I’m a Financial Planning Expert: 4 Spending Habits That Are Keeping You From Getting Rich
Written by
Laura Bogart
Edited by
Susan Kim
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By now, most people have heard certain old chestnuts about spending and saving. They know that getting a latte a day soon adds up to hundreds of dollars a month, wasted on a caffeine jolt they could get at home. They’re also aware that they can save money simply taking a day or two to determine if that TV set or kitchen mixer that called to them in one moment will linger in their minds once it’s out of sight.
But there are other spending habits that can prevent you from building the wealth you’ll need to achieve your financial goals, from buying a new home to a used car or even simply getting out of debt. To learn more about these spending habits and how you can break out of them, GOBankingRates talked to two financial experts.
You’re Constantly Thinking in the Short-Term
As a CPA and the director of operations at Alix, an AI-powered estate settlement platform, Karin Stiles said that she often sees “the accumulation of an individual’s financial decisions throughout their lifetime.” Noting that her fellow millennials tend to prioritize immediate consumption over saving, she added that she’s seen the instant gratification mindset play out in several ways among peers.
“This overspending from instant gratification takes shape for different people in different ways — buying into overpriced gym memberships, falling into subscription services that go untouched, routinely going out for dinner or shelling out more for housing,” she said.
Curiously enough, some of the spending habits that might prove major drains on your long-term savings are often inspired by an initial desire to save money. Specifically, moving around frequently to get ahead of rent increases or other added fees, which Stiles said can result in spending “more money for a lateral move rather than making a greater investment that could yield much higher returns.”
You’re Not Learning How To Spend Wisely
Understanding the everyday items and actions to avoid, or embrace, can help you improve your spending in the short-term. But to create a truly balanced approach to your spending, you have to increase your overall financial literacy.
Stiles sees a particular urgency around this topic in younger generations, who might soon see an influx of inherited money during the great wealth transfer. She added that understanding how to take care of your finances, including how to spend, is essential to preserving your wealth.
“Unfortunately, a lack of strong financial education has left adults feeling unprepared to effectively manage the current and future state of their finances,” she said. “Without financial literacy and expert advice, we’ll see generations struggle to manage their inherited assets and reap the potential of what’s been passed on to them.”
You’re Carrying a Credit Card Balance or Other High-Interest Debt
According to Mark Henry, founder and CEO of Alloy Wealth Management, one of the biggest mistakes people make around spending is accruing credit card debt that they don’t pay down.
“High-interest debt eats away at your finances and can quickly become overwhelming to pay off, making it a barrier to building wealth,” he said. “Credit cards are a great way to build credit, as long as you always pay the balance by the time your bill is due.”
Henry offers a general rule to abide by when considering how to spend with a credit card: “If you can’t afford something without putting it on a credit card, you can’t afford it, period.” He added that carrying around a balance on your credit card, or taking on other high-interest loans, will put you in a position to pay far more than simply the initial cost of your purchase.
“Not only will debt payments drain your bank account, but they can wreck your credit score and make it harder to buy a home or a car — which could also serve as barriers to wealth if you can’t drive to work or own property,” he said.
You’re Succumbing to Lifestyle Creep
When you’re first starting out in your career, odds are you’re watching your paycheck and your budget more carefully. But as you jump up the ladder, with your salary increasing on every rung, it’s easy to be lulled into a sense that you can afford whatever you want.
“As you make more money and can afford things more easily, many make the common mistake of getting lax about finances,” Henry said. “It’s important to maintain a budget or spending plan, even as you make more money.”
Henry advises you to prioritize your savings and investing goals every time you get a raise; if you have money left over, then you can boost your budget for pleasures like vacations or cars.
“If you only increase your ‘want’ category continuously without increasing your efforts to save and invest, you’ll never feel like you’re wealthy, even if you make more than enough money,” he added.
Henry said he actually prefers the term “spending plan” instead of budget, because it reframes the thought process away from themes of restricting yourself and toward the idea of building wealth and creating financial freedom. “When you understand where every dollar of your income is going, whether it’s savings, investments, groceries or going out to eat, you’ll feel in command of your finances and see yourself reach financial goals,” he said.
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