I’m fascinated with habits. How they are formed, how and why people maintain them, and why some people choose great habits while others choose not so great ones. Today specifically I’ll be writing about sloppy money habits.
I think money habits make or break a person’s financial life. Good money habits are likely to create positive results with your personal finances while sloppy money habits are likely to create negative results.
What Are Money Habits?
Money habits are just like any other habit. They are something done on a consistent basis, almost on autopilot. Some examples:
- Automating 20 percent of your income every month
- Stopping for coffee every day on the way to work
- Walking down to the food cart every day around 3:30 for an afternoon snack
- Checking your bank/investment accounts at the start of each month
Two of these habits (the first and the last) would probably be described by most as positive money habits. The two in the middle not so much. Either way, they are all money habits and often done without a lot of thought, logic, or intentionality.
Whether we’re aware of them are not, we all have money habits. And I believe that personal finance success is highly proportional to the money habits we engage in. The more positive the habits, the greater the results.
Sloppy Money Habits
The focus of this post is on sloppy money habits. And the point of writing about these habits is to create awareness that they exist, and are actually quite common. Once we are aware of these kinds of habits, we can eventually extinguish them.
Number 1: Mindless Spending
The first of the sloppy money habits is a very common one, and something I struggled with for a long time. I struggled not because I was intentionally bad, but because I just wasn’t aware. Once I became aware, I was mostly able to stop this habit.
What I’m referring to is mindless spending. It’s the act of spending without thinking. Buying something because you did it yesterday, the day before, and the day before that. Mindless spending can go on for years because we just become immune to it and don’t think about it.
Here’s an example. Someone who likes coffee but doesn’t have a real preference between various coffee shops, or coffee brewed at home. It all tastes the same, they just want a cup of coffee before work.
But every day without fail, this person stops at the coffee shop between work and home to grab a cup of coffee. This coffee shop also happens to charge five dollars a cup. This process repeats every day without any rhyme or reason other than it’s what they’ve always done. This is the epitome of mindless spending.
I’m not one of those people that says to give up your favorite coffee and you’ll become a millionaire. But I am one of those people who says to be intentional, and only order out what you value. For everything else, look at different options like brewing your own coffee for pennies on the dollar.
Related:
- Brewing Your Own Coffee: Will it Really Make You a Millionaire?
- How Value-Based Spending Can Change Your Life
Number 2: Faulty Thinking
This is a habit that can last for years. For some, it lasts a lifetime if action is not taken to correct it. It’s faulty thinking–and it inflicts almost all of us at some point.
For me, the faulty thinking lasted well over a decade. These are just some of them:
- I’ll never be able to afford a house
- With my salary, it’s impossible to get ahead
- Investing is only for the rich
For many years I told myself these stories. Even worse, I listened to them and held them as truth. The reason I categorize it as a sloppy money habit is that I did nothing to correct it. I took these thoughts and statements at face value and took no action.
That’s what is so dangerous about faulty thinking. It becomes what we believe to be a truth and then sticks with us. Think about your thoughts. What do you currently hold as a truth that might be faulty thinking? What can you do to correct it?
Number 3: Self-Fulfilling Prophecies
A natural follow up to faulty thinking is self-fulfilling prophecies. Although not exactly the same, they are closely related. Faulty thinking can easily transition into self-fulfilling prophecies, which is a very dangerous place to be in.
Self-fulfilling prophecies leave a tailwind of negativity and an expectation that bad things are on the horizon. It sets the Reticular Activating System to expect bad things. The big danger is we then start to look for those bad things and then think to ourselves: “told you so.”
For example, someone with a negative self-fulfilling prophecy about money who gets an unexpected home repair is going to say to themselves:
- “Here we go again.”
- “Right as I was saving, I get this bill and I’m back to square one.”
- “What’s the point of saving, the bills just come in faster.”
