Money Habits That Keep You Poor

Rich Habits

If you find value in these articles, please share them with your inner circle and encourage them to Sign Up for my Rich Habits Daily Tips/Articles. No one succeeds on their own. Thank You!

I have accumulated a lot of data on bad money habits, thanks to my Rich Habits Study/Research. Below is a list of some of the most egregious Poor Money Habits:

  • Charging ordinary living expenses on a credit card. If you are unable to afford meeting your ordinary living expenses and must resort to the use of a credit card to meet your monthly living expenses, you are by definition, living above your means. Accumulating credit card debt is the third leading cause of bankruptcy, behind a job loss (#2) and medical costs (#1).
  • Spending more than 25% of your net income on housing costs. Housing costs include rent, mortgage, real estate taxes, utilities, insurance, repairs and maintenance.
  • Spending more than 15% of your net income on food. This includes groceries and does not include prepared food. Prepared food is part of your entertainment budget.
  • Spending more than 10% of your net income on entertainment/gifts. This category includes bars, restaurants, movies, music, books, gifts etc. Eating out and any prepared food you purchase is part of your entertainment budget.
  • Spending more than 5% of your net income on car expenses. Car expenses include a lease, loan, insurance, gas, tolls, registration fees, repairs and maintenance.
  • Spending more than 5% of your net pay on vacations.
  • Spending any money on gambling. If you’re going to gamble it should come out of your entertainment budget.
  • Going over the top on gift giving. Gifts are part of your entertainment/gift budget. Sticking to your 10% budget will prevent you from going overboard on gift giving.
  • Spending more than 5% on clothing. More than a few of the wealthy in my study had the Rich Habit of buying the bulk of their clothes at goodwill stores. Many Goodwill stores sell high quality clothing at a deep discount. It may require spending a few more dollars on a tailor, but it’s well worth the additional cost.
  • Spontaneous spending is never a good idea. You need to take the emotion out of your spending habits. There is always time to plan and shop before your spend your hard earned money.
  • No savings process. If you don’t save systematically it’s almost impossible to save enough money. Enough money means having a six-month safety net for emergencies as well as enough money so that you can be financially independent when you retire.
  • Uneducated risk taking. When the rich invest they do their homework. They study what they are investing in, ask questions, evaluate the feedback they receive on those questions and have a well-defined exit strategy for their investments. Those who take uneducated risks, don’t do their homework. They invest based on emotions or the opinions of family, friends, co-workers, or acquaintances. Those who invest their money this way take on unnecessary risk and almost always lose their money int he process.
  • Eating too much junk food. According to research conducted by the USDA, eating healthy is actually less expensive than eating fast food or junk food. Junk food, the USDA found, is not only more expensive than healthy food, it is far less nutritious. Worse, eating too much junk food (more than 300 junk food calories a day) can lead to heart disease, diabetes, neurological disorders and cancer.
  • Want spending. Want spending will put you in the poor house. Want Spenders spend more money than they make, on their wants. They surrender to instant gratification, eschewing saving in order to buy things they want now: 60 inch TVs, nice vacations, expensive cars, bigger homes and jewelry. Want Spenders pay a premium for what they want in order to get it immediately. Worse, they incur debt in order to finance their want spending.
  • Frugal spending vs. cheap spending. Being frugal is very different from being cheap. Cheap spending means spending money on the cheapest product or service available. Being cheap is a Poor Habit because quality is very rarely given any consideration at all. You need X, so you look for the cheapest X you can find. Being cheap is one of those taxes the poor pay that the rich don’t. Cheap products break or deteriorate at a much quicker rate than quality products.. Frugal spenders, on the other hand, buy quality items or services at bargain prices. They delay purchases until they are able to find what they want at a discounted price. Quality products can last a lifetime, meaning you don’t have to spend money to replace what doesn’t break or deteriorate.

Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, Effort-Less Wealth, Change Your Habits Change Your Life, Rich Habits Poor Habits and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”