7 Bad Money Habits You Should Break

“Chains of habit are too light to be felt until they are too heavy to be broken.” Warren Buffet shared this insight. It is a tale as old as time. For better or worse, we are creatures of habit. One area where this can lead to problems is our financial lives. Have you asked yourself questions like, “Where is the money going?” “Why can’t I seem to get ahead?” If so, you may be falling victim to some common bad money habits.

Raiding your savings account or emergency fund

Many people tap these accounts without a second thought. Perhaps it is because they are too accessible. Try to keep your checking account (where you pay your bills from) separate from your savings account and emergency fund. Use a different bank so it isn’t as easy as a few clicks on your phone or PC. Remind yourself of the true purpose of the account and hold yourself accountable.

Carrying high credit card balances and only paying the minimum payment

The key to maintaining a good credit score is keeping credit utilization below 30% and paying off balances on time. A credit utilization rate is the amount of credit used compared to the total amount of credit a cardholder has available across all credit accounts. If you carry a credit card balance, not only will you be in debt longer, but the amount of interest you pay will add up to be quite large due to sizeable interest rates that accompany these credit cards, oftentimes in the double digits. As a general rule of thumb, try to keep your monthly credit card debt payments below 10 percent of your average monthly income.

For many, they are plagued by the desire to “keep up with the Jones,” or suffer from a case of “fear of missing out” (FOMO). These maladies cause people to live beyond their means, oftentimes forcing them to live paycheck-to-paycheck. Rather than do without, many view credit cards as their “go to” when they want the latest and greatest product or run into an emergency. Like many things in life, it may feel good in the moment, but the aftereffects could ruin you.

If you do have large credit card balances, investigate debt paydown strategies such as obtaining a personal loan and consolidating your debt. You will still have to pay interest, but the rate will be much less than that of your credit card. Look into transferring your balance to a zero percent card. Oftentimes these offers are good for a term of 18 – 21 months.

Procrastinating on contributing to retirement savings

Many younger workers procrastinate when it comes to contributing to their 401(k) or 403(b) accounts. They fail to see the correlation of starting early and long-term financial success. They don’t have an understanding of the power of compounding. Let’s look at some examples:

If a 25-year-old started investing $200 per month (assuming a 6% return), by the time they turned 65, they’d have a nest egg worth $393,700. But if they’d waited until 35 to start saving $200 a month, even with the same rate of return, they’d end up with almost half that — $201,100 — by age 65.

Samantha, age 20, invested $1,000 today. If she didn’t touch it until she retired at age 70, her money could increase by 32 times — meaning she could end up with around $32,000. (This assumes a 7.2 percent growth rate). If Sarah waited until age 30 to invest that $1,000 and leave it be until retirement, she’d only end up with half as much ($16,000). If Sarah were to invest that $1,000 at age 20 and contribute $83 a month (around $1,000 a year) until retirement, then by age 70, she’d have $465,000!

Here is an example comparing two individuals. 25-year-old Beth and 45-year-old Mike each save $30,000 over a period of 20 years. (For the first 10 years, they each save $1,000 annually, and for the second 10 years, they each save $2,000 annually.) A 6 percent annual return and that they made their contributions at year-end is assumed. Beth starts saving at age 25 and stops at 44 — and Mike starts at age 45 and stops at 64. Even though they saved the same amount and earned the same rate of return, when Beth turns 65, she’ll have $110,000 more in her nest egg than Mike did when he turned 65. Beth ends up the clear winner with $160,300, while Mike ends up with $49,970. This is because Beth had 40 years of compounding growth and Mike only had 20.

The key takeaway; contribute to your employer’s 401(k) program. Try to contribute enough to get the company match (if offered). If your company doesn’t offer a 401(k), consider opening and contributing to a traditional IRA or Roth IRA. Structure your monthly contributions as automatic transfers from your checking account or have them go directly from your paycheck into your retirement account.