It’s hard to get ahead with this attitude. Negative self-fulfilling prophecies need to get flipped to more positive and solution-based thinking for a better chance of success.
Number 4: Repeating Mistakes
Number four on the list of sloppy money habits is repeating mistakes. Making mistakes is a natural part of learning–it’s almost impossible to develop without making mistakes along the way. The problem is repeating mistakes, sometimes multiple times.
Mistakes aren’t necessarily a bad thing. They usually are a result of stretching our abilities, which is how we grow. If we don’t stretch, we don’t grow. But if those mistakes are repeated, it means we’re not learning from them and taking the appropriate actions.
A little over 10 years ago I purchased my first property. It was a property for me to live in first and eventually rent out. It was a good decision to buy at that time but my process was off.
Here was my mistake: I used the very first real estate agent I found. I didn’t interview anyone else and assumed all agents were the same. Nice enough person that I worked with, but not the most skilled. I ended up losing out on close to 10 properties and felt like I was learning the market faster than my agent.
It all ended well, but for the next property I bought, I made sure that I did my due diligence. I found an agent by referral, and as a result, that transaction was much smoother and a better deal. So I made a mistake but didn’t repeat it.
However, if I used that same agent as I did for the first property, it would have been a repeated mistake. And it could have come with bigger consequences because the market had shifted and I was purchasing a larger and more expensive property.
Number 5: Avoiding Learning Opportunities
There are learning opportunities everywhere. They are in the wins, losses, and ties. It’s a skill to recognize the opportunities, and even more of a skill to tease out what the learning opportunity actually was.
One of the seminal moments I write and talk about in my own personal finance journey is when I over drafted my checking account multiple times in one day. Now, I had over drafted my account many times even before that, but never learned from it.
This time was different though. Maybe it was because I had at least three over draft charges in the same day or it could have been that I was getting tired of living like I was. Whatever it was, this was the time I actually recognized the learning opportunity and took action.
Without learning from that situation and taking subsequent action, I’m not sure where I would be today. For whatever reason, I needed that moment for my own personal development and growth. If I had avoided the opportunity, my life would have been very different.
Look at your own day-to-day life and think about the learning opportunities. Ask yourself these questions:
- What am I learning?
- Is there anything I missed today?
- What am I seeing today that I might have missed last year?
- How can I better utilize my Reticular Activating System (RAS)?
- Am I making improvements or staying the same?
Tips to Improve in This Area
I’ve heard a couple good tips to improve in this area. Number one is to be intentionally reflective. That means take a step back after things happen and think about the learning opportunities. Are there any takeaways from the situation that can help you improve?
The second tip is even more intentional. Towards the end of each day, sit down and write down three things you learned. I like this because it doesn’t give you any outs. The question isn’t whether you learned anything or not, but WHAT did you learn. There is no option for nothing.
This exercise forces you to write down three things which means you’re digging deep into the day. It’s a way to train yourself to look for the learning opportunities. It also engages your RAS to find things for you.
Eventually the idea is that throughout the day you will be actively looking for the learning opportunities to put in your journal later that day. So you’re working all day towards this exercise and putting it in writing later in the day. All the more powerful.
Related: 34 Money Mindset Journal Prompts to Get You in Control of Your Personal Finances
Number 6: Turning a Blind Eye
There are many ways you can approach experiences in your life. Among them:
- You can recognize, learn, and improve
- Recognize and not learn
- Blame others
- Just turn a blind eye
This section addresses turning a blind eye, number six of the sloppy money habits. Turning a blind eye is intentionally ignoring the situation. Much like we can all train ourselves to learn from opportunities, we can also train ourselves to turn a blind eye to potential learning experiences.
Turning a blind eye is a mindset, or a way of thinking. It’s a way to go through life by ignoring potentially valuable learning experiences. It feels good temporarily, but stunts your growth.
