Bad Money Habits to Stop, Good Money Habits to Build

We all have bad as well as good habits. When it comes to money, bad habits can cost us for years to come. Below you will find three bad habits that need to stop as soon as possible, followed by three good habits that will put you on the path to a sound financial future.


  • Impulse buying
  • Not budgeting
  • Relying on credit
  • Have an emergency fund
  • Build income producing assets
  • Set financial goals

Impulse Purchases

In the world today you cannot escape products, deals and Amazon. We are surrounded by opportunities to buy things online and in stores. It has never been easier nor more convenient to buy something on a whim with a single click. How many times have you gone to the shop to buy a specific thing, and then ended up spending far more than you expected?

All these small impulse purchases do add up. A £5 here and £7 there can quickly turn into £100s a month. This is money that could be put towards savings or investments. So how do we combat this problem? Firstly, you can try to delay the purchase time. Instead of buy the item when you have first seen it, add it to a wish list and leave it for a few days. Chances are you will forget about it, thereby proving that you don’t need the item. If you do come back to it and you still want the item, well then you definitely know that you want it. By doing this you will cut out a lot of impulse purchasing by making sure that you actually want the item.

A second way you could reduce temptation is to make it harder to buy the item. Try removing online shopping apps from your phone so that you have to go via a browser. This is less convenient and therefore a mental barrier making the impulse purchase less appealing. Additionally, you won’t be able to browse as easy meaning you won’t see the items in the first place removing the risk of purchase entirely.

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Not Budgeting

I know personal finance bloggers are forever going on and on about having a budget, but it really is that important. If you can’t see the figures and can’t see how and where you are spending your money, you won’t be able to change your financial habits. It is useful to separate you spending into essential expenditure and discretionary expenditure. Stuff like your rent/mortgage, utility bills, tax etc is counted as essential expenditure. While discretionary expenditure is everything else you spend money on that is not required to live your day to day life.

While you will always have the essential spending, you can begin to tweak your other spending once you can see it all from your budget. For example, a common avoidable expense is buying food and snacks while at work. You can easily, without noticing, spend £3.50 on a meal deal everyday. Before you know it this is £17.50 a week. Instead you could buy a loaf of bread, cheese and ham, a multipacks of crisps, and a use a refillable bottle of water for around £6 a week.

Having a budget will allow you to cut out unnecessary spending and allow you to save or invest more money and build some good money habits.

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Relying on Credit

According to the Money Charity the average credit card debt per household in November 2020 was £2,133. Considering the normal annual interest rate for a credit card is around 19% this could cost you £405.27 per year (assuming no repayments). Building up debt is only going to take away from your future self, it is far better to go drastically cut your spending than to take on debt.

While credit cards do have their advantages, they can offer cash back rewards and air miles to spend on flights. They must be used responsibly! You could seriously harm your credit score by taking on too much debt, and if it becomes unmanageable you could find yourself in real financial trouble and even end up in court.

So how do we avoid using credit cards? If you are genuinely worried about your spending habits then you probably should avoid having a credit card altogether. Cut it up so that you can’t spend any more on it and focus on paying down the debt. Alternatively, if you are able to control your spending habits, don’t keep your card in your wallet or purse. Keep it somewhere safe, at home, and only use it for managed purchases. Aim to pay off any credit card purchases in full each month.

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Have an Emergency Fund

You never know what is going to happen in life, the boiler might break, your car might stop working or you could lose your job. In each of these scenarios having a pot of money set aside would make dealing with them a lot easier. This is why it is recommended to have an Emergency Fund.

An emergency fund is a pot of money you have set as side in a separate bank account for those unexpected expenses. If you didn’t have one you would have to borrow money either from friends and family or use a credit card. An emergency fund is your safety net. You should probably aim to have anywhere between 3 and 6 months of expenses saved up. However, the exact amount that you would feel comfortable with can vary, it is entirely dependent on your circumstances.

You should focus on building up an emergency fund before doing any other saving or investing. Once you have on in place and fully funded you will find that you feel more financially secure knowing that you have something to fall back on. If you do end up needing it, make sure that you build it back up as soon as you can.

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Building Income Producing Assets

Anyone who has read ‘Rich Dad Poor Dad’ will know that you need to build assets, not liabilities. An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket. Examples or assets include stocks, real estate and buisnesses.

If you are following a set budget and have an emergency fund with no debt; now is the time to start building assets. Personally, I have a particular interest in building income producing assets. This is something that I invest in, in return for a regular income which can then be reinvested to produce more income. This is known as a positive cash flow cycle. Eventually, you could grow an income that could supplement or even replace your ordinary job.

One thing I think everyone should do is to have a side hustle. This is a small project or business that you build for yourself to earn some extra cash. Some side hustle even end up being full sized businesses that can end up producing you so much cash that can be used to build more income.

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Set Financial Goals

In life we need direction, a purpose, a goal to work towards. The same is with personal finance. If you have a budget you can use it to also set yourself some goals. Even if it is that you want £x by this time, or for a house deposit or new car. If you set a goal not only do you have something to work towards it will make it more likely for you to achieve it.

A key part of goal setting is measuring your progress. Along the way to you reaching your goal you need to see how close you are getting to it. This can be a motivating activity to help ensure that you reach your goals. Make sure you write down your goals and even tell people, this will build a level of accountability to even put yourself under some pressure to reach it.

Good goals to have include: to be debt free, save for a house deposit, save for your children’s education, or event to build a source of income independent of your main job. What ever your goal is, make sure you are working towards it at much as possible so that you will reach it.

None of the content in this article should be considered financial advice, I am not a financial advisor and you should always do your own research prior to investing. These are my opinions only.

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