6 Bad Money Habits to Leave in 2023

The start of a new year is a great opportunity to review your financial habits and make some changes for the better. Bad spending habits can cause us stress and can leave us scrambling when we need a little extra cash for emergency situations. And let’s face it, searching for spare coins under the sofa cushions just isn’t going to cut it if we want to reach our money goals. If you want to improve your money management skills and achieve your financial goals in 2024, you might want to avoid these six bad money habits that can hold you back from reaching your full potential.

1. Not Having a Savings Account or Any Saving Goals
A common financial problem that affects people of all ages is not saving enough money. The truth is, most Americans simply aren’t saving enough, and we know it because it’s the number one bad money habit self-identified across all generations. According to one survey taken by Business Insider, 75% of Americans do not have any sort of high-yield savings account. One in five Americans do not have any type of emergency savings whatsoever. What happens when you get in a bind and you need some extra cash? Not having any savings can be very risky if an unexpected expense or crisis occurs.

One of the reasons why people struggle to save enough is that they do not have clear savings goals. They may not know how much they need to save for different purposes, or even have a retirement or emergency fund. Without specific goals, saving money can seem vague and difficult. Therefore, it is important to set realistic and measurable savings goals, and to plan how to achieve them. You do not need to save a lot of money at once to make a difference. Even a small amount, like $10 or $50 per month, can add up over time and help you break the cycle of living paycheck to paycheck. By setting and tracking your savings goals, you can make them more attainable and improve your financial situation.

 2. Not Paying Off and Incurring High Amounts of Credit Card Debt
Credit is more accessible than ever, but it also comes with risks. Many credit card companies lure customers with attractive rewards and offers, tempting them to open more accounts. Some large purchases can be paid in installments with no interest for an introductory period, but the interest rates can be high after that ends. This can lead to a dangerous habit of accumulating debt and paying only the minimum amount each month.  Unfortunately, you could also end up with a lot more debt than you really expected or planned to incur… money that could go into your savings can end up going to interest payments and creditors instead.

It is better to pay more than the minimum whenever you can and to avoid taking on new debt unless you really need it and can afford it. You should stop to ask yourself if you can really afford a new expense and if you really need the item you’re considering buying. Another tip is to also aim for a debt-free lifestyle, so you can pay off your credit card balances and other existing debt faster and not add more to it. 

 3. Not Taking Advantage of Your Employer’s 401k Match
One of the best money habits to adopt in 2024 is to take advantage of a 401k and your employer’s 401k match, if they offer one. It’s also a great way to save and to prepare for retirement at the same time. You should enroll as soon as you can, especially if your employer provides a matching contribution for a certain percentage of your salary that you save every month. This is like getting extra money for free, so don’t miss this opportunity.

When it comes to employer-sponsored plans like the 401k, it’s important that you act as a worker, a saver, and an investor, and optimize your benefits. Can you save the maximum amount allowed? If yes, then you are already doing a great job at saving, and you just need to make smart investment choices with the options available in the plan. If not, then you should try to save as much as you can afford.

The matching contribution from your employer, if there is one, will significantly increase your retirement savings. Many employers match what you save dollar for dollar, or a fraction of what you save, up to a certain limit. This means that your retirement savings will grow faster without reducing your income or increasing your taxes. Of course, you need to pay for your essential living expenses, such as housing, utilities, and food. If you can’t save the maximum amount, consider adding any bonuses or profit-sharing payments that you receive to your 401k account. Many companies let you do automatic transfers, which is a good idea because it prevents you from spending the money impulsively, which we’ll talk about in a moment. Planning on leaving your job this year? Check out some options you have when you leave your employer in this article HERE!

4. Not Knowing Where Any of Your Money Goes and Not Having a Budget
Creating a monthly budget is a key step to developing good money habits. A budget helps you plan your income and expenses, track your spending patterns, and achieve your financial goals. A budget also helps you avoid overspending, debt, and financial stress. By creating a budget, you will have a better understanding of where your money is going and can take control of your money while making informed decisions about how to use it.

Instead of ignoring your finances, begin with a simple step: check your card statements every month. Just observe your spending habits without criticizing yourself, and record what you spend and why. After doing this for a few months, you can advance to a daily practice of writing down your expenses. Do this for one month. At the end of the month, you should be able to sort and label your spending and create a realistic budget that matches your lifestyle and needs.

5. Not Taking Advantage of Tax-Advantaged Investment Opportunities
As we have mentioned, many employers offer retirement savings programs where you can typically invest in these programs on a pre-tax basis, reducing your taxable income. But there are other types of tax-advantaged savings accounts you can take advantage of, too, even if you are not involved in a company matched plan.

Maxing out contributions to eligible Individual Retirement Accounts (IRA), Health Savings Accounts (HSAs), Coverdell Education Savings Accounts (ESA), and 529s to reduce taxable income and/or grow your savings tax-deferred or tax-free is a great money habit to adopt. Even if you can’t afford to max out these tax-advantaged savings options, it’s wise to at least take advantage of them to reduce your tax burden.

Not all IRAs are created equal, though, and different accounts offer different advantages that might benefit you and help you adopt the money habits that will help you reach your personal goals. One type of IRA, a self-directed IRA, works just like any other type of IRA, but allows you to invest in a wider range of assets, usually private. This can include investments such as real estate, notes, private equity, and more.

As opposed to investing through a standard IRA you would see at a more traditional custodian, investing with a self-directed IRA can be a good money habit to adopt because it gives you more control over your portfolio, diversifies your risk, and potentially increases your returns. A self-directed IRA also has tax advantages, such as deferred or tax-free growth, depending on the type of account you choose.

6. Too Much Impulse Spending
Arguably the biggest bad money habit that Americans need to leave behind is impulse spending. Who can blame us? It’s in our nature to see something we like and want it, but one of the challenges that many people face is how to manage their spending habits, especially when they are easily tempted by unplanned or unnecessary purchases. This can happen in different ways, such as buying items that were not on the shopping list or making in-app purchases that do not feel like real money transactions. These kinds of impulse spending can have a negative impact on your financial situation, as they take away money that could be used for more important purposes like paying down credit card debt or establishing an emergency fund. 

To avoid this problem and adopt better money habits, you need to establish some guidelines and strategies for yourself, so that you are not spending money without thinking. For example, you can create a shopping list and stick to it, or you can order online and pick up your items without entering the store. You can also delete shopping apps from your phone or set a rule for yourself to wait at least one day before buying anything that is not essential. Find what works for you and stick to it so you have more to save or contribute to a retirement account for long-term wealth building.

There’s no doubt that bad money habits can have a negative impact on your financial well-being and your quality of life. When you start making better financial decisions, you’ll increase your chances of achieving your goals and enjoy more freedom and security. Remember, it’s never too late to start making positive changes in your money management, so leave those bad habits behind in 2023 and say hello to the possibilities for financial success in 2024!