Personal Finance Basics

Breaking bad money habits: how to fix your finances

October 19th, 2023 Oct 19, 2023 • Read time: 14 min


There’s a saying: “The first step in solving any problem is recognizing there is one.” This can apply to many situations, but it’s especially true with bad money habits. To break bad money habits and fix one’s finances, one first must understand that the first step is becoming aware of these bad habits. From there, financial changes can be made to improve the situation.

If this all sounds familiar, that’s a great start because you’ve identified that you may have bad money habits and that something needs to change. But don’t worry…you’re certainly not alone. A 2022 survey showed that 70% of Americans admitted to having bad spending habits. Fortunately, making financial changes and building better money habits is something you can do! We’ll help you by clearly explaining the steps you can take to establish good money habits and get yourself into better financial shape. These steps include:

  1. Overspending
  2. Impulse buying
  3. Not having emergency savings
  4. Not having a budget
  5. Not paying bills on time

1. Overspending

The basic definition of overspending is spending more than you can afford to spend, or spending “beyond your means.” And most Americans are guilty of this. A 2019 study found that the average American overspends their budget by more than $7,000 a year. That comes out to around $20 a day, meaning that most people are spending $20 each day on things they don’t need or can’t afford, like eating at a restaurant when cooking a meal at home would be much more cost-efficient or straying from the grocery list to buy unnecessary junk food. Other ways most people overspend are on clothing, streaming entertainment services, pets, and travel.

Why do people overspend? There are many possible reasons, the main one being that some people do not have a budget. And if you don’t have a budget, how can you know when to stop spending? The answer is, you won’t. So the spending continues and debt piles up, and that causes big problems down the road. But even with a budget, many Americans spend beyond that number anyway.

Another reason for overspending is social media. This is especially true for younger generations such as millennials, who spend much of their day on platforms like Instagram and TikTok, where they see hours and hours of videos or photos of other young people enjoying expensive dinners or shopping in exclusive stores. The influence is real (which is why many of these online personalities are called “influencers”) and leads people to spend what they can’t afford to keep up with what they see in their social feeds.

There are times, however, when overspending can’t be helped. These situations include job loss, inflation, and a surprise medical emergency or home repair. Unfortunately, these things happen, and when they do, Americans must spend beyond their means to pay their rent or mortgage or put food on the table.

How to break this habit:

  • Create and stick to a budget. Is this easier said than done? Yes. Does this require spending discipline? Yes. Can you do it? Yes! Take some time to figure out what you earn monthly (after taxes) and then list all your monthly expenses–rent/mortgage, heating/cooling, electricity, internet/cable, food, any credit card bills or loans, etc. Add it up, subtract those expenses from your monthly income, and see what you have left over. Perhaps you want to put some of that leftover money aside to save. If so, subtract that amount from what you have left over. Whatever your final number is, do your best to not spend more than that each month. Say, for example, you find that you have $250 left each month to spend however you please. That $250 might get you a concert ticket or a couple of dinners with friends. But it won’t get you a trip to Fiji. So, until you either get a new job that pays more or you keep putting money aside each month, try not to make any plane or hotel reservations that will put you over budget.
  • Only make purchases with cash or debit card. Sometimes credit cards can be very convenient. Sometimes they can be very dangerous. Because with credit cards, you can charge whatever you want to buy, no matter the price…up to your credit limit, anyway. That leads directly to overspending. However, if you only make purchases with cash, you eliminate the danger of overspending because you know you can’t spend more than the cash you have. Using a debit card is also a good choice because it’s basically the modern way of paying with cash. When you pay with a debit card, the money comes right out of your checking account, similar to withdrawing cash at a bank or ATM from your checking account. Debit cards are a very convenient and secure way to pay for items if you’re not comfortable carrying cash with you, because most transactions require you to enter your private PIN number.
  • Shop mindfully. Retailers offer sales and promotions for a reason–they know customers are more willing to spend their money, even on things they may not need, because the price is low. And yes, if you need an item that can be had at a great deal, do it. But the key phrase here is “item you actually need.” People will often spend on a sale even if they don’t need the item. While they may be saving money on the original price, they’re still spending money and spending it unnecessarily. This is not shopping mindfully. Sales are great, and if they happen to be discounting items you regularly buy, take advantage. But if the purchase can wait, don’t buy it until you need it and it’s on sale again.
  • Wait before you buy. Speaking of waiting, sometimes taking a step back before making a snap buying decision helps you realize that you don’t need the item you plan to buy. Maybe you have a 43” HDTV but want to upgrade to a 55” 4K HDTV–and a model that you like is on sale. Tempting, right? Absolutely. But before you rush to buy the TV, take a few moments to ask yourself a couple of questions like:
    • Do I really need this new TV? Or do I just want a new TV?
    • Is this the best price I can get for this TV? Or will it be even cheaper during the holidays or when stores are clearing out their old models?
    • Will buying this TV help me financially?

After answering some of these questions, you may change your mind and keep yourself from overspending.

