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Poor Habits

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9.28.21 |

Become Wealth Editor

16 habits which keep you financially stuck, and how to break free

Financial freedom sounds pretty darn good. It's the ability to breathe a little easier, knowing you have a safety net and resources to pursue your dreams.

But the road to financial security can be riddled with potholes – bad habits we all have that subtly chip away at our hard-earned cash. This might be amplified at a time when rising living costs can be a challenge for even the most financially attentive among us!

Here at Become Wealth, every day our team sees firsthand what it takes to be financially independent. You might be surprised to learn it has more to do with habits and mindset than any external circumstance.

For the sake of this article, let’s work on the Britannica Dictionary definition of poor as: ‘having little money or few possessions: not having enough money for the basic things that people need to live properly.’ Many hard-working New Zealanders might find themselves in this situation. This list is aimed at anyone actively looking to avoid, or get out of, such a circumstance.

So, let’s dive into poor habits that could be keeping you financially stuck and suggest practical tips to break free and build a more solid financial future.

Habit #1: Living on Autopilot

You get paid, bills get paid, and whatever's left magically disappears. Sound familiar?

Many of us function on a subconscious spending cycle. But without a map of where your regular inflow of funds should go, that cycle can easily become a financial dead end.

Imagine driving a car while unsure of its destination. That's what your finances become without a budget.

Budgeting isn't about deprivation, it's about conscious spending. It allows you to track income and expenses, categorise your needs and wants, and identify areas where your money might be slipping through the cracks.

The Fix to Financial Autopilot

Track your income and expenses for a month to understand where your money goes. There are tons of free budgeting apps and templates available.
Categorise your spending (needs like rent and groceries, wants like entertainment), and see where you can make adjustments.
Treat your savings like a non-negotiable bill. Set up automatic transfers from your regular pay to a savings or investment account. This ensures you're paying your future self-first, consistently building your financial safety net.
Automate your savings so you can set and forget with confidence.

Habit #2: Impulse Buying

Retailers are masters of manipulation. That "sale" sign screams your name, and suddenly, you're walking out with a non-essential item.

The harsh reality is that purchase might give you a temporary high, but a lifetime of those purchases could derail your long-term plans, meaning you can’t achieve what really excites you in life.

The Impulse Buying Fix

Before buying anything except essentials, institute a 24-hour rule. Sleep on it. Does the desire linger, or is it fleeting?
Unsubscribe from tempting marketing emails.
Unfollow retail brands on your social media.
Focus on building wealth for the things that really matter to you and your family.
Channel your desire for something new into learning a new skill or hobby and seek out free or low-cost alternatives entertainment.

Habit #3: Over-Reliance on Credit

Credit cards and retail debt can be convenient, but they can also be a slippery slope. Swiping plastic or taking on high-interest loans for everyday purchases adds up quickly.

The Credit Fix

Break the cycle! Use credit cards, buy-now-pay-later, or other consumer debt only for emergencies or planned major purchases you can pay off within a billing cycle.
Consider carrying a debit card instead, which forces you to live within your means.
Here's a bonus tip: negotiate lower interest rates on existing credit cards, or if you’re disciplined sign up for credit cards with plenty of reward points and pay the card off in full before it accrues interest.

Habit #4: The ‘Get Rich Quick’ Mirage

Have you seen the 'make millions in minutes' ads online, especially on social media? Slick personalities, often filmed from some exotic location, who promise they can train you in their ways? Unfortunately, these are nothing but modern iterations of get-rich-quick schemes.

If it sounds too good to be true in the world of finance, it probably is. Stick to sound investment strategies that will stand the test of time.

Investing should be a long-term strategy, not a gamble on fleeting trends.

The ‘Get Rich Quick’ Fix

Focus on building wealth steadily over time. That’s usually the most long-lasting form of wealth.
Learn about different investment options, diversify your portfolio, and research carefully before you implement anything.
Seek professional financial advice – it can save you from costly mistakes in the long run. Yes, that’s a shameless plug for our services!

Habit #5: Financial Illiteracy and Learned Helplessness

Feeling lost in the world of finance? You're not alone.

A September 2022 study by the Financial Services Council of New Zealand found a concerning decline in financial literacy, with only 44% of respondents reporting they felt financially literate, a 6% drop since March 2020.

But the good news is, regardless of your background, start point, or any other factor, financial literacy is learnable.

The Financial Knowledge Fix

Embrace learning! Read books, articles, and blogs on personal finance. For example, here’s our post on teaching yourself how to invest.
Podcasts are also a growing area, there’s plenty of videos on YouTube and in other places too, just ensure you find content relevant to New Zealand, as country-specific tax rules and other considerations can influence financial decision making.
There are even plenty of free online courses. The more you understand money, the more empowered you'll be to make informed financial decisions.

