21 Days to a Negative Money Habit

March calendar

A couple of weeks ago, I wrote about how you could create positive new money habits in just twenty-one days. Now for the flip side of that article. I want to show you how easy it is to fall into negative money habits in just twenty-one days. We often think that money problems come about over a long time (and they sometimes do), sneaking up on you after years of overspending, medical problems, reliance on credit, or underemployment. But the sad fact is that it can take as little as twenty-one days for you to fall into bad money habits that can ruin your nest egg.

It is an accepted part of self-help wisdom that it takes twenty-one days to create a new habit. Usually this wisdom is used to track the creation of positive habits like losing weight, stopping smoking, reducing alcohol consumption, etc. But it can be just as valuable to monitor the creation of bad habits. Just as a good habit will stick with you after twenty-one days, so will a bad habit. Below are twenty-one things that seem small at the time, taken individually, but can be destructive to your wealth if allowed to become habits.

1. Start eating out a lot. Meals out are expensive and it is very easy and tempting to fall back on them when you’re harried and hungry. The more you do it, the easier it becomes to just “grab and go” and before you know it you’re spending major amounts of money on meals out.

2. Raid the emergency fund for “fun.” Sometimes people reach a place where they think, “I’m not going to have an emergency, so why bother keeping all this money in an emergency fund?” They then divert that money to fun things and, sure enough, the roof begins to leak or the car needs a major repair, setting them back hundreds if not thousands of dollars.

3. Raid your retirement funds. When things get tight (or more fun is needed), some people look to their retirement funds as a source of ready cash. Problem is, when you take that money out of the account prematurely, you’ll pay taxes and penalties, plus you’ll lose out on the compound interest. Even if you avoid the penalties through a hardship loan, you’re still losing out on the interest and you still have to pay the money back. This costs you big when you’re ready to retire. Only tap retirement funds as the last resort.

4. Stop contributing to retirement. When things get tight, some people opt to stop contributing to retirement. Unless you’ve got no other choice, you’re better off reducing your expenses or earning money another way. Retirement savings need time to grow and if you stop contributing, you cheat yourself out of valuable time and interest. Besides, once you subject that income to taxes, you might not increase your income as much as you think, yet you cost yourself in retirement. And once you stop contributing, it becomes more difficult to begin the positive habit again.

5. Stop saving. Sometimes people stop saving, figuring their emergency fund is big enough or they’ve got enough money for that car. But you need to keep saving because another car will be needed someday, or you’ll want a vacation, or something will wipe out your emergency fund. Plus, saving is a habit and once you get out of the habit, it’s hard to get going again.

6. Put off caring for others. Don’t make out a will, set up a trust, or get life insurance and your survivors will see the nest egg you’ve built for them dwindle quickly as they struggle to adjust to your absence and cover and debts you’ve left behind.

7. Put off getting or increasing your insurance. If you think that fire, accident, lawsuit, or health crisis can never happen to you, think again. Failing to protect yourself and your family against the bad things in life can cost you thousands.

8. Stop improving your skills and decide you’re “good enough.” If you need to go back to work, want to advance in your career, or want a higher paying job, you’re going to need up to date skills in your field. Whether you’re currently employed or not, keep learning and networking to protect your earning power. Otherwise, you’ll find yourself wanting to make more money and advance one day and no one will take you on because you are irrelevant.

9. Get a payday loan. If things get tight, some people turn to a payday loan lender to bridge the gap. Problem: Some of these places charge almost 100% interest, trapping you in a cycle you can’t get out of. These loans then become a habit that you can’t break. Better to find another way to bridge the gap such as negotiating with creditors or finding temporary employment.

10. Loan money to friends or family, especially those who have trouble managing their money. If you say yes once, chances are the person will ask again and again. You’ll find yourself trapped, unable to say no for fear of seeming cheap or mean. Likely the recipient won’t pay you back because they have no money management skills, so you’ll be out that money. Learn to say no and say it the first time. Don’t become someone’s ATM.

11. Overdraw your bank account on a regular basis. The fees banks charge for overdrafts have been creeping up over the years. Now not only do you have to pay a fee to your bank, you’ll likely have to pay fees to merchants and other banks who don’t get paid as a result of your mistake.

12. Pay your bills late. Not only do many utilities and credit cards tack on late payment penalties, some charge you interest every day the bill is unpaid. This can amount to a large sum over time.