2. Impulse buying

The TV example could also be described as an impulse buy. You don’t need the TV, but it’s on sale and…yeah, let’s do it! Impulse buying, according to the Economic Times, is the tendency of a customer to buy goods and services without planning. When a customer makes such buying decisions at the spur of the moment, it is usually triggered by emotions and feelings.”

These emotions and feelings can make a big dent in your checking account. Not just from one big purchase but through many smaller purchases as well. Think of the time you spend waiting in the checkout line. What do you see there? Drinks, candy, gum, magazines, snacks, lip balms…individually, these may only cost a dollar or two. But when you add them up, you realize you spent a decent amount of money on stuff you don’t need. Every time you scroll on your phone, you likely notice ads promoting items based on your search history and shopping behaviors. It can be very tempting to click and buy.

Why do we impulse buy? Usually, it’s because whatever we’re buying looks and tastes delicious. Or because it makes us happy and temporarily distracts us from things we may be dealing with below the surface. Maybe we think we need that item at that time. The problem is, we usually don’t.

How to break this habit:

You can use some of the same ideas to break this habit as you do to break the overspending habit. These include creating and sticking to a budget, shopping mindfully, and waiting and asking yourself questions before you make a purchase. Additionally, you can:

  • Make a shopping list. Before you go to the store or visit a website, have a shopping list of only the essential items, and stick to it. Sure, it can be easy to stray from that list, but this is where self-discipline comes in. Bad habits can be tough to break, and impulse buying is no different. Stick to your list and you’ll keep yourself from making impulse purchases.
  • Unsubscribe from company email and text lists. By doing this, you’re removing any temptation you may get from seeing email or text subject lines such as FLASH SALE STARTING NOW!!, FINAL HOURS TO SAVE!, 50% OFF ONE DAY ONLY!, and OUR BIGGEST SALE OF THE YEAR! And they certainly can be tempting. Not seeing these urgent messages on your phone or in your inbox will reduce the chances of unnecessary spending and impulse buying.
  • Avoid buying “suggested” or “related” items. Retailers are smart. So are their online algorithms. They know your shopping history and your behavior and that if you buy “Product A”, you’re very likely to buy “Product B” based on your shopping patterns. Well, it’s time to break that pattern and establish better spending habits. Just because an item is “suggested” or “related” doesn’t mean you have to purchase it. Again, this takes discipline and restraint, but that’s the work you must put in to break bad habits like impulse buying.

3. Not having emergency savings

What happens if your air conditioning unit breaks? Or the foundation of your home begins to crack? What if you or a family member experiences a medical emergency? What would you do if your car needs major engine repairs? These are typically considered emergencies and often cost quite a bit of money. Do you have money saved for these types of emergencies?

Many Americans don’t. According to 2022 Consumer Financial Protection Bureau data, 24% of Americans have no emergency savings, and an additional 39% have less than one month’s income saved. That leaves little to no budget to cover an emergency. So, what happens if and when such a situation arises? These expenses likely go right onto a credit card, which can lead to mounting debt and even more financial problems.

According to a 2023 NerdWallet survey, the financial priority that is most important to Americans is establishing emergency savings. That’s a positive sign because it’s so important to have money set aside in the event of an emergency expense.

How to break this habit:

  • Have a savings goal. Again, figure out your monthly budget to see what you have left over after all your necessary expenses. From there, figure out how much leftover money you can put aside into an emergency savings fund. Once you have a monthly figure in mind, create a yearly goal of saving, for example, $1,000 a year. Then try to meet or exceed that savings goal by following the next step.
  • Make consistent contributions. Once you follow the first step, you should be able to figure out how much money you can contribute to your emergency savings every month. In fact, you can probably have this done automatically from your paychecks through direct deposit since many direct deposit services allow you to deposit the amount you want into more than one account. Having this done for you makes it much easier to save since it saves you the step of having to move money from one account to another.
  • Decrease unnecessary spending. Similar to what we previously mentioned, if you can avoid spending money on unnecessary items, no matter how small or cheap, you’ll notice more money in your account each month. And that money can be put toward your emergency savings. It could be that extra cup of coffee you probably don’t need, or the candy bar at the grocery store, or that movie you just had to see in the theater. Those expenses alone are close to $25, which is a significant contribution to an emergency funds account.
  • Treat yourself for good savings behavior. Be careful not to treat yourself too much, because then you wind up spending unnecessarily. But make yourself a promise that for every $100 you put into your emergency savings fund, you can spend $5 on yourself. Of course, you can change the numbers to whatever works for you. But knowing there is something fun waiting for you when you accomplish a goal is an incentive to keep saving.

4. Not having a budget

We’ll be honest. Making a budget–and sticking to it–is tough. And at times, it can become frustrating. While you’re saving every penny and being disciplined by cutting out unnecessary spending, you might see your friends or family on social media buying themselves whatever they want. It’s hard to watch–we get that. But you know what’s even harder than that? Debt piling up on bills or loans you can’t afford to pay off. Not being able to pay for a new appliance or medical expense because you have no emergency savings. Not being able to take a vacation from time to time because you don’t have any money saved.

