7 Bad Behaviors That Lead To Financial Disaster

bad financial behaviorsWhen I was convicted to change the way I handled money at the young age of 22, it wasn’t an educational revelation. It was an emotional and behavioral revelation, because I realized that the problem was ME. A lack of education was definitely one of the factors why I didn’t handle money well, but ultimately, it was my bad behavior and irrational thought process about money that led me to a ton of debt at a young age. If you’re sailing along in life with debt and you think that you’ll be okay once you start making more money, you might already be exhibiting bad financial behaviors and ways of thinking that could lead to a financial disaster. I completely agree with Dave Ramsey that personal finance is 80% behavior and 20% knowledge/education. Here’s 7 warning signs that the problem is YOU.

  1. Buying Stuff Makes You Feel Good. Is buying stuff therapeutic for you? Does it make you feel better to go out and buy a bunch of stuff at the mall? If so, counseling would really help, because there’s probably a bigger emotional issue that you’re compensating for.
  2. You ALWAYS Need The Best and The Latest Thing. Do you constantly crave the latest and greatest gadget? Do you NEED to stay up with the latest trends and fashion? Is your current stuff just never good enough? If so, then you’ve got a big case of Stuff-itis, and you simply just need to grow up and practice self-control.
  3. You Consider Expenses To Be Investments. If you find yourself rationalizing purchases on furniture, cars, boats, or gadgets by tricking yourself into thinking they are an “investment,” then you’ve got a serious behavioral problem. This might be an education problem for some people, but most of us know that a piece of furniture is NOT an investment. It loses almost all of its value after a couple years of use.
  4. You Avoid Budgeting. If you keep turning down your spouse to sit down and write out a budget, then you’re just trying to avoid what you don’t want to know. You know that if you sit down and write out a budget that you must stick to, it’ll expose all of the spending that you do and it’ll force you to stop spending in areas that you don’t want to give up.
  5. You’re Hiding Purchases From Your Spouse. If you find yourself sneaking around your spouse and making purchases they don’t know about, that means you probably shouldn’t have purchased it. This can lead to a lot of big issues, including mistrust between you and your spouse. You should definitely seek marital counseling if you and your spouse aren’t being honest with each other with your finances.
  6. Using Credit Cards Comes Natural To You. If swiping the credit card is second nature for you, chances are that you don’t pay them off at the end of the month and incur huge interest charges. Most people that use credit cards responsibly don’t use them very often and it literally hurts when they do use them.
  7. You Make Fun Of Frugal People. I was such a victim of this. It’s so easy to poke fun at the “cheap” people. But, those cheap people might be saving up for something bigger and better, and going out to eat isn’t in their budget right now. There are definitely some people in this world that are TOO frugal, and they need to loosen up, but watch out before you make fun of people for being frugal. You may learn something from them!
  8. I’ve learned a lot in the last 5 years of writing about personal finance, reading about it, and reading your great comments. What I keep learning the most is that personal finance is mostly about self-control and making wise decisions. When you change your personal behavior, a small amount of personal finance education will go a long way to becoming financially independent.

    What are the bad behaviors that you struggle with most?

    (photo credit: thefinancialjournal)

  • http://www.budgetpulse.com craig

    I think if you set a budget and save up money, buying stuff to make you feel good is fine. That’s usually why you buy stuff, cause it makes you feel good.

  • http://www.debtfreemarriage.org/blog/financial-infidelity-in-marriage David Bibby

    I consider #5 to be the biggest cause for financial disaster if you are married. Keeping secrets, hiding purchases, not telling your spouse when things are bad, and hiding away money will cause tension and mistrust.

    Spouses must be 100% honest and accountable to each other. This is HARD to do, but if you’re hiding something from your spouse.. your are effectively pushing away your ALLY and Teammate… the ONE person you can HELP you.

    Two people can’t walk together unless they agree on where they’re going.

  • http://beyonditall.net Carla

    I think my biggest issue is not planning for the future enough. Its one thing to budget day-to-day and month-to-month expenses, but I need to really plan for years down the road – especially since I’m not employed anymore (SSDI) with all the perks and benefits like health insurance, 401K, paid time off, etc.

  • http://everydaytipsandthoughts.com Kris

    Spending money on myself actually makes me feel bad, so that is definitely not an issue for me. My problem is wanting to spend on others (mainly the kids). I don’t buy them constant ‘things’, but I am the first one to run and get the car keys if someone wants to go play putt-putt, or head to the beach. (I will always spend money on books for them though.)

    I also tend to spend money ‘celebrating’ too much. For instance – if the kids get good report cards, we go out to whatever restaurant they want that night. I am trying to put an end to that somewhat. Lately I have been buying ice cream and such and having a banana-split fest at home instead or something more reasonable.

    No matter what though, I always pay off the credit card at the end of the month.

  • http://www.moneycrush.com Jackie

    It’s great that you recognized that the problem was you. I’m always happy when I find out that I’m the issue, because I can always change me. I think my biggest “bad” behavior is emotional buying.

  • http://barbarafriedbergpersonalfinance.com Barb Friedberg

    Facing reality leads to growth. If what you’re doing isn’t working, the strong change and improve-the weak continue on the same path hoping for different outcomes. Congrats and good luck!

  • http://www.roshawnwatson.com Roshawn @ Watson Inc

    The self control issue is key. Our biggest problem is the person staring back at us in the mirror!

  • http://www.debt-tips.com/blog Kris

    Interesting, all 7 involve more thinking than planning, more “live day by day” than living realistically within your means. Of course, this is obvious. But living well financially rarely involves doing whatever you want.

  • David

    3- The only thing I consider an “investment” that maybe isn’t an investment is my energy drink in the morning. $3 for a drink makes me cringe, but I’ve been justifying it by saying it makes me work better. Which is problem true, to be fair, but on that same slippery path.

    Beyond that the only “investment” that you can purchase is a house. You can write off at least a portion of any upgrade to a house in the same way – if you’re not doing it on borrowed money- because many housing upgrades so pay back at least a substantial portion of their return even in the long run. A new $10,000 bathroom generally adds near that much in value to the house, and might for example increase the sale value by even $25,000 in 10 years.

    But a car, a toaster, a microwave, a phone, none of these are financial investment and anything you buy with interest in doubly bad.

    6- Credit cards aren’t bad. Honestly, if I bothered to activate my credit card again, I’d be swiping it about 6 times a day. I pay for everything with a debit card right now, since I don’t like carrying around cash. However, I’m completely as aware with my debit or credit card as I am with cash. Nothing is easier to buy with a debit card than with cash for me. It is even easier with cash since I like to get rid of amounts of cash that I get ahold of that aren’t really big enough to warrant a bank deposit (up to like $200). The idea that the limit on your credit card is free money to spend is a bad thing. It isn’t. It is a trap that credit cards want you to fall into so you can give them 15% of that amount indefinitely.

    A good rule of thumb for having a credit card would be to keep your maximum credit limit on hold in cash. This functions well as a safety 6 month cushion and just as a way to remind you that the limit isn’t your money (except that here it would be). And you should never run into a situation where you don’t have money to pay off your bill at the end of the month.