9 Bad Money Habits You Need To Fix

We all develop habits based on how we have lived our lives. Some are good, some are bad. Bad money habits might not seem so bad at first, but if they’re allowed to go on for too long, they can cost you thousands of dollars.

By being aware and making changes, you can easily improve your finances. The 9 money habits below are essential ones you need to fix.

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1. Not Using Cash Back Apps

What would you say if someone told you that they’ll give you free cash every time you spend money on things you’re already planning to buy?

Free cash back every time you:

  • go out to eat / order takeout / get food delivered
  • shop at your favorite stores
  • buy food at the grocery store
  • purchase gas for your car

Hopefully, you’d say something like…

“Absofreakinlutely! Show me the money!!!”

There are cash back programs for literally everything you spend money on! In fact, I’ve earned over $200,000 from using them throughout the years:

Cash back summary screenshots
(Rewards from Cashback apps)

There are general cash back apps like Rakuten that pay you money each time you shop and rewards apps like Fetch Rewards and Ibotta that you can earn free gift cards for scanning your receipts.

Here are all my favorite cash back apps I use at the moment. If you aren’t using cash back apps, you’re leaving money on the table.

Download these apps and be sure to use them for every purchase. Most offer a percentage back on the total amount you spend – sometimes there are bonus offers and additional discounts too.

2. Not Checking Your Credit Score Or History

If you don’t know your credit score, you’re at a big disadvantage.

Checking your credit score is quick and easy through Credit Sesame.

Credit scores are used every time lenders decide whether to let you borrow money. This includes when you:

  • apply for a credit card
  • shop for a mortgage
  • look for an auto loan
  • refinance student loans
  • find an apartment to rent

Low credit scores will cost you thousands as you get charged higher interest, landlords might not want to rent to you, and you might not even get approved for a loan in the first place.

Credit score range
(Credit score ranges)

By checking your credit score regularly, you’ll know if it goes down and can actively do things to increase it. The higher your score the more options you have available to you at better rates. 

The sooner you check your credit score, the sooner you can make changes. Some small changes made quickly can make a difference almost immediately. Then over a year or two, you can significantly increase your score by being consistent.

What changes will help improve your credit?

Pay your bills on time, live in one location for a longer period, and don’t close out credit cards (it helps increase the average age of your accounts). These are just a few of the things which can make a difference and don’t take much effort.

3. Not Putting Your Savings In The Right Place

This one hurts me to see because I know we work so hard for our money.

Once we have a little bit of savings, pat yourself on the back (or shoulder if you can’t reach). It’s a great accomplishment!

A lot of people live paycheck to paycheck and struggle to save, even those who make $100,000+ a year. That was the situation Allison was in before she turned her personal finances around.

But once you have some extra money, now the big question is where to put it – and that really depends on how soon you’ll need the money:

Where to put money table
(Savings Matrix)

If you need to keep it all in cash and highly liquid, you might be tempted to put your money into a savings account at a local bank, but you’ll barely make any interest with the 0.0000000001% rate they’re offering.

There are banks that pay 10x more interest than the national average. Why accept less when it’s easy to make more?

Make your money work for you.

4. Not Being Prepared For An Emergency

We all think it won’t happen to us… and then it does.

The car breaks down, we have a medical emergency, storms damage our home. All of these things are stressful, expensive, and unavoidable.

At some point, you will need an emergency fund, and not being prepared can cost you dearly. I recommend having at least six months worth in your emergency fund.

(Infographic courtesy of NinjaPiggy.com)

While having 6 months worth of savings is quite a bit to save, don’t be discouraged. Hopefully you’ll never have to tap into it, but if the time comes, you’ll be so glad you did.

One emergency could see you needing to go into debt to recover. If another emergency happens, you won’t cope. It’s a slippery slope and many Americans are one paycheck away from homelessness because we’re not prepared.

Job certainty is not as strong as it was for our parents’ generation. In fact, many people work multiple jobs just to get by. What would happen if you lost yours? Could you survive?

You don’t want to have something unfortunate happen and have to worry about money at the same time, it’s an extremely stressful position to be in.

