3 Bad Money Habits That Keep You Poor
These are three bad money habits that keep you poor. The poor and rich have very different money habits. The good news is you can change your financial practices.
Your financial habits keep you poor. The rich and the poor have very different financial habits. You must change how you manage your money to improve your financial situation. These are three bad money habits that keep you poor.
3 Bad Money Habits That Keep You Poor
You Pay Yourself Last
The first bad money habit is always paying yourself last. When you first receive your paycheck, you direct your income toward immediately paying your rent, phone bills, and any subscriptions you have. You then direct some of your money toward social plans and expenses. Finally, you save a certain percentage with whatever amount you have left at the end of each month. You pay yourself last using this strategy. There may be little money left once you cover your expenses. This is a problem with the popular 50/30/20 budget that most people follow. You pay yourself last if there is any money left.
Instead, you should be paying yourself first. The rich make a point to pay themselves a certain amount first once money comes their way. You could instead put $100 immediately into your savings account once you receive your paycheck, then you cover your expenses. This way, you ensure that money goes into your account and can continue to grow. You are the ultimate bill that needs to be paid. You want to slowly watch your net worth grow so that you can work to stop living paycheck to paycheck.
This strategy will help to put your mind at ease. You won’t be worried if you have any money left at the end of the month. You can then restructure your spending and financial expenses to ensure you can always pay yourself first. Otherwise, you are paying other people first before you finally pay yourself.
One person’s asset is another person’s liability.
Comfort
The second bad money habit is comfort. People get too comfortable and accustomed to living with bad debt. It has become customary for people to buy everyday essentials with credit cards. They then become debt if they don’t pay their credit card off each month. CNBC reports that nearly 25% of Americans are going into debt to pay for necessities.
Americans are in debt to buy essential items such as clothes, groceries, and everyday essentials. Instead of paying for these with cash using their checking account, they put them on their credit cards. But it has become normal for people to use bad debt to buy the most basic things to survive.
It is in the interest of the credit card companies that you don’t pay off your credit card every month because then the companies can charge your interest. According to Investopedia, the average credit card interest rate is 23%. Unless you pay off your credit card each month, the insane interest rates that credit card companies charge you eliminate any benefits and rewards that you may receive for using a credit card. Credit card companies want you to be bad with your finances to make money from you. It is in your interest to learn the basics of money management and find ways to make enough money each month to avoid debt.
If you have credit card debt or another type of debt, you want to work to pay it off as soon as possible.
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You can start to buy things with the money that you have in your account. You can begin to live below your means. You don’t need to keep up with your friends, neighbors, the Joneses’ or the Kardashians.
Not Having A Financial Buffer
The third is never taking the time to build a financial buffer. This point connects to the first problem of never paying yourself first. You want a financial cushion to cover at least one year’s expenses. Other names for this same concept are a rainy day or F.U. Fund.
Having a financial buffer releases your mental energy to focus on more critical things you must deal with. You won’t be worried if a bill comes up that you did not plan for that will put you further into debt.
You can build your financial buffer by focusing on paying yourself first. That is why step number one is essential to achieving financial freedom.
Once you have built enough of a buffer, you can put some of the money you have stockpiled into investments. Investments are financial assets that pay you to hold them. You can begin to direct some money from your F.U. Fund buffer to create an investment fund.
You can then learn about different types of investments and investment strategies. You can decide your investment strategy. You can learn about the different types of financial assets, from the Stock Market to real assets. Tangible and real assets are the ones that can end up giving you a higher return on investment, but they require more sweat equity, work, and time to build before they can start to pay you.
Summary
It is up to you to decide if you want to change your financial habits. The most important one is to begin to pay yourself first. Once you change that one, the following bad financial habits will change too. You can then work to change from a fixed mindset to a growth mindset which can help open you to more possibilities. It is up to you to take responsibility for changing your financial situation.
Self-discipline and habits work together. You can change your bad habits to good habits. That is true as well when it comes to your financial life.
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