I explain the 5 money habits that are keeping people poor and how people can become wealthier and happier through gradual behavior changes with their money habits. No more self-sabotaging your financial future!
Bad Habit 1: Lifestyle Creep
Bad Habit 2: Living with Debt
Bad Habit 3: Not Tracking Finances
Bad Habit 4: Blaming Others
Bad Habit 5: Afraid to Learn How To Invest
First is lifestyle creep or lifestyle inflation is not spending within your means and not having the awareness that this is happening. A lot of people live by an outer scorecard where they think they need to spend excessively to impress other people. The truth is it doesn’t matter what the outside world thinks of you. You can still post fancy pictures on social media of a luxurious beach vacation in an exotic location, but you don’t have to burn a hole in your wallet doing so. If you’re mindful about costs, you can still enjoy a fun life without coming home to an empty bank account.
Another way that lifestyle creep keeps you poor is when you find yourself giving into all the latest and greatest products and services that you may or may not really need. These especially include subscription services and expensive delivery services. You have to ask yourself if you truly need to consume all the TV shows and movies on all of the streaming apps like Netflix, Hulu, Apple TV+, Amazon Prime, Disney+. Or are you really that pressed for time that you need all your groceries and meals delivered right at your door or are you really just overpaying for something you could have sourced yourself if you visited your local farmer’s market instead?
This applies to all the delivery apps of GrubHub, DoorDash, UberEats, and so on, or the mealkit services like HelloFresh, Blue Apron, and Home Chef. They might give you the illusion of convenience but it’s at the significant expense of your money. This is where being aware of why you’re living a certain lifestyle comes into play. A lot of people think they need to come up with a budget to afford their lifestyles, but maybe we need to question what unnecessary expenses we’re taking on in our lifestyle in order to afford our investments for a better lifestyle in the future.
Second: Living with debt is like being in a bad relationship. In the US, we think it’s normal to have debt, to the tune of the average American having $53K in debt. The American dream has many people believing they need to take on massive student loans in going to college or that we have to have a mortgage to own a house. But there are so many alternative paths we can take. As soon as we realize that not all things are worth going into debt for, we will make different choices.
The first step is to recognize if you’re in a bad relationship with debt, and then start making gradual steps toward breaking up with it. Personal finance guru Dave Ramsey suggests doing a snowball effect where you tackle your smallest debt first until you gradually pay off all debts regardless of interest rate so you have some small mental wins. My preferred approach that I used to pay off my student loans and a car loan was to pay as much as I could afford per month on my highest interest rate loans first, in that order of priority across my loans as long as it covered the minimum payment and then some.
As I made more money in my job I aggressively paid more each month until I paid these loans off within only 2-3 years. It is so liberating to be debt-free and I think if you consciously put your mind into getting rid of debt, you will be free sooner than you think. Some people can leverage debt in an intelligent way to make money, and if you’re in a position to do this, great! If not, let’s just try to reduce our debt as much as we can.
Third: Not tracking your finances and investments, you don’t have to think of it like you have to maintain a strict budget because that’s like counting calories which isn’t that fun. But by tracking how you’re growing or decreasing your assets, you can feel more in control of where you are going financially. I like using a spreadsheet and updating it weekly but I know there are many apps and financial providers who offer convenient ways to sync your spending, saving, and investing activities.
By putting in a little more effort to get organized, this will reward you with a sense of control and the peace of knowing where your money is and what it is doing. When you set up either automatic payments or have a calendar of your bill due dates and know exactly when and how you’re going to pay your bills, then you stop being late with making payments and you become more cognizant of whether you’re spending on things you don’t really need. It is really critical to always pay your bills on time and ideally pay any balances in full every month.
Fourth: Blaming others for where you are financially. This includes not taking control of your career and money making options by not leaving a job that doesn’t pay you enough. A lot of people might say “I’m not making enough money to save or invest” but then they continue to stay in dead end jobs and delay precious time they could have been compounding their money in investments if only they took more ownership of their money and time.
I know it’s easy to make excuses and think that the world has handed you a sack of rotten lemons, but you can still find a way to make lemonade if you focus on the positive things you’ve got going for you and find a way to put your skills to work so you can be in a position to not only make more money, but also have a more fulfilling career and life.
The key is to be willing to take full responsibility of the financial decisions you make, and then to start making smarter decisions while not repeating as many mistakes as in the past. We all make mistakes and there’s nothing to be ashamed of with that. A mature person who is secure in themselves knows they can behave differently, and then acts accordingly so they can become the future version of themselves. This has to do with your sense of self-efficacy in how well you are able to cope in certain situations and be able to control your actions in these circumstances. We can’t always control our circumstances, but we can control how we react to them to still end up with positive outcomes.
Fifth: Being afraid to learn how to invest, for whatever reason. Talking about finances can be taboo so it can be hard trying to find someone you feel like you can trust to guide you and show you how to invest. And there are so many talking heads that can sometimes be discouraging by debt shaming people and then all this money stuff just makes you feel bad about yourself so you think you’ll get to it later, at some point in the future, but either you never really do or you never really feel confident.
Let’s look at a 20 year old and a 30 year old who expect to retire at age 60. If they have just a Roth IRA and max out the yearly contributions, a person who started to invest at 20 will become a millionaire by age 56 if the investments grow at the stock market’s average historical rate of return of 7% compared to the 30 year old who will only reach 2/3 of a million dollars by age 60.
They would need to wait until they’re 66 until they reach that same million dollars. I’m not anywhere near my 50s or 60s, but your quality of life is way different if you’re able to reach financial independence at a much younger age.
So what I’d suggest is learn as much as you can about investing and start contributing as much as you can to your Roth IRA and workplace retirement accounts like the 401k, even if you may not necessarily invest those contributions right away because you only have every tax year to contribute.
I’m just giving a heads up that while it’s important to invest early in life, you also need to be aware of where the stock market is in its cycles and if it makes sense to invest in certain securities at current prices. This is why I say learn how to invest, even if you take your time to actually invest and make sure you’ve done your homework when you do.
With that being said, feel free to check out more of my videos because I’m studying the best investors on how to invest and this will help you on your journey of taking control of your finances and learning how to invest. I wish you well on your journey to reaching financial freedom and becoming the best investor you can be!
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
I look forward to making more investor friends! Add me on Instagram: michellemarki! 🙂