton of dollars to start investing. You can start with little amount and grow the funds over time. There is no specific time or age to start; you can start now. Don’t be afraid to take delve into the risk of investing; when you do, invest in only reliable platforms.
13. Paying for Subscriptions You Don’t Use
If you have a club, gym, and other membership fees you’re paying for without using, it’s time to end it. You may be surprised when you check your credit card statement and see how these fees are adding up. Evaluate the subscription you’re no longer using, and unsubscribe from them regardless of the price.
To build your wealth, you need every little money you can get. And canceling even a dollar subscription will give you a couple of dollars to save a year.
14. Spending Without Saving
The habit of not saving is one of the worst money habits one can live with. Aside from securing your financial future, saving is an important aspect of building wealth. So when you spend without saving, you risk being wealthy for only a brief period.
Saving your money gives you a way out of the uncertainties life brings and provides you with an opportunity to enjoy a long-term quality of life. It helps cushion the blow of unexpected expenses and financial emergencies. Besides, having a savings account gives you peace of mind and expands your options for choices that majorly affect your quality of life.
15. Reckless Spending
Just as impulse buying, careless spending can hinder your chances of getting rich. You need to end those random shopping sprees and try to pay with cash next time. Spend with a budget or grocery list in the market.
Additionally, avoid spending on luxury too often, such as eating out, renting luxury cars, or traveling economy class. These habits can be tempting or hard to stop, but whenever you feel like it, remember your goal, and you may fight it off.
16. Buying Everything New
Don’t throw all your cards under the bus when you have other options. In essence, instead of buying a new item, try purchasing a fairly used one for cheap. To become wealthy, you’ll need to find every possible way to save money while spending.
Therefore, if you want to save money and get your finances under control, don’t spend extravagantly. Purchasing everything new can siphon off a couple of dollars in savings each year. Regardless of what you’re buying, from clothing to cars and everything in between, you can probably find cheaper, gently used options.
However, while you probably won’t be able to find everything you need, it’s still a good idea to weigh your options before buying any brand-new product at the sticker price. Besides, they’re an online site where you can buy fairly used items for cheap such as Poshmark, Gadgets Salvation, Geebo, and Letgo.
17. Spending More than Your Earnings on Phone Plans
Phone plans are common monthly expenses that can add up faster than expected if you’re not careful. So, when purchasing a phone plan, you should consider the services and data you need before automatically choosing an expensive plan.
It can be helpful to look at old billing statements and know how much data you need to use each month. You may also want to consider subscribing to a family plan with family members, or friends, to save money each month.
18. Using Loans To Pay Your Bills
Debt is like a log tied to your legs, slowing you down in your pursuit of financial freedom. So it’s best to avoid debt, such as loans, entirely if you’re looking to build wealth. Relying on loans to pay your bills isn’t the best way to go, especially if you’re spending more than you earn.
It’s why living within your means is crucial; not doing so will lead to you depending on loans to settle your monthly bills. It can be frustrating to have to borrow monthly to cover expenses. To eliminate this, you should effectively cut down on expenses and work strategically to increase your pay or devise legitimate means to earn extra income.
19. Dipping Into Your Savings
The ways to wealth include a high level of discipline, such as not using your savings for not-so-crucial things. In essence, building your wealth requires you to keep off your savings until you achieve your goal. This is why having an extra source of income is important.
With the money gotten from your side hustle, you can use them to settle your immediate issues instead of dipping into your savings. Therefore, your savings should be fixed and not used for other goals. Moreover, dipping from your savings, no matter how small it is, will affect the duration of achieving your goals and may even cost your focus.
Frequently Asked Questions related to Bad Spending Habits to Avoid if You Want to Build wealth.
What Are Some Bad Spending Habits?
Quite often, impulse spending is a challenge, but overspending commonly involves paying too much for a product or service. There are several forms of overpaying. For example, if you buy an item at a convenience store, you could easily get much at a cheaper rate at the grocery store.
What are the seven tips for spending money wisely?
Even if it takes effort and time to accomplish, the seven tips for spending money wisely are worth it. They are:r
- Create a realistic budget.
- Track your spendings
- Diversify your savings
- Create an emergency fund
- Pay your bills on time
- Pay cash for expensive items
- Use credit cards wisely
What Is A Bad Money Habit?
Bad money habits are financial actions that cripple your finances or hinder you from achieving your financial goals. Spending more than you earn is a typical example of a bad financial habit. Getting massive credit card bills and debts will become a routine for you. In such situations, planning investment and saving will be a farfetched dream.
How Do I Stop Bad Money Spending Habits?
You can stop bad money-spending habits by observing some healthy financial habits. Somone-spending money-spending habits include sticking to a budget, planning your finances, saving and investing, and having an emergency fund. Others require some level of discipline and sacrifice, such as voiding impulse buying, minimizing eating out, and avoiding buying expensive things.
What Are The 5 Financially Healthy Habits?
Financially healthy habits help you achieve your financial goals and are great for your future. The five financially healthy habits are:
- Set an effective and realistic financial plan.
- Review and update your financial plan regularly.
- Create a budget and stick to it.
- Have a savings account and emergency fund.
- Find a side hustle to improve your income generation.
What Are Some Unnecessary Expenses?
Spending on unnecessary expenses is an unhealthy financial habit that hinders you from achieving your financial goals. Some unnecessary expenses are:
- Unneeded Insurance Plan
- Cellular Data
- Eating out
- Expensive gym memberships and exercise classes
- Magazine and Newspaper Subscriptions.
What Are 10 Ways To Save Money?
- Set savings goals.
- Eliminate your debt.
- Have emergency fund
- Eliminate impulse buying
- Include savings in your budget
- Pay yourself.
- Avoid using credit to pay your bills.
- Find ways to cut spending.
- Find a passive source of income.
- Keep track of your spending.