Habit #6: The ‘Latte Factor’

We've all read the headlines and articles condemning the daily latte habit.

Now, the humble latte isn't the villain it is made out to be. The real trouble is the unconscious spending the latte represents: those small, regular expenses we might not think much of that add up without us noticing.

A seemingly insignificant $5 a day might not seem like much, but if a couple both spend that over a full year, it adds up to a significant sum – over $3,600!

The ‘Latte Factor’ Fix

Identify your "Latte Factor" culprits. Maybe it's daily convenience store or dairy visits, impulse vending machine purchases, or even subscription services you barely use.
Challenge yourself to track your daily spending for a month. You might be surprised by how quickly those impulse buys, convenience fees, and unused subscriptions quickly accumulate.
Redirect those funds towards savings or debt repayment. Remember, small changes can lead to big results.

Habit #7: Keeping Up with the Joneses

Social media feeds are often curated highlight reels, showcasing extravagant lifestyles.

Comparing your reality to their filtered version can breed a sense of inadequacy and fuel unnecessary spending.

This is closely related to lifestyle creep, the concept of a steady creep in improvements to lifestyle, which drain any increases received in income. This means with each pay rise you’re no closer to financial freedom, you’re just elevating your lifestyle.

The Lifestyle Creep Fix

Don’t fall for the clever marketing tactics of influencers, showing a manicured and cultivated social media image which may not be based on reality.
Remember, social media isn’t real. Even regular users who post pictures and videos all the time can carefully select what goes online, and what doesn’t.
Unfollow accounts that trigger feelings of envy.
Focus on your own financial journey, celebrating your successes, big or small.

Habit #8: Failing to Negotiate

From salary negotiations to utility bills, many people simply accept the status quo.

However, a little negotiation can go a long way.

The No-Negotiate Fix

Do your research! Know your worth when negotiating a salary. Even if you don’t get what you’re after, ask for development opportunities, a clear career pathway, and try to identify ways to progress.
For bills, consider calling your service providers and politely asking for a better rate. Some companies offer discounts to loyal customers.

Learn more:

Habit #9: Not Shopping Around

Many people stick with the same service providers for years, simply renewing their plans without comparison shopping. Loyalty can be great, but it can also mean missing out on better deals. Many companies – large corporations especially – tend to give better deals to new customers rather than existing ones.

The Bargain Fix

Become a savvy consumer! Make it a habit to shop around every year few years for things you might otherwise take for granted.
Use a mortgage broker (“mortgage adviser”) to obtain improved mortgage rates and terms.
Especially for things like insurance, avoid a one-eyed focus on price. Look at the coverage in detail to make sure you're getting the protection you need.
Some companies offer discounts for bundling multiple policies or services together. This can sometimes make things more convenient for you too, for instance if a weather event damaged your car, home, boat, and contents, you wouldn’t want to make four different claims to four different insurance companies and pay four different insurance excesses!

By shopping around, you could potentially save hundreds of dollars a year on your insurance and bills, and maybe make your life easier too.

Habit #10: The ‘Live for Today’ Gamble

Life throws curveballs. A car repair, unexpected medical expense, or job loss can wreak havoc on your finances without an emergency fund.

The Fix to This Gamble

Aim to hold 3-6 months’ worth of living expenses in an easily accessible account. This safety net provides peace of mind and keeps you from resorting to high-interest debt during emergencies, or from trying to tap into investments during such a time.

Read more about why you need an emergency fund

Habit #11: The Financial Mismatch

Dating someone financially incompatible with you could lead to heartache. This is because different spending habits and views can lead to arguments and conflict in a relationship.

The Relationship Fix

Open communication is key! Normalise money conversations and discussions of financial goals in your relationship.
Find common ground and create a plan that works for both of you.
Be honest and transparent with each other – it will strengthen your financial foundation as a couple.
Consider joint budgeting tools or attending financial workshops together.

Learn more: 8 financial red flags to watch out for in a partner

Habit #12: Not Having Insurance

Most of us don’t get excited when thinking about insurance, but it's a crucial safety net. Unexpected events like accidents or illnesses can leave you out of work, and still facing bills. Personal insurance policies like income protection and health cover can provide a buffer against such issues, and help you get back on your feet faster.

Home, contents, and vehicle cover enable us to repair or replace our belongings without substantial financial loss.

The Uninsured Fix

Explore different insurance options based on your needs and budget.
Compare insurance options to get the best coverage at the best price.
Use a financial adviser (in this case often called an “insurance broker”) to evaluate your insurance needs and identify suitable policies. This includes our risk team here at Become Wealth: book your complimentary initial consultation.