13. Finance a new business venture on credit cards. The sad fact is, most new businesses fail. If you’ve financed your new venture on credit cards and it fails, you’re on the hook for that debt at a high interest rate. Better to save up and pay cash or, if that’s impossible, look for a small business loan with a low interest rate.

14. Take out a home equity loan to pay credit cards. Unless you’ve addressed the spending problem that got you into credit card trouble in the first place, all you’re likely to end up with is a home equity loan and maxed out credit cards. Better to pay the credit card debt off without a loan and eliminate the spending problems. Otherwise, you’re putting your house at risk.

15. Grocery shop hungry and tired. When you’re hungry and tired, everything in the store looks good and you overspend as you fill your cart with unplanned items.

16. Never balance your checkbook. If you never reconcile your statement, you have no idea if the bank is charging you for things they shouldn’t or if mistakes are being made. Moreover, you have no idea how much money you have so you’re more likely to overdraw your account.

17. Roll an old car payment into a new one. When car dealers say they’ll pay off your loan, they don’t really pay off that loan. They simply roll the amount you owed on the first loan into the loan they’re giving you for the new car. Do this often enough (actually, once can be often enough) and you find yourself owing far more than your car is worth. Cars depreciate too fast to cover this sort of borrowing. Better to hold on to the old car until it is fully paid for.

18. Start a hobby, sport, or a collection without a plan. When you decide to take up a new sport, hobby, or collection, it’s tempting to go all out, all at once, before you even know if you like this new thing. This leads to equipment that collects dust, supplies that are never used, and half finished collections of “stuff.” Lots of money gets tied up in things that are never used. Better to go slowly, buying only as your needs and interest increase.

19. Finance vacations and/or timeshares. Put your vacation on a credit card or finance your timeshare and you’re paying interest for something that is a luxury. Long after the vacation is over, you’ll be paying for those hotel stays, meals and plane tickets. Do it often enough and you’ll find yourself drowning in debt. Not a good idea, especially for something that is not a necessity. If you have to get away from it all, look for something fun that you can afford and skip the timeshare or expensive resort vacation.

20. Pay others to do what you can do yourself. Most people can clean their own houses, do their own yard work or tackle basic home maintenance. Yet they pay others to do it. Yes, it’s convenient, but it’s costly and adds up over time and takes money away from other goals. Even if you make a lot of money, it’s still taking funds from other goals and fun things you want to do. Do your own work unless you simply cannot for physical reasons.

21. Hang out in the stores for fun. Going to stores when you don’t need anything is a bad habit that can cost you big money. Rare is the person who can just wander the mall without buying something. These little “somethings” add up and cut into your net worth. Better to only shop when you need something and find something else to do for fun. A corollary to this one is to rely on commercially prepared entertainment like movies, theater productions, arcades, premium cable packages, and theme parks for your fun. A little of this is fine, but when it becomes a habit to go to the movies or a theme park for fun, it gets expensive. Find cheaper ways to entertain yourself.

Now you see how easy it is to fall into traps that can sabotage your wealth-building efforts. It doesn’t take long. If you take your eye off the ball for just twenty-one days, you may find yourself in the grip of bad habits that will have to be broken if you are to return to good money habits. The easier answer is to avoid falling into these bad habits in the first place.

Image courtesy of smcgee

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10 Responses to 21 Days to a Negative Money Habit

  1. Lot’s of good “don’ts” here! 😀

  2. Alex says:

    Excellent article and one to be printed and re-read regularly.

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  4. Miranda says:

    Great post! The first one really jumped out at me because with my family’s hectic schedule it is so easy to just eat out or get take out.

    I was also really struck by those having to do with retirement. After all, sacrificing a little now means that you are more likely to enjoy your quality of life later.

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  6. Mia says:

    There’s only so much you can do to always abide with no 20. If you work a full-time job, have kids, and commute – there is simply not enough time in the day for you to also be your own maid, cook, repair person, taylor, seamstress, computer fixer, carpet cleaner, and who knows what else, as needs arise. It is of course great to try to do as many of those on your own but there are limits to this approach. It is annoying to see so many articles bent towards unrealistic, preachy advice that just conveniently ignore the realities and circumstances of everyday life. How about some balance?

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