Namaskar, After spending a decade diving deep into finance through a degree, accounting qualifications, and a career in investment banking, I’ve learned that mastering personal finances is one of the most life-changing skills you can develop. Recognizing and breaking bad money habits is key to financial freedom. Below, I share nine common bad money habits that hold people back, along with practical tips to overcome them, drawing heavily from insights like those in Robert Kiyosaki’s Rich Dad Poor Dad.
1. Paying Yourself Last
I first heard about this concept in Rich Dad Poor Dad by Robert Kiyosaki, and it’s a blueprint for achieving financial freedom. Poor people’s habit is paying yourself last—when your paycheck arrives, you pay rent, phone bills, subscriptions, and fund social plans, saving whatever’s left (if anything). Rich people do the opposite.
Solution: Pay yourself first. Take a minimum of 10% of your income and put it into a savings account the minute you get paid. Treat it like a bill—it’s that important. This ensures you’re prioritizing your financial future.
2. Getting Comfortable with Bad Debt
Debt is practically the norm these days. People use it for small things—presents, clothes, you name it. My rule? Unless I can pay for something outright in cash, I don’t buy it with debt. Credit card companies want you to be bad with finances because that’s how they make money, with average interest rates at 22%, canceling out any rewards.
Solution: Don’t buy what you can’t afford without debt. If you’re not able to pay off your credit card in full, avoid using it for non-essentials to escape the high-interest trap.
3. Not Building a Financial Buffer
Paying yourself first ties into this. Without a financial buffer, you’re vulnerable to life’s surprises. Saving enough for a six-month buffer through that 10% habit gives you security.
Solution: Start putting that 10% away consistently. Once you have your six-month stockpile, use additional savings to build an investment fund and explore investment options.
4. Not Knowing Your Income or Expenses Properly
Lifestyle inflation is real—your spending rises as your income does. The more you make, the more you spend, like buying a bigger house or car. Without knowing your starting point, how can you plan where you want to be? Financially savvy people know their assets, liabilities, and have clear goals.
Solution: Track your income, expenses, assets, and liabilities. Seeing those numbers in black and white triggers action. Set clear financial goals and outline the steps to get there.
5. Having Expensive Hobbies
A lot of people love to shop, and yeah, it’s fun, but it’s a bad money habit if it’s draining your wallet. To improve your financial position, you need to save more or make more—or ideally both.
Solution: Focus on saving a larger percentage of your income while creating new income streams. You can’t build wealth if you’re spending everything you earn, but saving alone has limits. Balance both sides for real progress.
6. Thinking Saving Alone Builds Wealth
Using cashback sites or cutting expenses only goes so far—there’s a cap to how much you can save. The making-money side, however, is infinite. Wealth-building requires both saving and earning more.
Solution: Break the habit of thinking saving alone will make you rich. Look into investing in the stock market, asking for a pay raise, or starting a side hustle to unlock unlimited earning potential.
7. Paying Too Much in Taxes
Taxes are the single biggest expense in your life. While everyone has to pay them, wealthy people use legal corporate structures or tax advisors to minimize their tax bills.
Solution: Understand tax rules to stack the deck in your favor. Invest through an ISA or Roth IRA to shelter dividends and profits from taxes, or operate as a business for tax advantages. Even if you’re okay paying more taxes, reducing your bill lets you redirect funds to causes you value.
8. Waiting Too Long to Invest
Once you have savings and that emergency buffer, don’t let your money sit in a bank account. Inflation eats away at its value every year, meaning you’re losing money. Waiting too long to invest makes it harder to achieve your goals.
Solution: Start investing once you have your stockpile. Diversify with a mix of safe and riskier investments to weather life’s ups and downs. Don’t leave excess money in a bank account—make it work for you.
9. Not Making Your Money Work for You
There’s always an excuse for not investing—lack of time, money, or knowledge. But the longer you put it off, the harder you’ll have to work for the same results. Your money needs to start working for you.
Solution: Once you’ve saved enough, explore investment strategies. Diversify to handle different economic situations. Don’t let excuses stop you—start small and build from there. Check out resources on investing during tough times, like a recession, to get started.
Summary Table: Bad Money Habits and Solutions
| Bad Money Habit | Description | Solution |
|---|---|---|
| Paying Yourself Last | Spending your paycheck on bills and expenses before saving, leaving little or nothing to save. | Pay yourself first by transferring at least 10% of your income to savings immediately, treating it like a bill. |
| Getting Comfortable with Bad Debt | Using credit cards for small purchases, racking up high-interest debt (average 22%). | Only buy what you can pay for outright with cash or debit; avoid credit unless you can pay it off in full. |
| Not Building a Financial Buffer | Lacking savings for emergencies, making you vulnerable to financial stress. | Save 10% consistently to build a six-month emergency fund, then redirect savings to investments. |
| Not Knowing Your Income or Expenses | Allowing lifestyle inflation, where spending rises with income, without tracking finances. | Track income, expenses, assets, and liabilities; set clear financial goals to guide your actions. |
| Having Expensive Hobbies | Spending excessively on hobbies like shopping, draining financial resources. | Save more and create new income streams to enjoy hobbies without compromising financial goals. |
| Thinking Saving Alone Builds Wealth | Relying only on saving, which has a cap, while ignoring income growth. | Combine saving with earning more through investments, pay raises, or side hustles. |
| Paying Too Much in Taxes | Overpaying taxes without leveraging legal tax-advantaged options. | Use ISAs, Roth IRAs, or business structures to reduce taxes legally; redirect savings to valued causes. |
| Waiting Too Long to Invest | Leaving money in a bank account, losing value to inflation. | Start investing after building an emergency fund; diversify to manage risks. |
| Not Making Your Money Work for You | Delaying investments due to excuses, missing out on compound growth. | Explore investment strategies early, diversify, and start small to let your money grow. |
FAQs
What does paying yourself first mean?
It means setting aside at least 10% of your paycheck for savings before paying any bills or expenses, treating it like a priority to secure your financial future.
How do I avoid bad debt?
Only buy what you can pay for outright with cash or debit. Avoid using credit cards for non-essentials unless you can pay off the balance in full to dodge high interest rates.
Why is a six-month financial buffer important?
A six-month emergency fund protects you from unexpected expenses, giving you stability while you focus on building wealth through savings and investments.
How can I track my income and expenses?
List your income, expenses, assets, and liabilities. Use a budgeting app or spreadsheet to monitor them and set clear financial goals to stay on track.
How do I balance expensive hobbies with saving?
Save a larger portion of your income and create additional income streams, like a side hustle, to enjoy hobbies without compromising your financial progress.
Why isn’t saving enough to build wealth?
Saving has a cap, but earning more doesn’t. Combine saving with income-boosting strategies like investing or side hustles to maximize wealth-building potential.
How can I legally reduce my taxes?
Explore tax-advantaged accounts like ISAs or Roth IRAs, or operate as a business for tax benefits. Learn tax rules or consult an advisor to minimize your bill legally.
Why should I start investing early?
Investing early leverages compound growth, making your money work harder. Delaying means you’ll need to work harder to achieve the same financial goals.
Anshu Pathak is a passionate writer and avid reader whose love for stories shapes her world. With a heart full of imagination, she weaves tales that resonate with emotion and depth. When she’s not crafting her next piece, you can find her lost in the pages of a novel, exploring new worlds and perspectives. At Moodframe Space, Anshu shares her creative journey, offering insights, stories, and reflections that inspire and connect with readers everywhere.