How To Break Bad Money Habits And Create Good Ones

The bad money habits that we develop as children can have a lifelong impact on how much money we make, and the quality of life we lead. And like all bad habits, they are completely avoidable if you know what to do.

The key is to create good money habits while breaking the bad ones.

Breaking bad money habits and creating good ones is a complicated task. It’s not enough to just say “no” when you feel the urge to spend, or just say “yes” when someone offers you a gift.

I know it’s hard to admit that you have a problem. It’s even harder when the problem is with your finances. When we’re not able to manage our money well, it can lead to many problems in our lives such as stress, anxiety and sometimes depression. 

But don’t worry! There are some great strategies out there for managing your money that will help keep you afloat financially so you can focus on other things in life! 

In this post I’ll be discussing how bad financial habits cost you money and what positive money habits you should adopt instead in order to improve your financial situation.

What is a money habit?

A money habit is something that you do on a regular basis with money. It can be spending, saving or investing money and it becomes a habit (both good and bad) if it’s repeated often enough until it becomes an unconscious behavior.

Sometimes money habits are good for us but more often than not we develop poor spending habits meaning we are spending more than we can afford resulting in bad money management.

bad money habits are bad!

A bad money habit costs you money, leaves you feeling guilty for your impulse purchases and gets you into credit card debt. Like all bad habits, they are completely avoidable but can be difficult to break out from because they quickly become ingrained in our habit system.

Poor financial habits can lead to poor credit scores as well, which can affect how good of a deal lenders are willing to give you when you want to buy a house, car or take out a loan.

So bad money habits cost us financially and emotionally! They can also create stress and anxiety in our lives that we really don’t need because they are avoidable with the proper knowledge of how to manage your cash flow.

For more help with getting your financial plans up and running check out my post on the best finance books for beginners. Reading just one of these books can sky rocket your financial knowledge and confidence.

How do I break a bad money habit?

The first step is identifying the habit you want to break.

It can be hard to pinpoint why a certain budgeting strategy is not working for you until you have a better understanding of why it’s so difficult for you to implement what should seem so simple.

For example, if you are determined to curb impulse spending, then next time you feel the urge ask yourself these questions:

  • Is there something about shopping that brings me joy knowing that I’m being financially irresponsible?
  • Am I impulsively buying non-essential items?
  • What am I trying to avoid when I buy things without thinking about it first (examples: boredom, loneliness)?

The second step is to replace poor habits with good money habits instead. Using the above example, you don’t have to cease all shopping completely. But maybe restrict yourself to online shopping only or implement the 30 day rule to allow purchases that you really do want.

In order to break a bad financial habit it’s important to first become aware of them and recognize what they are costing you in terms of time and/or money.

Creating good habits takes conscious effort. You’ll need to focus on changing something about how you handle your finances so that over time those bad behaviors will fade away into distant memories while positive new ones take their place.

What are good money habits?

A good money habit is anything that helps improve your financial future and helps you to build wealth over time.

These can include saving a portion of every paycheck, cutting down on unnecessary expenses such as cable television subscriptions and putting more money into retirement savings.

Vector of someone flushing dollar bills down the toilet.
Bad money habits are like flushing your money down the toilet!

7 bad money habits you need to break

1. relying on credit card debt to pay the bills

Relying on your credit card to get you through the month and to pay bills is not a sustainable or smart way to manage your money. It makes it too easy for you to spend more income than you have and rack up a ton of debt.

Credit card spending is not free money!

Its a habit that costs money with the high interest charges your credit card company will invariably add to your credit card balance.

Even if this is the only habit that needs changing, making sure how much credit you use each month and how often (never?) should be relatively simple.

How to change this bad money habit?

If you’re not great with keeping track of what you’ve spent inbetween paychecks then there are a couple of things you can do.

  1. Leave your credit cards at home, take only your debit cards. This will help you when you get the impulse to buy something.
  2. Consider using the cash envelope system for your flexible spending such as groceries, personal spending and entertainment costs. Using cash is great way to create better money habits as it stops you from spending more than you earn.
  3. Going a bit more extreme, you could consider cutting up your credit cards so the temptation is removed.

2. paying bills late

You should always pay your bills on time. But if you’re paying them late how does this affect how much interest you’ll have to pay?

Every month that goes by without payment will cost you more and more in fees. If it’s your credit card bills then your credit card issuer will slap on a late payment charge. Plus interest with your balance growing every day it remains unpaid.

Late payments also impact your credit score and can leave a black mark for up to 6 years. For just one late payment your financial future can be blighted.

How do I fix this habit?

There are some easy ways for you to avoid late bill payments no matter how busy you get.

