Poor money habits are a problem for a lot of us. Simply making a couple of these critical mistakes can be the difference between living a financially free life or one where you are barely getting by.
In today’s article, we will look at 7 critical habits that hold people back from investing and moving forward in their financial lives. I also think it is important to note that some of the things on the list are completely fine to do if you can afford it. However, if you’re currently struggling and want to get into a better financial position, cutting these things out is the fastest way to get there.
If you prefer to watch instead of read, I put together a full video on this on our YouTube channel:
First, we have consumer debt. This includes credit cards, financing products, pay-day loans and buy now pay later platforms such as Klarna.
Personally, I would recommend most people to avoid debt at all costs. If you can’t purchase it in cash, don’t purchase it at all. The only debt you should really have is a mortgage and in some specific circumstances a car. However, it’s preferable to purchase a cheap car in cash in most cases.
Debt is literally stealing from your future self. If you really want to purchase something, save up for it months in advance, rather than paying for it the months after with interest on top.
I see many people get into crippling debt that puts extreme financial stress on their lives. No product, holiday or night out is worth the peace of mind of being debt-free. The only time I would use debt is in an extreme emergency.
If you’re currently in debt and want to get out of it, I would recommend checking out our guide to getting out of debt.
Always Having The Latest Thing
I think this applies to a lot of people. For some it may be tech, it may be makeup or where I saw it the most was golf. I play golf and bought my set of golf clubs about 6 years ago. I haven’t purchased any more since.
I’ve improved my game significantly and have a tonne of fun at the weekends with my friends. However, I see people with new clubs every other week, spending £100s of pounds. These same people complain about having no money. Those two things don’t add up.
I have learned to realise where I’m getting enjoyment in life. The real fun is getting together with my mates on Saturday to play golf. It’s not buying new clubs that won’t improve my game.
If you have a hobby that you spend money on. Ask yourself, is it necessary to spend this money every week? Could I have 95% of the fun I’m having, while spending 90% less? If the answer is yes, cut back on that spending.
Buying A New Car
Cars are one of the biggest money sinks I see for people. I have wasted a lot of money on cars. It’s something I really enjoy but at some point, I realised it was holding back my investments. I know I’ll buy a nice car again in the future but right now in my 20s, every £1 I invest is worth a huge amount at retirement. Once my portfolio and dividends are paying for my lifestyle, I’ll purchase a car again.
I know so many people with a £300/£400 a month car payment and that’s before everything else. If this is you, this is one of the easiest ways to get ahead. Simply cut out that car, and buy a cheap car in cash. You’ll have to take a little ego hit but you’re going to get ahead so much faster. Invest that £300-400 a month and you’ll very quickly start to build a significant portfolio or save enough for a house deposit.
This can be the difference between never moving forward and building some significant wealth early in life.
This is one I’ve always been pretty good with. I’ve just never really understood the need to buy a lot of expensive clothes. For example, one of the brands I see a lot of people wearing at the minute is Represent.
Now, I really like their stuff but I just can’t bring myself to pay the money. A Hoodie is £170 and a T-shirt is like £80. And I see people I know who are earning like £2k/month wearing this stuff. That honestly blows my mind.
Now I think there is value in buying good quality clothing over buying cheap stuff that just doesn’t last. But there’s a happy medium between the cheap stuff and a £170 hoodie.
If you can avoid buying these designer brands that are charging you for a label, you’ll save a lot of money. There’s just no need to buy them and they provide no extra value in your life. You won’t have any worse of a life wearing nonbrand clothes than branded clothes. Cut them out and get ahead.
If you’re investing more than 20% of your income and have no debt, you can buy whatever you want. However, if you’re not doing that, it’s time to cut out the designer clothing.
Smoking/Drinking & Other Vices
Now I don’t judge anyone for what they do. I like to go out and have a good time as much as anyone else. However, it’s not cheap. I’m not saying don’t do these things but in the UK, the culture is to go out Friday and Saturday nights. If you’re doing that every weekend and earning the median salary, it’s going to be hard to ever save anything and get ahead
I’m not saying to stop socialising and be a hermit but if you cut back on the number of nights you go out or simply go out without drinking, you’ll save so much money. When you don’t drink, you save money on the drinks, and on taxis and you probably won’t buy that kebab on the way home either.
Let’s also take a look at smoking. If you’re spending £200/month on cigarettes instead of investing that money and then complaining that “millennials can’t afford a house”, I can’t really sympathize with that. You have to be honest with yourself and realise that you’re choosing smoking over your financial future.
By cutting down or cutting these things out completely, you’re improving your health and your financial situation. It’s a win-win.
Moving Out Too Soon
One of the fastest ways to build wealth in your 20s is to live at home with your parents when possible. I know some people just can’t do that and that’s fine but if you can, you should really take advantage of this.
If you compare two people, one who moves out at 21 after Uni and one who stays at home to 26. Both earn £2,000 a month. The one who moved out will be lucky to have saved £10k by 26. The one who stays at home can easily save £800/month, have a house bought at 26 and have a £35k investment portfolio.
It’s 5 years extra of living at home but it’s a golden window to set you up for life. Once you start to get to your 30s, start having kids and are renting a house, it does become very hard to save and get yourself on the property ladder.
So if you can take advantage of this! DO! It’s huge.
Small Daily Spending
Last but not least, is small daily spending. Look, a Starbucks here and there won’t kill your finances. However, if you are buying a £5 Starbucks, £5 Breakfast and a £15 Lunch every day that is an easy place to save a lot of money in your budget.
£25/day on working days is approximately £500/month. Let’s say you cut that to £5 a day by making a packed lunch and making your coffee, you will save £400 a month. That is insane savings.
If you’re struggling with your finances, look and see where you’re spending money daily. These small charges don’t look like much individually, but when you add them up over the month, they can make a huge impact on your spending.
If you struggle, I would recommend downloading my free budgeting sheet. With it, you can categorise each of your expenses and see exactly where you are spending your money each month.
Overall, I think that when we objectively look at our spending, there are places we can all cut back. The biggest thing to remember when it comes to personal finance is to spend less than you make and invest the rest. If you do that, you’ll have a fairly solid financial future.
If you’re investing a solid portion of your income and are on track for your own retirement goals, you can buy whatever you want. If you’re not on track you can’t buy whatever you want. You have to make sacrifices to get ahead.
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