These are the 5 bad money habits that will keep you poor. Learn what they are and why it is critically important to address these issues immediately – to ensure you are on the path to financial freedom and financial success.
Building wealth is like training for the Olympics.
It’s an art requiring patience & perseverance with slow but steady progression. And just like Olympic training, you kind of have to know what you are doing, otherwise you might not see the results you’re looking for — despite all of your hard efforts.
And the first thing you have to do, when planning to build wealth, is eliminate these 5 bad money habits that hinder you from achieving financial success. Let’s go over them together, so we can avoid them in our financial future.
1. Saving Your Money
So jumping right into it, the first bad money habit that keeps you from building wealth, is saving your money.
That’s right — saving money is one of the biggest money habits that keep you poor. So, then what are you supposed to do instead of saving your money? The answer, is to invest it.
You see, one of the core principles of the wealthy is to always have your money working for you. When you stash your money into a low yielding savings account, all you’re really doing is burying it into the ground and letting it sit there until you dig it back up.
But when you find a method of prudent investment, you’re putting your dollars to work for you — to go out and recruit other dollars to be part of your overall wealth army.
Let’s take for example, investing in the stock market, as your investment avenue of choice. If you look back, historically, at the past 50 years, the Dow Jones Industrial Average has had an yearly return rate average of 8.6%, across those years. That means, if you invested $10,000 dollars into a DJIA tracking index in 1970, and have simply forgotten about it until now (January 2021) — your $10,000 dollars would have now become, over $360,000!
If you had left that money in a savings account, with an average annual interest yield of 0.05%, in those same 50 years — your $10,000 would have only grown to be about $10,253. You would have missed out on over $349,000 vs the DJIA index!
That’s why for me, I have over 70% of our family’s assets invested in a variety of well-researched and calculated investment options within the stock market — and I only keep our emergency fund in our savings accounts.
As long as you make smart, calculated choices within the market, it can be one of the most straight forward and passive ways of building wealth, in the long term.
If you’d like to learn more about how I choose which equities to invest in — check out my previous article on the topic, here.
2. Not Budgeting / Financial Planning
The next habit that keeps you from building wealth is not budgeting your finances.
The difference between celebrities or pro athletes that make millions of dollars throughout their careers, but end up retiring broke — and the average middle class worker that builds up a large nest egg, over time and retires comfortably, is only prudent financial planning.
You see, it doesn’t matter how much money you make — in the long run, what really matters is how much money you keep.
The most important thing, when it comes to keeping more of your money is meticulously tracking and assigning your money to different tasks, through a budget.
When money is told what to do — it becomes an incredible efficient helper on your path to reaching your financial goals, but if you don’t discipline your money, if you don’t teach it how to become a useful member of your financial organization, then it can become one of your greatest sources of stress and anxiety.
The key to retirement & financial freedom is not saving up a huge amount of money and then simply eating away at it — hoping that it lasts you until you die.
The real key is teaching your money to earn more money on its own and then amassing a large enough army of money — in order for them to continuously bring in sufficient incremental gains on a regular basis, for that to replace your main source of income.
If you establish a core position of wealth that can generate income on its own — then you can potentially live off of that core position for the rest of your life.
And then, you can even pass that off to your children, later on. Once you’ve done that (assuming you’ve taught them the proper ways of budgeting and planning their money as well), your children, will then start their contributions to this core position, which will make it grow even bigger and bring in even more incremental income over time.
You see, that’s how generational wealth is built — and why the ultra rich in this country will never truly become poor, as long as they continue to prudently budget and manage their core wealth positions.
3. Having A Poor Money Mindset
The 3rd bad money habit is having a poor or unhealthy attitude towards money — and it’s one of the biggest factors that’ll prevent you from building wealth.
Take a look at these two statements.
“Money is the root of all evil.”
“Poverty is the root of all evil.”
Can you tell the difference between them?
They both revolve around cash & wealth — or at least the lack thereof. But the biggest difference between the two, is the situation or perspective from which they are spoken.
Generally, the rich see poverty as the root of all evil and the poor see money as the root of all evil. The basis behind this mindset, is that for the poor — not having money is a huge deal, as it represents a lifeline, a means to happiness, safety, security and support.