– You can make sure you set up an automatic monthly payment from your bank account to your credit card. This is a great way to ensure that bills are paid on time and won’t risk forgetting about them in the future.

– Set calendar reminders: You can also set yourself calendar reminders that will pop up a day or two before each payment due date. Using alerts from your phone, computer etc… give different times so there’s less chance of not seeing them!

Vector of man sitting on books thinking about breaking bad money habits
Create daily money habits to fix your financial situation

3. failing to save for your future life

Saving money doesn’t need to be complicated. It can start with something as simple as putting away a few dollars every paycheck.

But what about saving for the future? Most experts recommend you have enough saved up before retirement age that will allow you to enjoy your golden years without working.

It’s good advice because we all know bad habits such as spending too much or getting into debt easily end up costing us more than we expect. Living off of just the basic social security is not something anyone wants to do is it?

How do I fix this bad habit?

– Set up an automatic monthly transfer from your checking to a savings account. This way you don’t even have to think about it and the bad habit of not saving anything will be broken.

– Research the best retirement accounts for your circumstances. Does your employer have a scheme where they match your contribution? If so, get paying into this pronto.

– Create a long term financial goal to save for your future a priority in your budget. Not something to be cut as soon as your budget feels a little tight.

how much money do I need for retirement?

How much money you need to retire will depend on a lot of different things.

Many financial planners recommend you start investing as soon as you start earning money. The reality is, non of us do that. The second best time to start investing for your future financial life and retirement is today.

Check out this article and calculator on how much you might need when you retire.

4. you don’t have an emergency fund

Not having an emergency fund is one habit that can lead to all sorts of problems. From borrowing from friends or family, to racking up credit card debt, to taking out payday loans.

And all because you didn’t budget a little extra money to the what if’s.

  • What if I lose my job?
  • What if my bank account gets hacked?
  • What if I suddenly need more money unexpectedly?

It’s simple, you NEED an emergency fund, for emergencies. Because they do happen. It’s absolutely the new habit you need to start today. Do not create a false sense of security by presuming that credit card spending can cover any emergency you face.

Life does not work that way.

Related post: Emergency Fund Examples: 23 (Unexpected) Reasons Why You Need One

How do I start saving money into an emergency fund?

In theory it should be relatively easy to create an emergency fund by following these steps:

  • Open a high interest savings account (not a checking account) at your bank with online access so withdrawals can happen overnight or immediately.
  • Set yourself a short term financial goal of an amount to be saved each month (such as $100) until you achieve $1000.
  • Keep going until you achieve three to six months worth of expenses saved up.
  • Set up an automatic payment into the savings account as soon as you are paid. Your emergency fund is really important so prioritise this money. Make it the 1st line in your budget

Related post: 6 Medium Term Financial Goals You Should Have

Vector of woman with bad money habit of shopping too often.
Breaking bad money habits includes impulsive spending

5. you go shopping to relieve boredom

Even if you’re not the type of person to spend money on expensive things, shopping as a form of entertainment or because you’re bored can cause serious damage to your attempts at keeping a budget.

But what is it about shopping that makes us want to do more and more? Shopping provides instant gratification because you don’t have to wait to get your hands on the thing you want.

Shopping late at night when you’ve had a bad day at work or are feeling down is another common way people end up spending lots without thinking through what they’re buying! It’s little wonder then why so many people struggle with managing their finances.

Related post: How to stop spending money on clothes: 10 Simple Tips for Success

How do I break my impulse buying?

Getting rid of a habit may seem difficult but there are some easy ways to avoid shopping as a leisure activity:

– Track your spending in an app like This will help you be more aware of where your money is going and make better decisions about when/what you buy.

– Only bring cash with you on shopping trips. It’s harder to keep track of what has been spent if all your purchases have been made using cards or online banking.

– Don’t shop at expensive stores. Try sticking only to thrift shops so there’s no chance of buying expensive clothes just because they caught your eye!

6. you give in to impulse spending too often

First of all, what is impulsive spending? In general it is when you buy something without planning to do so. You buy something just because for a tiny moment it makes you feel great.

Why is impulsive spending so easy to do and so hard to stop?

Shopping provides you with instant gratification, because you get to see, touch and feel your new purchase immediately, giving you a short term high.

Giving in to this impulse when you’re tired, had a bad day at work or are feeling down is probably one of the worst ways to manage or spend your money.

You don’t make good spending decisions when you’re tired, stressed or low. You end up buying stuff you don’t even particularly like in the cold light of day!

how can I save money instead of spending it?

There are a few things I would encourage you to do which will help you save money.

First, check back over last months bank statements to see how much you spent in total on impulse purchases.