Dipping into your retirement accounts

It may be tempting to tap your retirement accounts when you want to pay off debt, need a down payment for something, or want to make a large purchase. Know that this will trigger less than favorable consequences.

  • If you withdraw money from your 401(k) before age 59½, the IRS usually assesses a 10% penalty when you file your tax return. That could mean giving the government $1,000 or 10% of that $10,000 withdrawal in addition to paying ordinary income tax on that money. Between the taxes and penalty, your immediate take-home total could be as low as $7,000 from your original $10,000.
  • Some early distributions qualify for a waiver of that penalty — for instance hardships, higher education expenses and buying a first home. Some examples of when you can take penalty-free withdrawals from your IRA or 401(k) are to pay unreimbursed medical bills, if you are totally disabled, to pay health insurance premiums if you are unemployed, if you die your beneficiaries can take withdrawals penalty-free, if you owe the IRS and they come after your IRA for unpaid taxes, if you are a first-time homebuyer (penalty-free only if coming from an IRA. 401(k) withdrawals still inflict the ten percent penalty), to pay for higher education expenses (penalty-free only if coming from an IRA. 401(k) withdrawals still inflict the ten percent penalty).
  • When it comes to a Roth IRA, there is a penalty of ten percent for early distributions, but only on investment earnings. You can withdraw your original contributions tax and penalty-free before age 59 ½. Again, it may be tempting, but you are putting your financial future at risk when you choose to pull from retirement accounts early.

Overlooking unnecessary fees/costs

Many of us are guilty of not paying attention to unnecessary fees or recurring expenses that may continue to pop up on our statements. Perhaps it is a gym membership, subscription service, streaming, or free trials you forgot to cancel. Maybe you are being dinged by your bank every month for overdraft fees or because you are making too many transfers or withdrawals from an account. Frequent visits to ATM machines not affiliated with your bank will add up, too at $3-$4 a pop. Have you checked your monthly bills to see if you can save money by switching vendors? How long has it been since you shopped around for auto/homeowner’s insurance? Is there a better phone plan available?

Not having a solid grasp of what is coming in and what is going out

One of the primary keys of financial success and avoiding bad money habits is understanding your cash flow situation. Know what is coming in every month and what is going out. Track your spending using a tool such as Quicken, Mint, or even an excel spreadsheet. Search for ways to cut your expenses wherever possible. Place the emphasis on supporting your “needs” not your “wants.” Use the 50/30/20 rule as a guidepost. This is a popular budgeting method that splits your monthly income among three main categories. Fifty percent of your income is allocated to “needs,” (mandatory expenses you can’t avoid), thirty percent is allocated to “wants,” (things like subscriptions, dining out, travel), and twenty percent is allocated to growing your savings and paying off debt.

Limited vision

Many people today are so busy running around just trying to get things done, that they don’t set any time aside for creating a vision and charting goals. Goals are the spark that ignites the flame. They motivate you and provide you with a sense of direction. They give purpose and operate as a gauge for accountability and success. They serve as a map to wherever you want to end up. Without goals, what are you working for?
It’s never too late to break bad money habits and replace them with habits that will yield positive results. Having a financial plan is a great step in the right direction. If you are interested in working with a fiduciary, please contact us at (410) 840-9200 or visit us at


Forbes. (June 2022). How Much Credit Card debt is too Much? (December 2021). These Two Examples Illustrate the Magic of Compound Interest. (September 2022). How Much Credit Card Debt is Okay? (March 2022). Ways to Take Penalty-free Withdrawals from IRA or 401(k) (January 2022). Budget Calculator.

Main Street Advisors, LLC. September 2022. Main Street Advisors, Inc. is a Registered Investment Advisor. The articles and opinions expressed in this material were gathered from a variety of sources, but are reviewed by Main Street Advisors, LLC, prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of September 2022 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual situation. Always contact your financial/investment professional before making any financial decisions. Main Street Advisors, LLC is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

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