See how much you’ll need in your emergency savings and steps to get there!

5. Paying High Interest On Debt

Often when we first go into debt we have no idea. High-interest loans are common because they were easy to get, as were credit cards. In college, we live off these debts only to graduate and see how expensive this bad habit is.

They take years to pay off when kept at high-interest rates. How can you get ahead when you’re paying more in interest charges than what you actually owe?

Stop paying such high interest on your debt!

You need to refinance ASAP if the interest rate on your loan is between 10% to 20% (I hope it’s not higher than 20%). Less than 10% is better, but it’s not great. Ideally, you want to get your rate under 5%.

SoFi is a great place to refinance your student loans, credit card debt, and personal loans. You can refinance your loans at very competitive rates and save thousands of dollars.

As an added bonus, they’ll even give you $300 if you choose to refinance with them.

6. Not Refinancing Your Mortgage

Mortgage rates have never been lower than they are now. Like never.

If you own a home, this is the perfect time to refinance your mortgage. Finding a rate difference of just 0.50% will typically be enough to make it worthwhile.

And with rates so low, it’s very likely you’ll find a much bigger difference, especially if you haven’t refinanced in a while. Read this post to easily find out how much a refinance will save you and what your own breakeven point is.

So how can you easily shop around for the best rates without filling out tons and tons of applications?

For this, I like to use Credible (NMLS #1681276).

Credible allows you to compare lenders in just 3 minutes. You’ll get actual rates from multiple lenders without impacting your credit score.

They won’t spam you with emails and phone calls either, unlike other online sites.

(Image from Credible)

7. Not Utilizing Compound Interest

The power of compound interest works both ways. With bad debt, it will see yourself stuck in debt for longer. When it comes to your savings account, the sooner you use it to your advantage the more you’ll have later.

Compound interest works by the interest being added to interest. For example, the amount you have in savings gets interest paid on it. Keep that amount as well as the interest in there, then the next time you get paid interest, the savings plus interest will earn interest.

The amounts are small in the beginning but over a few years, the amount of interest being paid on interest becomes larger and the amount of money in your account grows faster.

Not utilizing compound interest is the same as throwing away money. Interest on interest is fantastic free money!

8. Not Planning for Retirement

Many people think retirement is so far away they don’t need to think about it. Not having a retirement plan is setting yourself up for financial failure. Without any retirement savings, you’ll have no money to live.

The sooner you create a plan for retirement and start implementing it, the more effective it will be. Retirement funds use compound interest in your favor. On top of that, many employers match your contributions.

So if you are paying into your 401k and the company matches up to a certain amount, you get free money. If you don’t pay into it, you are throwing away money. Even though you won’t see the money until retirement, it’s worth planning for and doing what you can now to maximize your retirement.

If you don’t have a 401k available to you, consider opening a traditional IRA or ROTH IRA. Or, if you’re fortunate to have both options available, I’ll help you choose between a 401k vs IRA.

9. Emotional Spending

Along with emotional eating (which can get expensive and be unhealthy), emotional spending is a bad habit that can be hard to break.

Spending because you are stressed or not coping with whatever is happening in your life is not a solution.

Find another hobby to fill that void. Join a gym and use it when you want to shop. Meet up with a friend and go for a walk around the park. Go fishing, do a craft, start journaling. Find something to stop yourself from spending recklessly and seek professional help if you need to.

The Bottom Line

Bad money habits can cost you thousands each year if you let them.

They tend to compound as well. For example, you have an emergency but no emergency fund, so you put it on your credit card at a high-interest rate. Now you are so stressed out, you go on an emotional spending spree.

It can quickly escalate from a small thing to a very big, expensive problem. Before you know it, your personal finances are spiraling out of control.

By making a few simple changes, being aware of your money and where it goes, you can make better decisions and save more money. 

About John Pham

John Pham is a personal finance expert, serial entrepreneur, and founder of The Money Ninja. He has also been fortunate enough to have appeared in the New York Times, Boston Globe, and U.S. News & World Report. John has a B.S. in Entrepreneurship and a Masters in Business Administration, both from the University of New Hampshire.

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