Habit #13: Emotional Financial Decision-Making

Financial decisions fuelled by emotions can quickly drain your bank account or investment pool.

Buying something to cheer yourself up, celebrate, or cope with stress might feel good in the moment, but the financial consequences can be long-lasting.

Alternatively, you might be prone to panic selling stocks (shares) or changing KiwiSaver fund choice during a spell of uncertainty. While selling during a downturn might seem like a smart move, being reactive because stocks are tumbling is not a good long-term strategy. Volatility is part of the process, and the market will experience swings. The key is to stay focussed during the good times and bad.

The Emotional-Finance Fix

Create a cooling-off period! Implement a rule where you wait 24-48 hours before making a major purchase or financial decision. This allows emotions to subside and for you to make a more rational decision. Consider talking to experts or level-headed people you trust during this time.
Stick to your long-term investment goals even when the market is volatile. Renowned investor Warren Buffet is a big proponent of the buy-and-hold method. He says if you aren’t comfortable owning something for the next 10 years you shouldn’t even own it for 10 minutes.

Related articles:

Habit #14: No Retirement Plan

Retirement might seem like a distant dream for many, but it's never too early to start planning. Delaying retirement savings means missing out on the power of compound interest.

The Retirement Plan Fix

Start a retirement plan today, even if it's a basic plan and only needs a modest regular contribution from you.
Research your choices and increase your contributions as your income grows. Every dollar saved now grows significantly over time, securing a comfortable future.

Habit #15: Lack of Focus on Earning Power

After launching into a new career, perhaps after university or an apprenticeship, many New Zealanders never again seriously upgrade their skills or knowledge. They might still expect to progress in their career, but little is done to aide this other than on-the-job experience.

This ignores the basic premise that earning income related to your knowledge, skills, and attributes is the cornerstone of wealth-building, and especially when you’re young any time or energy spent developing this area is likely to provide the best possible return on investment. This is your earning power. Continually developing your earning power is more crucial nowadays than ever, as this is the age of technological disruption, and widespread uncertainty around inflation and cost of living pressures remains.

The Earning Power Fix

While saving and cutting back on poor-value expenses is important, focusing on earning more is even more important.
With sustained effort, your earning power can be your most valuable ‘asset’. You’ll see regular pay-rises, promotions, and opportunities, all because you’ve invested in yourself and your ability to earn.
By upskilling and working on yourself you can put yourself at the cutting edge of disruption, not on the receiving end of it!

Learn more: high income skills

Habit #16: Scarcity Mindset

We’ve saved the best until last.

A scarcity mindset is when you believe resources are limited. An abundance mindset is when you believe there are plenty of resources for everyone. The author Stephen Covey coined these terms in his famous best-seller, The 7 Habits of Highly Effective People. People with a scarcity mindset see life as a finite pie, so that if one person has a big piece, there is less for everyone else. Most people have been conditioned to have this scarcity mentality. This mindset is the root cause which keeps so many of us from achieving our goals, only once this mindset is mastered can the rest of the points on this be fully dealt with.

For example, if you’ve been thinking about a career change but haven’t taken the leap, you’re probably having thoughts like, “There aren't enough good jobs out there," "I don't have enough transferrable skills," "People like me aren’t able to perform in roles like that," or "There’s too much competition.” These are all ideas based on scarcity, what you don’t have. A scarcity mentality sees limitations instead of opportunities.

An abundance mindset refers to the theory that there is plenty out there for everybody.

The Fix, an Abundance Mindset

Make a conscious effort to reframe your thoughts to focus on opportunities and abundance. This will take time, practice, and effort.
Surround yourself with optimistic, motivated people. The kind of people who always seem cheerful and have a ‘glass half full’ attitude. If needs-be, you may need to search for other people living the life you aspire to have.
Try to always foster situations where there is a win-win outcome, in relationships, at work, with your family, and so on. (A scarcity mindset believes if one person wins, another loses).
Practice gratitude. This might seem a little hazy, but numerous scientific studies offer overwhelming evidence that gratitude is one of the most powerful and life-enhancing tools we can use to improve our relationships and our physical health. By extension, that will inevitably improve our finances, too!

Learn more: habits of the wealthy

The Bottom Line: Break These Poor Habits

Financial freedom isn't a privilege reserved for the lucky few. It's a reality achievable by anyone willing to commit to smart financial choices and take control of their lives.

The habits listed above can subtly sabotage your financial well-being. The good news is, each one of these habits can be broken.

By taking the steps outlined through this guide, you could be well on your way to achieving your financial goals.

You're not alone on this journey. There are countless resources and communities available to support you.