There are a million and one reasons you might be poor — most of them are beyond your control.
However, money-spending habits are one of the most common ones, especially for people who earn. If you’re unsure whether your negative financial behaviors are responsible for your financial status, this post is your litmus test. We’ll discuss money habits and some bad financial habits that may keep you poor.
Let’s dive in!
What are Money Habits?
Money habits are the values and routine practices that determine how you handle your money. They are simply those behavioral patterns and decision-making criteria responsible to a large extent for why the rich are getting richer, or the poor are getting poorer.
Sure, certain people get rich overnight by winning the lottery, while others get poor all of a sudden because their establishment was gutted by fire. However, money habits range from actions and ideologies about earning, spending, saving, managing, and investing money that ultimately determines an individual’s financial outcome.
Bad Financial Habits Keeping You Poor
The following are some negative financial behaviors that might be keeping you poor.
1. Having a Wrong Mindset About Money
If you think mindset has nothing to do with how rich or poor you get, then you have a wrong mindset. And, it may be keeping you poor.
A simple explanation for that is the fact that thoughts influence actions. So, if there’s a wrong way to act with money, then there are definitely wrong ways to think about it.
A common wrong money mindset is the ideology that money doesn’t matter. Money might not solve all your problems, but it can put you in a better position to solve your problem or at least cushion its effect. So, quit looking down on the rich just to get social capital that makes you feel good about yourself. Money matters! And you need to make yourself financially literate to put yourself in a better financial position.
If you’re also living beyond your means to create an illusion of luxury or comfort amongst your social circle, you’re thinking about it all wrong.
2. Spending Without a Budget
A budget is an estimate of your revenue and expenditures over a certain period of time. It gives you an overview of your financial status and plans at the time.
Having one won’t make you rich all of a sudden. But the lack of it is the genesis of all financial disorganization and subsequent failure. So, if you’re actively working on improving your financial condition, it’ll give you insights on how to do so.
Spending your income without a budget means you have no spending cap. It also means you’re likely unable to differentiate your wants from your needs. I.e. You can’t identify your must-haves, good-to-haves, and not-to-haves. So, you just end up spending according to your instincts, which will likely be triggered by your wants and desire for status.
In the end, you prioritize the wrong things, ultimately keeping you poor. A well-planned budget will have you asking the right questions: “Should you buy take-out coffee or make one for yourself at home? — It helps you identify areas where you need to cut down on expenses or spend more money.
If you find it difficult to stick to it after eventually drawing up one, it is advisable to use financial automation. This is a system that automatically deducts and keeps fractions of your income in separate accounts for different purposes.
3. Accumulating Credit Card Debt
Being comfortable with credit card debt clearly indicates a wrong money mentality. This approach involves spending on nice-to-haves like the latest electronic gadgets.
Put simply, you can’t afford an item if you need credit to make the purchase. Buying such items using credit card items keeps you poor because the interest rates are usually too high. In addition, while the minimum payment may seem small and manageable, it lengthens the payment period, further compounding the interest rate so that you end up paying more for less value. In the end, you’re servicing the debt with your income, leaving no room for you to grow your finances.
In worse scenarios, you end up damaging your credit score if you miss a payment.
By accumulating credit card debt, you get limited savings and more financial stress as you’re always dealing with debt, thus keeping you poor in the long run. Avoid them if you can.
4. Saving Without Investing
You can’t save your way out of poverty! Sounds counterintuitive, doesn’t it? But, if you have a laser focus on spending the least possible amount of money in all situations, then you’re thinking about money all wrong. Instead, you need to increase your income.
While saving for emergencies, major purchases, and your retirement is very important, you should be wary of falling in love with a savings account. It’s one of the fastest routes to poverty.
Keeping all your money tied up in the bank all in the hopes that one day you’re able to accumulate a substantial amount that’ll buy you financial freedom has a high chance of keeping you poor forever. Although your savings may increase gradually, its value may decrease exponentially over time, ultimately taking you farther back from where you started.
Instead of saving up all your leftover funds, you should instead invest a certain portion of it in a safe and profitable venture. Not doing that is another habit that keeps you poor.
5. Failing to Invest
By failing to invest, you’re effectively focusing on the present and ignoring the future. It also means you’re probably living from paycheck to paycheck, and how far can that get you?
People don’t become gain financial freedom by saving. They do so by believing in something, foreseeing the future, taking a risk, and investing their financial resources in such ventures. Although investing doesn’t guarantee profitable returns, failing to invest guarantees no returns.
Summary: What are the Causes of Poverty?
Bad spending habits are not the only poverty causes. However, if all other things were equal, you might remain poor if you have bad spending habits, a wrong money mentality, a savings-only, and a non-investment policy.
Don’t be that person. If you're ready to take control of your finances and make better money habits, consider exploring smart financial tools like Ribaostore to help you along the way. Your financial future is in your hands.
Further Reading: Effective Money-Saving Habits For Financial Freedom