Looking back at the example I gave where I over drafted my debit card multiple times in one day. If I chose to ignore it like I had all those times before, I never would be where I am today. I’m confident that I wouldn’t have read books like Rich Dad Poor Dad, The Millionaire Next Door, The Richest Man in Babylon, The Automatic Millionaire, etc.
And I know for sure I never would have written my book Cash Uncomplicated or this blog.
Number 7: Defeatist Mindset
A defeatist mindset is not only a dangerous mindset, but also one of the sloppy money habits. It’s thinking you’re going to lose before you even play the game. That kind of mindset puts you at an immediate disadvantage.
One of the major differences between successful and unsuccessful people is confidence. Which almost always directly relates to mindset. A strong mindset breeds confidence. By strong mindset, I mean: positive, growth-oriented, and persevering.
Imagine an individual who makes $100,000 year. If they have a mindset that they have a good job, make solid money, and have the ability to invest wisely they are likely to do well. But if another person with that exact same salary has a mindset that it’s not enough, or they won’t have money to invest–then that is likely to happen.
Same salary, same job–just different mindsets. I think that’s one of the major reasons we see some people with almost identical salaries and jobs have great success with their personal finances while others in the exact same position struggle.
Number 8: Being Cheap
Some might say that being cheap is just being cheap. I have a different take on it though. Being cheap is a habit and a mindset. And once you’ve got the habit, it’s hard to break.
Being cheap is a habit of scarcity. It’s that constant thought in the back of your mind that you won’t have enough and are in danger of losing something valuable–in this case money.
That’s in contrast to those with the abundance mindset, or the mindset that there is enough to go around and there is always the ability to earn more.
It’s easy to get into the habit of being cheap. Pay a few dollars less than what you owe at dinner with friends, let others buy you a drink at the game but don’t reciprocate, tip the server a little less, etc. All of these things will provide you with short-term gains of a few extra bucks in your pocket, but it comes with a bigger cost.
These habits just reinforce the behavior which leads to continuing the habit. And it’s hard to truly get ahead with habits like these because you are always self-doubting yourself. Engaging in cheap habits is subconsciously telling yourself that you don’t have the ability to make more, find creative ways to invest more, or trim the fat off your budget.
Number 9: Doing It All Yourself
I listed doing it all yourself as one of the sloppy money habits because it’s taking away your highest and best use of time. In my book, I wrote a chapter about this very subject of highest and best use of time.
When you do it all yourself, you’re not challenging yourself to your highest and best use. This sounds like a controversial, or even elitist framework, but let me give you an example. For sake of even numbers, let’s take a nurse who makes $50 an hour on average.
This nurse also has the ability to work extra shifts and earn overtime pay. Overtime bumps the nurse’s hourly pay to $75 multiplied by however many extra hours he or she works. Using an eight-hour shift, that’s 600 ($75 x 8) before taxes. If taxed at a 30 percent rate, the nurse would take home $420.
Continuing this example: Imagine the nurse has a home repair, something like plumbing. He or she would have two options to complete the project:
- Do it yourself: Estimated to take 16 hours and cost $300 in parts
- Hire it out: Projected to take a professional 4 hours and cost $700 including parts and labor
On the surface, it appears that the second option is more expensive because it’s $400 more. But what if the nurse chose instead to work two overtime shifts (eight hours each shift) making a combined $840 ($420 per day after taxes multiplied by two days). $840 minus paying the professional $700 equals a surplus of $140.
Two Factors: Cost and Potential for Errors
Doing it yourself for 16 hours comes with a net cost of $300 because of the cost of parts. Of course, there are other variables like if you enjoy doing the work yourself, feel like you’re going to do a better job, etc. But for the person who has the ability to work overtime, the decision to hire it out and work extra makes a lot of sense.
Not to mention the error factor. Anytime we are not good at something, or have little expertise–there’s a good chance we are going to make a lot of mistakes. Examples include someone trying to do a DIY car or home repair. When I think about DIY home projects I’ve attempted, they have almost always included a lot of trips back and forth to the hardware store, frustration, and of course a lot of swearing!