Second, a good habit to get into is giving yourself some fun money. This is your guilt free money that you can use to buy and pay for anything you like. But only within your fun money budget. Which I suggest you set quite low.

Mine is usually $50 a month.

Third, set up savings accounts for you to put the extra cash you DON’T spend straight into them. You can work out how much this should be by looking at those bank statements and paying in a decent chunk of what you spent (minus your planned fun money budget).

Vector of woman getting into debt by sitting on a credit card.
Positive money habits include getting on top of your debt.

7. you ignore your finances altogether!

In fact, you don’t treat them like a priority at all which is bad for so many reasons.

Although it might seem easier in the short term to do this. What you’re actually doing as soon as you start ignoring your financials and spending when you feel like it, is setting yourself up for failure.

Over time you are creating the bad habits that will hurt your progress towards achieving the financial goals that matter most to you in life.

I get where this behavior comes from because I’ve been guilty of letting my own personal finances slide too often myself. We’re all human!

But we have got to find ways to break these bad money habits and create good ones instead if we want our lives moving forward rather than spinning our wheels.

Start with creating a budget, one that is realistic and makes sense for where you are right now. Your budget is just your plan to spend the money you earn, and no more.

Living paycheck to paycheck isn’t ideal, but it’s better than spending more than you earn every month.

The next step is to incorporate things like sinking funds (for irregular bills), savings and retirement plans into your budget.

Recommended reading:

7 Golden Money Rules To Embrace in Life

Why You Need To Be Financially Sound

9 Financial Wellness Tips For Success

How do you know if your bad with money?

You’re probably bad with money if:

  • you don’t have a spending plan and know where your money is going every month.
  • your shopping habits are dictated by your emotions (sad, bad and mad makes us spend!).
  • you spend more then what you make.
  • you can’t resist a bargain even though you didn’t know you needed it until you happened to see it!

If any of this sounds like you (and it’s okay if it does), its time to change it up!

Vector of 2 girls one with debt on her back, the other with a dollar sign.
Bad money habits and how to break them

Why do I have bad spending habits?

Bad spending habits usually come from you being too emotional about your purchases or buying things because ‘you deserve it’.

Here’s why: Money is pretty much everything in life right now. It dictates the type of car we drive, food we eat and even how long you’ll live (the longer u save for retirement the better).

So why do people who should be saving all their money instead keep doing these things? What can they possibly gain from being broke or living paycheck to paycheck when they could have saved so much by now?

Its simple; money habits which are formed early on in our lives.

In fact, habits that we create in our teens and early twenties may have a strong influence on the rest of our lives! So why do people keep making these bad money choices?

Well they’ve clearly been doing it for so long and cant seem to break their own habit cycle which can be difficult but not impossible.

Defeating your bad money habits

If bad financial habits can be broken then maybe there is hope after all!

If you feel like one or two bad financial habits are creeping back in again, take some time out for yourself (even just 30 minutes) away from any screens or distractions such as social media and kids.

Sit down with some paper and write down what habits have slipped and how. Then think about the why. Why have your good intentions slipped and allowed old habits to resurface?

When you feel tempted by an impulse to buy, step back and ask yourself whether the purchase really matters to you.

Keep a list of things you need and things you want. When you find yourself picking something up, check your list. Is it on there or are you falling into the impulsive nature of buying to feel good again?

When you go shopping (even online), make a list before you start of what you are intending to buy. Stick to the list!

The bad news is that bad money management habits are hard to break, but the good news is that creating new ones and sticking with them over time will make you much more likely to succeed in your financial goals which is what matters most!

Vector concept with the word money and money images surrounding it.
Bad money habits and how to break them

break your bad habits for good

Relying on credit cards to pay your bills, paying bills late and impulse spending too often are all habits that will hurt your finances. Fortunately there is a way out of this bad money rut!

The bad habits that I have mentioned can be challenging to break, but not impossible. The more aware you are of your spending habits the easier this process will become. 

In the end, it’s up to you. You have control over your habits and how they affect your wallet. The more conscious effort you put into breaking these bad money habits, the happier and wealthier you will be! 

Remember that it’s all about baby-steps. You don’t have to make big changes overnight if they are too overwhelming for your current lifestyle situation. As long as you take one step at a time, success will come!

Start taking back control of your money by grabbing your copy of the Money Saving Starter Guide today.


Come and follow me on Pinterest for more money saving hints and frugal tips!

Pinterest image for breaking bad money habits.
Pinterest image for breaking bad money habits.

Last Updated on 14th February 2022 by Emma

About Emma

I'm here to help you become confident in making the best money decisions for you and your family. Frugal living has changed my life, let me help you change yours.

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