Over the past decade, many have found value in gaining a deeper understanding of finance and money management through education, qualifications, and careers in fields like investment banking. One important skill that often emerges from such experiences is the ability to manage personal finances effectively. This includes recognizing and overcoming unproductive money habits. In this article, we’re going to share with you (nine) 9 of the most common bad money habits keeping you poor or are holding back and tips on how to break out of them.

1. Paying Yourself Last

The concept of paying yourself last was popularized in the book Rich Dad Poor Dad by Robert Kiyosaki. Kiyosaki categorizes individuals’ bill-paying habits into two types:

• Paying Yourself Last: This approach involves using income to cover rent, bills, subscriptions, and discretionary spending before setting aside any savings. As a result, little or no money may be left to save.
• Paying Yourself First: In contrast, those who prioritize financial growth set aside at least 10% of their income for savings as soon as they receive their paycheck. This ensures that saving is a consistent priority.

By adopting the latter approach, individuals can create a habit of saving rather than relying on leftover funds.

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2. Lack of budgeting and/or poor budgeting

You might be documenting everything. Then again, you might be missing the starting point — a budget! Having a realistic and well-documented budget is the foundation of all your financial planning and success.

Make a budget and stick to it! I can say this from my own experience: it makes a huge difference in how you look at your money. In the absence of a budget, it is very easy to get carried away and commit unnecessary expenditures.

3. Relying on Debt for Everyday Expenses

These days, debt seems to be the norm. Many people use debt to buy even the smallest things, like presents or clothes. My rule is simple: If I can’t afford to pay for something outright with cash, I shouldn’t be buying it with any form of debt.

Remember, credit card companies want you to be bad with your finances because that’s how they make money. With the average credit card interest rate at 22%, any benefits or rewards offered by these companies are quickly nullified if you can’t pay off the balance.

4. Lack of a Financial Buffer

Establishing a financial buffer, or emergency fund, is essential for financial stability. It is advisable to save enough to cover at least six months of living expenses. This buffer provides a safety net during unexpected events. One effective strategy is to prioritize saving a portion of income, gradually building this reserve before allocating additional funds to investments.

5. Not Tracking Income and Expenses

If you don’t know your starting point, how do you know where you want to be? Lifestyle inflation is real—your spending will rise as your income rises. The more money you make, the more you might spend, creating a cycle of earning and spending that can keep you financially stagnant.

Successful individuals are aware of their assets and liabilities. They have clear financial goals and understand the steps they need to take to achieve them. Just being mindful of your income and expenses, and seeing those numbers in black and white, can trigger you into action.

6. Spending more as your income increases

There’s no harm in raising your standard of life when you can. However, if you are a person who is constantly looking for ways to spend your money, you will probably find yourself in a difficult situation soon enough. If you continuously raise your expenditure along with any increase in your income (or even without it), it would be hard to have any real savings.

Try to keep your expenditures at a constant level along with exploring ways to increase your income. That’s the route to success!

7. Prioritising the wrong things

We say that this one goes hand in hand with the previous tips. But, let’s be real. Saving money and building wealth doesn’t come without a few sacrifices.

Want to buy an investment property, upgrade your home or take a holiday? Perhaps you need to cut back on some of life’s unnecessary guilty pleasures.

We’ve all heard it before, but making a coffee at home every day instead of buying take out can save you a fortune. 

It’s a small change but prioritising your home renovation over your daily coffee can make that dream home goal come along faster and more easily.

Not only do you need to be clear about your goals and priorities, they need to be regularly reviewed.

8. Overpaying in Taxes

Taxes are likely to be the single biggest expense in your life. While everyone has to pay taxes, the wealthy often have knowledge of legal corporate structures and hire tax advisors to help them minimize their tax bills.

If you want to increase your wealth, one of the best ways is to understand tax rules in a way that benefits you. For example, investing through an ISA or a Roth IRA can shelter your dividends and profits from taxes, and operating under a business can also offer tax advantages.

Even if you prefer to pay more taxes, understanding tax rules allows you to allocate your money in ways that align directly with your values, rather than leaving those decisions to someone else.

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9. Delaying Investments

Once you have savings and a financial buffer, it’s time to start investing. Investing allows your money to work for you, and diversifying your investments helps you weather different financial situations.

Leaving money in a bank account can be detrimental because of inflation, which essentially decreases the value of your money over time. Consider a mix of safe and riskier investments, and don’t leave more money in the bank than necessary.

There will always be reasons to delay investing—lack of time, insufficient funds, or uncertainty about where to start—but the longer you wait, the harder it becomes to achieve the same financial goals.