It’s so important to remember that everyone’s situation is different. Don’t let social media influence you to make unnecessary purchases that you can’t afford. Having and keeping a budget is so important for so many reasons. Most importantly, a budget keeps you from overspending and putting yourself into a deep financial hole that may be difficult to climb out of.

How to break this habit:

  • Estimate your income. Start creating your budget by estimating your income. You can do this by looking at your pay stubs to see what your income is after taxes. That shows you exactly how much of your paycheck goes into your bank account.
  • Estimate expenses. As we mentioned before, there are some expenses you have to pay every month, including rent/mortgage, utility bills, insurance (auto, home, renters, health, etc.), cable/internet/streaming services, food, loans (car, student, home equity, etc.), credit card bills, and others. Add all of these monthly expenses together. Once you have a total, subtract that number from your estimated monthly income. This will give you an idea of how much money you have left over after paying your necessary bills.
  • Consider your priorities and goals. So, what do you do with that leftover money? Decide what your goals and priorities are. Do you want to:
    • Create or add to an emergency savings fund?
    • Put money away for college?
    • Save for retirement?
    • Take a family vacation?
    • Buy a new car?

Once you have these priorities and goals, start adding your leftover money toward them. If you have enough left over each month, you can even start saving for these things. But you can’t do it without having a budget.

  • Stick to your budget. Having a budget is one thing…sticking to it is another. And it’s the most important part of budgeting. It requires self-control, discipline, and patience. But if you do stick with your budget, it’ll be very rewarding when you’re able to more easily afford an emergency repair, a new vehicle, a family getaway, or a carefree retirement knowing you had the money set aside specifically for whatever your priorities or goals are.

5. Not paying bills on time

This can be a dangerous habit to fall into. When you don’t pay your bills on time, you can expect to pay extra every month, whether that’s from interest or late payment penalties/fees assessed by the lender or credit card issuer. By not paying your bills on time, you’re essentially just flushing more money away as a result of not being organized. And the worst part about that is, it’s completely avoidable!

One more very important reason to pay your bills on time is your credit score. You can be a very responsible borrower in every way, but if you do not pay your bills on time, your credit score is instantly impacted negatively. According to Lending Tree, once a payment of more than 30 days late hits your credit reports, your credit score can drop as much as 180 points. People with high credit scores could see an even bigger drop than those with low scores. The later you pay, the worse the impact may be to your credit score. And it gets worse. If your payment is more than 60 days late, you may be referred to a collections agency, which will be pretty aggressive in collecting the money it’s now owed. If you’re more than 60 days late on a secured loan payment, you may lose something extremely important and valuable like your home or vehicle. Not to mention…a late payment will stay on your credit reports for up to seven years, even if you catch up on payments after falling behind.

Fortunately, there are very simple ways to make sure you pay your bills on time so you don’t risk any of the above happening to you.

How to break this habit:

  • Create a bill payment calendar. You can do this on your phone, a wall calendar, or a daily planner book. No matter your preference, you can add each monthly bill to the calendar on the day it is due. That way, you always know what needs to be paid and when.
  • Set up automated payments. This is probably the easiest way to ensure your bills get paid on time. Most businesses and lenders allow you to create auto payments through your online accounts. All you need are your checking account and bank routing numbers. But once you set it up, you shouldn’t need to do much of anything because the business will automatically take the monthly amount out of your account. No more remembering to write and mail checks, no wondering if you missed a payment. Automated payments are a life-saver for those trying to create better spending habits.
  • Sign up for payment reminders. If you’re uncomfortable having money automatically deducted from your checking account each month, you can sign up for payment reminders. Most businesses allow you to do so either by phone or online. Once you sign up, you’ll receive an email or a text letting you know your payment is due soon. That gives you the time you need to make your payment without being late.
  • Pay online or by phone. These two options make paying your bills very easy. Of course, you still need to remember to make your payments, which you can do with some of the suggestions we just listed. But rather than write a check and mail it, you can just pay electronically online or over the phone. The process is usually quick and convenient, and the lender/business receives their payment much faster than they would if you mail a check.

Take charge of you personal finances

Breaking bad money habits and becoming more responsible financially takes some work. It requires self-control, discipline, and practice to break bad habits, like overspending and impulse buying, and create good habits like starting an emergency savings account, having a budget, and paying your bills on time. But you can achieve it by following the steps we laid out for you. Making these changes today results in less stress tomorrow. And once you learn better financial habits, you set yourself up for a much brighter future.

At Sun Loan, we want you to have all the tools you need to improve your finances. To learn more about personal finances, taxes, personal loans, and other similar topics, visit our Resources page, where you can read dozens of helpful articles and financial resources for free!

Author – Holly Munoz

Holly Munoz serves as Regional Vice President at Brundage Management, the management holding company that operates Sun Loan and related subsidiaries. Holly has over 15 years of experience in the loan ... Read more »

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