But for the wealthy, having money is simply a tool — something that provides utility or function.
Let me give you an example.
When you’re hanging off of a cliff, a piece of rope can become your most important thing.
It can consume your focus because without it — you’d likely fall to your death. And you’d do anything to protect this piece of rope, to make sure it doesn’t wear or tear even in the slightest way.
But when you’re on solid ground, this same rope is really nothing more that an item that will help you complete your task — and when you put it to good use, even if it becomes worn, you end up producing the results you wanted.
You see — depending on what situation you are in, an object can become a critical life dependency or it can simply be a tool that helps you complete a task. And when it comes to finances, adopting the latter mindset will help you start to see money as only a means to an end, like a digital assistant — whose only purpose is to carry out your orders and help you accomplish your goals.
4. Living An Unhealthy Lifestyle
Now, everyone knows that smoking and excessive drinking are not only detrimental to your body but also to your financial budget.
On average, a habitual smoker, who smokes at least one pack of cigarettes per day — spends on average, $2,244 per year on smokes (at $6.15 per pack).
And the average heavy drinker, who consumes more than 15 drinks per week — shells out on average, $3,120 dollars on alcohol per year (at $4 dollar per drink).
Now, that’s quite a bit — and if you happen to do both, that’s pretty much 5 iPhones you’re throwing away each year. But did you also know that high sugar intake and general obesity can also be quite draining on your wallet as well? This goes beyond just the obvious consumptions costs.
Let me give you an example here.
Approximately 88 million adults in the US or 34% of the total population — have prediabetes. Prediabetes means you have a higher than normal blood sugar level, but it’s not yet high enough to be considered type 2 diabetes.
It’s a condition that is usually caused by eating too much sugar or over-exceeding your recommended daily carbohydrate allotment. And without lifestyle changes, prediabetes is more likely to develop into full blown type 2 diabetes.
And if you let that happen, if you get your yearly physical and the doctor determines that you have type 2 diabetes — did you know that as a policy, they are required to report that to your health insurance company?
This means that your insurance premiums are likely to go up and it would cost you more to maintain your coverage. But avoiding this situation isn’t really difficult.
According to the CDC — prediabetes is reversible. You can delay or even prevent prediabetes from developing into type 2 diabetes with simple, proven lifestyle and dietary changes.
And this is just one example of how unhealthy behavior can lead to financial burden— there are many more medical situations just like this one.
The more unhealthy conditions you have on your record — the more expensive your insurance can become.
So the takeaway here is that living a heathier lifestyle can help you avoid unnecessary costs — thereby helping you retain more of your wealth.
5. Poor Debt Management
The last bad money habit on this list, is poor debt management.
Wealth building can’t happen — until you get full control of your debt. It’s one of the most fundamental things you need to account for when building out your financial plan.
Poor debt managers will simply get by with paying off the minimum required payment amount, each month.
But motivated and mindful financial planners will work to pay off incremental principle each month — knowing that that’ll reduce the core borrowed balance, thereby reducing their interest payments and length of their debt.
Poor debt managers will utilize their credit cards to the limit — and sign up for every new offer that comes their way.
While mindful financial planners will carefully monitor their credit utilization — knowing that they need to protect their overall credit score.
And poor debt managers will always aim to keep up with the Jones’ — borrowing money to upgrading all of their cars, electronics, etc.
While mindful financial planners will always live below their means — knowing that their decision is helping them to build up their core position, allowing them to get that much closer to financial freedom and creating generational wealth.
Managing debt is one of the hardest things to do — but trust me, it’ll be one of the most worthwhile things you engage in, when it comes to your financial success.
So there you have it — those are the top 5 bad money habits that’ll keep you poor.
Now, I know this isn’t a fully comprehensive list — and there are many other money habits that can be detrimental in your financial journey.
But from my vantage point, these are the five, that if you correct, could potentially have the greatest impact to your financial success, in the future.
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**** Disclaimer *****
The content here is strictly the opinion of Daniel’s Brew and is for entertainment purposes only. It should not be considered professional financial, investment or career advice. Investing and career decisions are personal choices that each individual must make for themselves in accordance with their situation and long term plans. Daniel’s Brew will not be held liable for any outcome as a result of anyone following the opinions provided in this content.