5 Money Habits That Make You Look Poor

bad money habits

When it comes to finances, you might have some money habits that make sense in the moment but can hurt you in the long run. You might pay more for convenience or avoid a service that has fees in favor of another that ends up costing you more over time. If you take a look at your money habits, you might just find that you’re doing things that make you look poor — and perhaps even make it harder for you to thrive. Here are five money habits to break.

1. Using Alternative Financial Services

If you’re someone who doesn’t use an insured bank for your finances, you’re likely spending more money on alternative financial services like check-cashing stores and payday loans. Microsoft’s “Millennials” study found that 22 percent of millennials said they’d never open a bank account. Nearly 9.6 million households did not have an account at an insured bank, according to a 2013 FDIC study. Respondents for about one in three of those households said it was because they disliked or distrusted banks; they also cited high or unpredictable fees.

Unfortunately, alternatives like payday loans and prepaid debit cards can also carry big costs — more than what you might spend with a traditional bank if you shopped for a low-cost option. “People use these services because they don’t understand the value of using a bank and bank services, which can help you improve your financial status,” said Harrine Freeman, financial expert and owner of H.E. Freeman Enterprises.

What to do: Banks typically offer better protection for your money and can cost less than many alternative financial services. If you’re truly opposed to the big banks or find them too costly, consider credit unions or online banks. Online banks, for example, can often offer higher interest rates on saving accounts.

Related: 5 Reasons Why No One Goes to the Bank Anymore

2. Borrowing Money From Friends

Sometimes you have emergencies and have to turn to friends and family for help. If your emergency is simply that you find yourself out of cash several days before payday and have no savings to fall back on, however, then chances are you have a bad money habit.

“Constantly borrowing money from friends or family shows that you are not responsible and accountable with your money. Everyone needs help sometimes, but if you always borrow money, that makes you look poor, even if you are not,” said Freeman.

What to do: Manage your money better by learning how to budget. Practice living within your means. If that’s impossible, find ways to increase your income.

Read: 10 Ways to Take the Fear Out of Budgeting

3. Spending Your Tax Refund Before You Get It

The average tax refund for 2014 was $3,034, according to the IRS, and as the 2015 tax season approaches, many taxpayers are expecting significant tax refunds. One bad tax-time money habit is spending your refund before you get it — whether it’s overspending on your credit card in advance or using a refund anticipation loan (RAL).

The RAL is a short-term loan against your anticipated tax refund that comes with high fees and interest rates, according to the Center for Responsible Lending. Using these loans can potentially even cost you hundreds of dollars. Thanks to electronic filing, however, you can typically get your refund within a few weeks deposited directly into your bank account. If you can plan carefully and wait a few weeks, you can save yourself the added loan fees or the finance charges from your credit card.

What to do: If you expect to get a tax refund this coming tax season, plan to save at least some of the money. Rather than planning what you’ll buy with it, deposit it into a savings account. As you start to see the benefits of saving, you might just be compelled to save more and make it a habit.

4. Paying on Credit and Collecting the Cash

Using credit cards for everyday purchase like groceries, dining out and other necessities can lead you into debt, unless you pay the balance in full at the end of the month. Furthermore, there’s one trick that can really dig you in deeper. “When dining out with friends, you pay for your share of the bill with your credit card while everyone else pays (you) cash — and you keep the cash (because you need it),” said Freeman.

What to do: Limit your use of credit cards. It’s easy to put charges on credit and forget about it. Balances build and soon you’re in debt, paying only minimum balances each month. Credit cards are expensive because they charge significant amounts of interest. You could be putting this money toward your financial future instead of handing it over each month to the credit card company.

5. Having Cash Savings

Some people still choose to save their money in their home — they have cash savings. While it might not be “under the mattress,” as the saying goes, it comes close. Keeping savings in cash in your home isn’t a good habit. It can also be risky behavior. If someone knows you have significant cash savings in your home, it might be an invitation to thieves, said Freeman. Furthermore, she noted, the cash in your home is not earning interest.

Even though savings account interest rates are currently low, there are financial products out there that can give you better returns than zero percent. Having cash savings means that you are not keeping up with the rate of inflation, which means that you are getting negative returns on your money.

What to do: Put your savings in a bank, where it will be safe and earn something back for you. There are many options out there, and ones that give you better returns — so it makes less sense to keep large sums of money at home.

Read: How to Deposit Cash to an Online Bank Account

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