Research shows that many bad money habits come from our childhood. According to Forbes, we pick up money lessons, both good and bad, from our parents. So if your parents avoided budgeting, never saved or carried debts, the chances are you’ll do the same.
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While you cannot change the financial mistakes your parents made, you can change your behaviour so that you don’t repeat them. Here’s a list of bad money habits your parents may have taught you that may no longer be of benefit in the modern world.
Bad money habit #1: Save your money
Sure, this sounds like great advice. But only saving long-term is actually a bad money habit. Everybody should have an emergency fund saved up, and experts recommend having up to three months of expenses set aside. But after you have that money saved up, everything else should be invested.
Putting your money into the stock market, a private pension or properties makes much more financial sense long-term.
Bad habit #2: Credit and debt are always bad
One of the oldest bad money habits you need to break is treating all debt as negative and something you should avoid. Credit cards help build credit so they aren’t bad unless you incur more debt than you can afford to repay.
Mortgages and student loans are also good debts, as they result in something positive (a property and an education that can increase your pay).
So the key to debt isn’t to avoid it completely. It’s to make smart choices about when debt can help you progress and when it can hold you back.
Bad habit #3: Don’t discuss money with anybody except your partner
When it comes to bad money habits that can keep you from building wealth, this is a big one. How are you expected to learn about handling your finances if you don’t seek guidance? At the very least, you should be open to talking to a financial adviser if you’re feeling stuck and need help making money decisions.
Secrecy around money and finances is an old habit that still seems to persist. And while you might not be comfortable talking about how much you earn or save, open discussions about money with people you trust can help you understand your finances better.
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Bad habit #4: Rob Peter to pay Paul
You’d be surprised how many people borrow money to pay off another debt. This rarely ends the cycle of debt or solving the initial problem: lack of budgeting. If you find yourself paying debts with your credit card or taking small loans to cover overdrafts, it’s time to address that.
This is the kind of bad money habit that keeps you from getting financially ahead. To solve it, you’ll need a budget and a debt repayment plan.
Bad money habit #5: Rush to pay off your mortgage
It’s true that owning your home outright can give you great peace of mind. But putting every extra penny towards your mortgage doesn’t always make sense and could potentially be a bad money habit you need to drop. That’s because investing that money will get you much better returns over the years.
According to Forbes, the average stock market return has been higher than mortgage rates for decades, so it simply makes financial sense to invest as much as possible. In addition, Forbes points out that investments are more liquid assets than money put into a mortgage. This means it’s easier to access the money and use it in case of an emergency.
