break bad money habits

Bad habits — we all have them. Some are worse than others, and some can wreak havoc on your finances. You might be doing things with your money again and again that are keeping you in a financial rut. And that financial rut can have a long-term impact on your overall financial health.

If you want to break the paycheck-to-paycheck cycle, it’s time to pinpoint your bad money habits and devise a plan to end them. “The key to breaking these harmful financial habits is self-awareness,” said Carla Dearing, CEO of online financial wellness service Sum180. “It’s not always easy, but once you recognize an unhealthy habit in yourself, you have the power to change it.”

These are the first steps to take.


When it comes to your finances, your biggest problem could stem from a lack of monitoring your spending. You don’t regularly check your bank account. You don’t know what your credit card balance is. You can’t remember the last time you checked your credit report or score. In other words, you’re ignoring your money.

It’s gotten easier for people to ignore their finances because so many no longer receive paper statements in the mail, Dearing said. Those statements — especially bank statements — serve as a monthly reminder to take a look at your financial picture. Without that cue, people often aren’t taking time to be aware of where they stand, she said.

To stop ignoring your money, you actually need to create a habit of checking your accounts regularly. Dearing recommends setting an alert on your phone or online calendar as a reminder to check your bank account, credit card balances and savings account. The frequency of those reminders depends on what works for you — perhaps weekly, but at least monthly. Once a year, visit to get a free copy of your credit report and see if there are any errors or negative marks on your report that could make it hard to get credit or force you to pay higher rates.

The problem might go deeper, though, than just forgetting to review your accounts. “Be honest with yourself that the ignoring is probably based on fear,” Dearing said. “You’re probably afraid of what you’re going to find.”

You can actually relieve a lot of that stress by finding out where you stand. Then, you can create a plan to get your finances on track.


It’s easy to fall into the habit of charging everything to credit cards, Dearing said. The problem arises when you don’t pay off your balance each month. “If you’re not holding yourself to a careful, thoughtful budget, you can easily get in trouble,” she said.

You might be in even more trouble if you’re relying on credit to get by. “If you are unable to afford meeting your ordinary living expenses and must resort to the use of a credit card, you are, by definition, living above your means,” said Tom Corley, author of “Change Your Habits, Change Your Life.” In a five-year study of wealthy and poor individuals, Corley found that this was a habit of most low-income people.

To break the credit habit, consider creating a cash-only habit. Leave your credit cards at home and carry enough cash to cover essential costs — such as transportation and groceries. To pay off your debt, set up automatic monthly bill payments so your credit card bills are covered as soon as you get paid, before you have a chance to spend that money.


You can break several bad money habits and form good ones by knowing your number. Your number is how much you can afford to spend after covering expenses and saving at least 10 percent of your income for retirement and emergencies, Dearing said. She added that, if you don’t have savings or just have a small amount, you’ll need to save 15 percent or more to catch up.

“Knowing your number brings you mindfulness about your money,” Dearing said. “Just knowing helps a ton. Once you start taking a peek at what your expenses are … your sense of being overwhelmed or ignoring is over. Once you do it, it’s not that bad.”

And once you know your number, you can create a spending plan to help you get ahead financially rather than just get by. You’ll know by how much you can increase monthly debt payments, how much you can set aside for goals such as a down payment on a house and how much you can spend on things you enjoy.


If you have trouble with overspending and sticking to a budget, it might have to do with the way you think about your spending. In other words, you might be in the habit of playing money mind games.

For example, you might make regular purchases — such as a daily latte or weekly restaurant meal — that you consider to be a reward. You don’t think of it as spending, Dearing said. Instead, you tell yourself: “It’s a treat I need to get on with my day.”

Not all of these “treats” might be small, though. It could be a vacation that you consider to be a non-negotiable family tradition. If you think of these expenses in this manner, it’s easy to justify them — regardless of your bank balance. But that sort of thinking could be why you’re not saving as much as you should.

To break this habit, start by acknowledging which expenses you’re justifying as treats or rewards. “If you’re already saving 10 percent, those little treats are very doable,” Dearing said. “If you’re not saving 10 percent or anything at all, those treats need to be put aside.”

Instead, find lower-cost or no-cost alternatives. For example, take a walk after work to unwind rather than going to happy hour at the bar. Once you stop overspending and start living within your means, that financial pressure you’re feeling that makes you want to treat yourself might disappear.


Do you often make impulse purchases? Are you in the habit of shopping when you’re sad or stressed? Do you buy things just because you want them? These kinds of spontaneous and emotional spending habits can lead to debt and wreck your finances, Corley said.

“Spontaneous spending is never a good idea,” he said. “You need to take the emotion out of your spending habits. There is always time to plan and shop before you spend your hard-earned money.”

To break this bad money habit, recognize the triggers that cause you to spend ― whether it’s stress, an emotional event or social pressure that prompts you to open your wallet. Then, institute a no-spend month. It will force you to become more aware of where you’re money is going.

“Most people find you don’t need all of those things you’re buying,” Dearing said.


Many people have fallen into the habit of not saving money. “If you don’t save systematically, it’s almost impossible to save enough money,” Corley said. “Enough money means having a six-month safety net for emergencies as well as enough money so that you can be financially independent when you retire.”

The good news is that there’s an easy way to get into the habit of saving. “The key way to enforce a habit is to automate it,” Dearing said. “Being automated is one of the best ways to establish and maintain your habits.”

Make sure you enroll in your workplace retirement plan ― such as a 401k ― and have contributions automatically deducted from your paycheck. If you’re self-employed or don’t have access to a workplace plan, set up automatic transfers from your checking account to an individual plan such as an IRA or a solo 401k. Also have an amount automatically transferred to a savings account when your paycheck hits your bank account to have a cash reserve for emergencies.

If you are the type who forgets to make monthly payments for your mortgage, car, credit cards, insurance and other standing bills, automate those bills, too. Paying your insurance late, for instance, could lead to the cancellation of your policy. Late payments on a credit card can result in higher interest rates and late fees.


Technology can help you break bad money habits and establish good ones. “Using online budgeting tools is a great way to closely monitor your money and track financial progress against your goals,” said Heather Roche, vice president of deposits at Discover.

There are plenty of free and low-cost budgeting and finance apps you can use to view all of your accounts in one place, track spending and get reminders to pay bills. Popular ones include Mint and Personal Capital.

“Discover has a financial goal calculator, which is an online resource that can be used to carefully determine how much you need to save or how much spending to cut to make your goals happen,” said Roche. “Also, Discover’s mobile app helps monitor purchases on-the-go, with the ability to schedule payments and seamlessly deposit checks.”

You also can take advantage of technology such as the Digit app to automate savings. The app links with your checking account and analyzes your income and spending, then transfers amounts you can afford automatically into a Digit savings account. The first 100 days are free. After that, it’s $2.99 per month.

“Look at the different budgeting app options to find the one with the right frequency of notices and amount of detail,” Dearing said. “It doesn’t have to be complicated.”

You can use free tools available through your accounts, such as automatic bill pay, so that you don’t have to worry about missing payments. Or, set up alerts on your checking account to get a text message every time your account balance drops below a certain amount. Automation and alerts can help you establish good money habits to keep your finances on track.

This article was originally posted on 

Contact a Financial Advisor

Next Step: Speak to a Financial Advisor

We're financial advisors specializing in retirement planning. Find out how working with a financial advisor can help you avoid making those classic mistakes.
Contact a Financial Advisor

Required Attribution

Disclosure: This material was created for educational and informational purposes only and is not intended as tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Tracking #1-612707