Going back to the nurse in our example–if he or she has the do it yourself mentality, they might be missing out on the opportunity to net more money at something they are better at while also minimizing the risk of something going wrong.
Number 10: Spending Too Little Time on the Big Things
It’s easy to get caught up in the little details of daily life. Some call it “majoring in the minors.” Day to day, it’s easy to get caught up in this cycle.
It’s important to take a step back and look at the big things. Someone who brings their lunch to work every day to save money but lives in an expensive apartment with overpriced rent is missing the point. While bringing lunch to work is a great habit, the savings only go so far.
Oftentimes the big expenses like rent/housing can be found at the same quality for a much less expensive price. For example, there are one-bedroom apartments in the city I live in that rent for close to $4,000. They are really nice, have a lot of amenities, and are in above average good locations.
There are also apartments in the same general area with similar amenities that rent for less than $3,500. While I personally still think that’s a very high rent for a one-bedroom apartment, that is still $500 less than the $4,000 apartment. With just one decision to live somewhere that costs less, there is a savings of $500.
The big thing comes with a savings of $500 while it’s going to be much harder for the little things to add up to that amount. To go even further, if someone is willing to get a two or three bedroom with roommates or live a little further out, the savings can increase to well over $1,000 per month, likely closer to $2,000.
As a caveat, my opinion is that people should focus on the big things but also pay attention to the little things. Finding an apartment for a much lower cost is very powerful. Doing that and putting some attention to the little things is even more powerful.
But the overall point of this section is to make sure focus is given to the big things. The rewards and savings are significant.
Number 11: Expensive Breaks
Everyone needs breaks. It doesn’t have to be hours upon hours either. Breaks can last a couple minutes, a half hour, an hour, or really any amount of time. During work especially, it’s natural for people to want to take a break. It’s nice to take a step back, breathe in some fresh air, and get away from the desk for some time.
Here’s where breaks overlap with personal finances. Many people have developed expensive breaks without realizing it. When what they really want is just a simple break. Here are some examples:
- Driving to the convenience store to get snacks
- Walking down to the coffee stand on the first floor
- Getting a cold drink at the drive through
All of these things serve as a break but come at a cost much higher than just bringing your own food and drinks. Now, I’m not suggesting to completely suck the fun out of life and never spend a penny again. What I am suggesting is to look carefully at your true wants and needs and be creative to fulfill them.
If you’re wanting a break at work, will grabbing your own coffee that you made at home and walking down to the coffee stand area for a few minutes do the trick? Or if you want a snack break, would getting some snacks that you keep in your desk and walking down to the shaded area outside your office work just as well?
Be Intentional
Everyone has come up with their own ideas of what constitutes a break. Then we repeat those same behaviors because we did it the day before, the week before that, and the year before that. Even if it doesn’t make a lot of sense, it’s easy to continue the behavior because it’s what we are used to and it’s become a habit.
Something to think about: If you really want to grab a coffee down at the coffee stand, go grab the coffee. Don’t deprive yourself. But if you just want a little break and walking down to the stand with the coffee you brought from home is all the same to you, go that route. Whatever you do, just make sure it’s intentional and done with some thought.
Conclusion
We all have sloppy money habits. Some of us have very minor ones while others have major ones that need to be corrected sooner than later. The thing with habits is that the majority of people are unaware that they even exist. Ask most people about a negative money habit they have and they likely will have to think about it for a while.
Take a few minutes to think about the money habits you have–writing them down will help. Then get to work on eliminating or minimizing just one. After that move on to the next one and do the same thing. Build up the momentum and keep repeating the process.
It’s not going to be perfect, but if you’re able to fix just a few habits every year, you’re going to make huge gains over the course of a few years.
What sloppy money habits do you have? Which one do you want to eliminate first?
