24 Money Habits that keep you from Getting Rich

January 25, 2022

Article #18

Introduction

Money makes the world go round, and every sense of the phrase makes sense. Everything costs money. From the minor things in life to the most expensive, money is the only commodity that allows for such expenditures. However, the difference between those who have money and those who do not is primarily due to their spending habits. You can invest in the right things and use your money wisely, or you could take a gamble on your money and be broke.

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Consequently, your money-spending habits define the kind of life you live, whether it will be a life of luxury or one of misery, poverty, and dependence. We all crave financial independence to be able to afford what we want and when we want. Our spending habits are crucial to getting and staying rich or running broke. With that in mind, I have outlined several money-spending practices that keep you from getting rich;

Saving only what’s left over

Savings are a sure way of ensuring you have a soft financial landing when the money runs out or when you need to make an investment that requires a substantial amount of money. To effectively save money, there is a general budget formula that most individuals use to divide up their finances. The 50/20/30 budget formula is synonymous with most people; 50% should account for basic needs, 30% for wants, and 20% for savings. It is an easy-to-follow budget allocation plan that anyone can adopt to save money effectively. It is not advisable to save only leftover money as this might land you in financial trouble.

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Spending too much on housing

Shelter and housing are basic needs, but you need to live under what you can afford. Your rent should not account for more than 30% of your income. If you go beyond this percentage, economists argue you might land a financial crisis as you have deprived the budget for other needs. Unless you are rich and can well afford expensive housing, live within your means, and you will lead a prosperous life.

Not taking advantage of tax benefits at work, IRA, 401k etc.

Everybody hates paying taxes. However, taxes are what keep governments in control to be able to provide social amenities and economic infrastructure to the population. When you file your taxes and remit returns to the federal government, numerous tax benefits are available. Cashback is available and exemptions in exceptional cases, and you should always look out for such benefits available on IRA and at work.

Being too conservative when investing

Investing is a risk per se. However, significant risks come with tremendous rewards. If you decide to invest, invest wisely in a niche in which you have done sufficient research. Every investment has risks, but that should not bar you from making the first step toward investing if the rewards outweigh the risks. Invest big and reap big but be sure to invest wisely.

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Impulse buying

Impulse purchases aren’t always on the budget. This means they use up the money that should have been allocated to some other projects. It would be best if you always resisted the urge to make an impromptu purchase. If you desire something, take it off from money meant for your wants, but you should always be able to afford the item comfortably. Spending extra without a budget keeps you in perpetual poverty.

Paying too many banks’ fees

However insignificant they may appear to you, bank fees slowly and gradually drain your account. Transaction fees for purchase, transfer of funds, and withdrawal always seem like small amounts, but they hurt your finances. Different banks have different bank fees, and you should always study and choose the bank that best suits your financial needs. The banking structure allows savings and checking accounts with regular or corporate options. Maintaining either has its cost, and you should choose one that best takes care of your finances.

Having a ton of monthly subscriptions

Media and entertainment companies, apps, and other tech services have a subscription fee. Having too many automatic subscriptions means that the minute you deposit money, it gets automatically deducted to service your subscriptions. Subscriptions act like standing orders deducting a unique fee when the due date arrives. Do not subscribe to too many applications and services, as they will drain your account when you could have saved the money or invested it elsewhere.

Not Ready for emergencies

Savings are a great way to cushion against emergencies. They could be financial, medical, or take any form, but money is always involved. You should always set money aside for emergencies as they strike when we least expect it. If we are not prepared, we might accrue debt while trying to take care of the emergency, which could affect our finances in the long run. That is a double tragedy; this deficit could hinder you from becoming wealthy.

Ignoring your credit score

Good credit ensures that financial institutions like banks and microfinance have an excellent record. Good credit means that your ability to pay exceeds your borrowing habits. It would be best if you always strived to have good credit so that banks and financing options are easily accessible. This could set you up with a loan to finance your business. A maxed-out credit card and inability to clear your loans on time mean your credit score plummets, preventing you from progressing and becoming rich.

Not tracking your spending

Even the rich keep tabs on their spending habits. Having a clear, distinct record of how you spend will inform if you overshoot your budget and effectively track how your money is being spent. Knowing what to invest or spend on ensures you are financially aware and cautious about using your money. Overshooting your budget means spending money on other things, creating a deficit, and keeping you broke. Ignoring your debt is a recipe for staying poor. It would help if you tracked your debt with your financier and agent or accountant to learn the dynamics of settling and clearing it; otherwise, interest and debt are compounded, leaving you broke.

Making late payments

Making minimum payments on your credit card could lead to penalties and paying extra on interest. This could also hurt your credit scores. Although different people have different abilities to pay payments on their credit cards, everyone should strive to make the requisite and even more payments to uptick their credit score. Accruing a lot of interest alongside credit repayments can hurt your finances if left unchecked and could prevent you from getting rich. Staying behind on your bills means that interest also accrues, and combined with a low credit score, income is distributed towards offsetting interest other than investing or saving.

