Bad financial habits that you should have outgrown


April 4, 2008 5:26 PM

Shop like a tourist, go broke like a tourist
batsignal @ flickr

It surprises me that there are people in my age, ie. 30s who regularly commit bad financial decisions and never get their debt under control. They live paycheck to paycheck and would obviously be living miserly the few days before payday, and then be living it large immediately after again. The cycle repeats itself and they seem to be ok with it.

Some obvious financial mistakes that I have seen people commit on a regular basis:

  • No savings because they spend all that they earn.
  • Spent more than they earn using credit cards and personal loans.
  • Using one credit card to pay the bill of another one, or worse, using a credit card to pay off a bank loan – perpetuating and compounding the debt cycle and delaying the inevitable, ie. paying for what you’ve spent.
  • Coming into a lump sum of money via inheritance, pay bonus, or a lucky day, and spending it instead of using it to pay down debts.

A lot of this bad behaviour can be tied to one single personal fault: buying crap that you don’t need, and spending extravagantly on food, on going out and on holidays that you can’t normally afford. Some part of it can be blamed on TV shows, and the ubiquitous lifestyle and fashion magazines pushing an ideal image of who you should and can be, what you should be wearing, what you should be doing, and where you should be doing it.

But another part is down to your willpower and self-image. I believe people who have a low self-image of themselves are the type most likely to need material props and crutches, and thus more susceptible to the manipulations of modern media.

So what to do? The top priority is to analyse your spending habits. This is hard so maybe it is more prudent to first analyse and modify how you source and move your funds around to support the lifestyle that you want.

  1. Have only one credit card and pay it in full every month. It can even earn you extra if you do it well.
  2. If you must spend on something expensive, don’t use the credit card for it if you know that you won’t be able to pay the full amount at the end of the month. Take out a short-term personal loan instead – the interest rate is almost always lower than that of a credit card. And make sure you can afford and meet the repayment schedule.
  3. If you have several bank loans, refinance and consolidate them into just the one. This will save you on interest.
  4. Always use extra money that you come into to pay down all of your debts.

Once you have those things above sorted, the next task is to confront the harder questions: can you really afford the lifestyle that you want on a monthly basis? Is your lifestyle worth the extra stress and debt? Must you have and do all those things to be happy in life?

I understand that not everyone can be as fortunate as my family and I am to be debt-free. But if you aim to have just the one big debt in your life, ie. a mortgage, then I think it’s an achievable and noble goal. And speaking of mortgages, must you really live in that fancy apartment in an expensive part of town? Ah, but I’ve digressed. 😉

16 thoughts on “Bad financial habits that you should have outgrown

  1. girlstar7

    I had a housemate that was a financial advisor and she told me some absolute horror stories about some of the things people do with their money. She mainly gave financial advise to couples who were homeowners and had a mortgage etc (majority young couples around early 30s).
    She told me about one couple that were in serious debt due to living in a nice part of town that they couldn’t afford and were living paycheque to paycheque. Despite this, they still went out and spent $5000 on a mattress! Not even an entire bed but a MATTRESS, for christ sake! Then they told her they had no idea where on earth they went wrong and why they were in so much debt!
    Some people are just bad with money. They seem to have no clue how to manage their finances and are always in debt and never have any savings. That’s why people like my friend who are financial planners get so much work! 🙂

    Reply
  2. yurl

    Finance/credit companies are pretty clever (devious) these days. The try to get you addicted to credit as soon as you graduate with ‘cheap’ intro finance. For most guys who’ve just graduated the lure of the dream lifestyle they can’t afford is too much after years of impoverished student life… Bingo a slave to the bank for life.

    Reply
  3. mooiness Post author

    girlstar7: that’s what I mean by “buying crap that you don’t need”. A lot of ppl complain about their pay when it is actually their spending habits that is the problem. If they don’t buy so much crap or try to keep up with the Joneses, then they’d have more money left over and wouldn’t be whinging about their pay.

    yurl: which is why one should have good sense to not splurge on material things when your income level cannot justify it.

    Reply
  4. sourrain

    I know of someone in a job he hates, and had been speaking of retiring for the past few years. Granted, he is close to retirement age and should really retire. But I forsee him working for at least another 5 years past retirement age to even pay off his mortgage.Why?

    Because

    1) He buys anything that takes his fancy, i.e. the latest gadgets, Nitendo DS,Nitendo Wii (hah, me to speak)
    2) Goes on 4-6 expensive holidays a year
    3)Spends money on endless alcohol
    4) Continuously renovate/redecorate his home
    5) Keep updating new tvs,cars,gadgets

    He couldve paid off his mortgage ages ago if not for all this additional expenses.What’s worse is that he is not even in a job he likes, I am not even sure if he hates his job more than I hated my last job. And hes turning 60.

    So you see…this is how much more worse it can get – if those who continues to spend above and beyond their means goes on living their life in that sort of level.

    Reply
  5. blur ting

    That’s such sound advice. I used to be married to someone like that. Even when he had the money, he wouldn’t want to repay people. After our divorce, I got myself a Mazda, then a Toyota while he went out to buy an Alfa Romeo, then a Jaguar and now a BMW. Talk about self image issues…. At least I am debt free.

    Reply
  6. mooiness Post author

    sourrain: oh man I feel sorry for the guy even though it’s completely his fault. If he doesn’t have enough to retire now, think of what will happens as illnesses and ailments start to appear. It’s not gonna be the golden years, that’s for sure.

    blur ting: yeah a lot of it has to do with a person’s self-image. I think most have an inferiority complex and feel the need to have material things to prop themselves up.

    With regards to owing ppl money, I always feel uneasy if I don’t pay them back at the first opportunity. I think it’s part of being a good friend.

    Reply
  7. mooiness Post author

    blinkymummy: heheh yeah you are right about how uncommon common sense is. 😉 Whatever happen to saving up for the things that you want? A lot of ppl want and expect instant gratification these days. Woe be unto them.

    Reply
  8. rn

    you should read noimpactman.typepad.com. Besides the obvious environmental message he tries to send, he’s also really into being content with what you have. His 3 year old doesn’t even watch TV – they don’t have one at home.

    Reply
  9. mooiness Post author

    rn: I think if he made you think about your environmental foot print, it’s a good start. We all can minimise how we impact the environment.

    And yeah new job is so far so good. 🙂

    Reply
  10. Hamie

    Totally agree on this take. I believe financial freedom = discipline. Finance/credit companies are not to entice people to “borrow”, it’s the silly averages who think they are smart that makes the business going. If the masses are disciplined enough, no demand = no supply.

    Reply
  11. Hamie

    You got it, man. I wasn’t in debt before, but I lived from month to month with about SGD$500 in my bank account till I get so sick of it, and the fear that I don’t match up in future to my scientist sister + doctor brother that I decided to smart up. Discipline was hard, but it is sweet fruit ultimately. I cleared up quite some shit along in my life too.

    Yes, if more people embrace it. =)

    Reply
  12. mooiness Post author

    hamie: I believe that if you start comparing yourselves to other people, you’d never be happy and that is usually the start of spending beyond your means to “catch up”.

    Everyone needs a bit of money to survive, but if you analyse it properly, you’d know that the important things in life don’t cost a lot and you probably already have them in your life. 🙂

    Reply

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