Spending money every day

Unnecessary spending like convenience shopping will impact your money negatively. To counter this, having a budget could be instrumental in tracking your spending habit. Convenience items are just secondary needs and should be bought from your budget. Convenience item shopping is not the same as buying an asset that could grow in value over time. In most cases, they are luxury items that will degrade over time. Overshooting your budget for everyday spending or splurging on items you don’t need will drain your finances quickly and leave you in debt. Unhealthy spending is a bad money habit that you should keep in check to avoid inconveniences when you need the money.

Not saving

Savings are essential for future and unforeseen incidences. Spending all your money and not saving a dime means you do not have anything to manage any financial situation that might arise. ‘A penny saved is a penny earned’ are famous words from Benjamin Franklin, and the phrase rings true. Saving a small proportion of your earnings means having financial protection when you have an emergency or need money quickly. It might be to protect your business or pay a standing medical bill, but your savings will always cover you.

Being financially illiterate

Schools should teach financial literacy. You can have a tremendous amount of money, but you might find yourself broke, not knowing what to do in that situation or what to do with it. This is quite synonymous with people who have won the lottery. There have been many incidents where people who have won the jackpot are rich for some time until the money runs out and they are poor. This is usually because they lead an extravagant lifestyle they are not prepared for and end up overspending on convenience items, shopping, impulse buying, and not investing or saving money. Being financially literate means, you can account for every expenditure, manage finances effectively and deal with massive funds at any time.

Not negotiating

Retailers, wholesalers, and businesspersons always overprice items to allow room for negotiation up to the desired mark. The marked price is, on most occasions, not the buying price. Negotiating or bargaining for goods or services ensures you save a little extra, which can overflow into other valuable utilities. If you do not possess good negotiation skills, let a friend accompany you for a purchase, which will save a couple of extra dollars. Otherwise, paying and buying overpriced items will drain your finances.

Not investing

Saving is not enough. You need to invest wisely in worthy projects that will have a good return on your money. Being scared to invest is understandable, but it should not hinder you from making that first step which is usually the hardest. Investing is not taking a leap of faith but taking the time to study what you want to invest in. Investing in something you understand is easier as you have the literacy of the dynamics in that particular line of business. Money in a saving account only accrues a little interest every year but investing that money has the potential for more significant returns, which could save more.

Not sticking to a budget

It is vital to have a budget. The 50/30/20 formula has been a global tool that ensures money is in your pocket at any particular time. Once you make a budget, you must stick to it because overshooting what you have budgeted for one specific project means the expenditure overflows into another spending that was not initially tabled. A budget is also a sure way to ensure you can track your spending and you can allocate funds effectively to worthy projects.

Having one source of income

A single source of income could be sustainable, but when needs and wants start increasing, especially when you may have dependents, the budget may shift. This is why investing and running a business alongside your primary source of income is advisable. Multiple sources of revenue ensure stable finances even if one fails. Most intelligent people invest in their dreams and have several businesses running to ensure financial independence.

No retirement plans

You should start saving for retirement when you are as young as 25. The most active years of a person’s life are from the twenties to the fifties when they retire. Planning for retirement means investing in life assurance retirement plans, which means you have money to sustain yourself in your old age when you can no longer work—failure to plan means you are planning to fail. Having a business means your children can inherit it because they cannot inherit your job. The company will also take care of you when you can no longer work.

Paying yourself last

While it’s understandable not to pay yourself until your business can stand independently, you need to start paying yourself. Your business should appreciate you because you are the brains behind the company. Most people choose to reinvest their share into the business but leave nothing for themselves. Paying yourself a fair wage is necessary, and you can save that cash for other investments.

Paying too many taxes

Most people consider taxes oppressive. It might be true in some scenarios, especially if you pay too many taxes. Filing the correct tax forms with corresponding returns to the government will save you from paying additional taxes and penalties that might accrue from tax evasion, which is a crime. While the government does take a substantial cut from your profits or salary, you need a good accountant who can advise on how to remit correctly to avoid paying too much.

Hoarding money

There is a thin line between saving money and hoarding money. Hoarding cash and never going out to enjoy your money is a bad habit that needs to cease. Stocking money until you are miserable is not good. You make better connections which might pay out if you meet new people and exchange ideas worthy of investing in, especially with the money you’ve been hoarding.

Practice good money habits

It all comes back to the basics. When you live within your means, you don’t accrue payday debt and save for the future; you start becoming rich.

Take charge of your career

Your career is important to you, and you must charter your path. Do not settle for any job that you don’t like or one that you suck at. Start a good business that aligns with your passion because you are bound to give a hundred percent. It is all in your hands, and it’s within you to start a new path.

Conclusion

All the habits discussed above are plentiful to give a holistic experience of how you have your finances. The endgame is to be rich and maintain the status quo. On the other hand, becoming wealthy means a journey and a story. We should all practice good money management habits and maintain a good culture of financial literacy to have a bountiful life.

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