Here's what to do if you're 'bad with money, says Ramit Sethi

Final Word

We form our habits over years and years of doing the same thing repeatedly. Financial habits like ignoring your debt, impulse buying, and spending to impress others can decimate any attempts to become debt-free.

If your financial life could use a makeover, look to see which of these bad financial habits you’re following. Rather than assuming a fixed mindset that says you’ll be in debt forever, break the cycle

Take charge and start building good money habits. Your debt and financial struggles don’t have to hold you back.

2. Never-Ending Payments

Ask yourself if you really need items that keep you paying every month, year after year. Things like cable television, music services, or high-end gym memberships can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning yourself from financial hardship.


Having Wine With Dinner

Buying wine with dinner is a pricey proposition. Restaurateurs routinely mark up bottles by about three times the wholesale price — sometimes more. Consider a BYOB-friendly restaurant instead or, if you can bear it, skip the wine altogether when dining out.

Going to Happy Hour

It’s easy to get in the habit of relying on food and drink to decompress after a long day at work. “I’d grab a drink with friends more often than I realized,” said Jim Wang, founder of Wallet Hacks. “Spending $20 for a bunch of cocktails with friends isn’t a big deal until you do it half a dozen times in a month and you wonder where that money disappeared to.”

8. Not Investing in Retirement

If you do not get your money working for you in the markets or through other income-producing investments, you may never be able to stop working. Making monthly contributions to designated retirement accounts is essential for a comfortable retirement.

Take advantage of tax-deferred retirement accounts and/or your employer-sponsored plan. Understand the time your investments will have to grow and how much risk you can tolerate. Consult a qualified financial advisor to match this with your goals if possible. 

4. Not Saving for the Future

At some point, you might want to buy a house. Or maybe you hope to put your kids through college. And, chances are, you’d like to someday retire. These goals typically require years of planning, and decades of saving.

However, many Americans aren’t prepared for the future. When it comes to retirement, for instance, 22% of Americans 25 and older have less than $5,000 saved for retirement and 15% have no retirement savings at all, according to a 2019 survey by Northwestern Mutual. If you find yourself in this boat, know that you’re definitely not the only passenger.

Possible consequences of not saving for the future include:

  • Not being able to afford a house.
  • The inability to contribute much to your kids’ college education.
  • A delayed retirement.

3. Charge Less, Debit More

Using credit cards to live above your means or relying on them to pay bills can leave you trying to dig out of a very deep hole at worst, or at best, living paycheck to paycheck. If you continue to carry high balances, you’ll pay more money in interest than necessary.

One of the biggest better money habits you can have is to use your debit card when you can. This way, you’re mainly spending money you already have. Including your debit card in your digital wallet and on your payment apps can help you avoid charging purchases to credit cards.

2. Not Setting Aside Money for Emergencies

Emergency expenses have a way of popping up when you least expect them. Whether it’s a broken leg, two flat tires or a sick cat, an emergency can easily set you back thousands of dollars. If you haven’t built up much of an emergency fund, those costs could affect your budget for years to come.

The lack of an emergency fund can put you in a difficult financial situation. It might, for instance, require you to pay a hospital tab with a high-interest credit card or put you behind on your rent. Ultimately, it can force you to decide which bills to pay and which bills to skip, which is never a good position to be in. But don’t beat yourself up if you lack an emergency fund. It’s estimated that 25% of Americans don’t have a single penny in emergency savings.

Get started with a money-savings challenge

It can be hard to get motivated to break bad habits and start good ones. However, if you make something fun, it can help take the pressure off and help you stick to it. Try a money-savings challenge to get started building your good money habits. A money challenge is a fun way to save money and also can bulk up your bank account fast!

Not Budgeting

You may struggle to stay afloat financially—never mind getting ahead—if you don’t have a budget in place and know how to stick to it.

A budget allows you to see how much money you’re bringing in and where it’s all going. It enables you to make changes that help you save more money and avoid going into the red each month.

Budgeting doesn’t have to be a big chore. It can start with only carrying a small amount of cash with you each day. Use a system like envelope budgeting to put money aside for paying bills systematically.

Consider signing up with a program like Mint that automatically tracks your spending for you. All you have to do is check your dashboard each day to ensure you’re staying on track and making adjustments as needed.

5 money management habits to break right now

The first way to disrupt the cycle of financial stress is to recognize any mistakes you are making. Getting your financial life in order will have a positive effect in every area of your life. These are the top 5 money management habits that you need to break if you want to regain control of your financial well-being:

Paying bills late

Late fees are expensive and late payments destroy your credit as payment history accounts for 35% of your credit score. Plus, that extra cash you’re forking over in late payments could be used to pay off debt or invest in your future. Poor credit scores lead to paying higher interest rates on future credit lines.

Spending money before you have it

Stop spending money you don’t have. For example, continually treating yourself to expensive dinners or clothing items on your credit card that you can’t pay off in full when the bill comes due could eventually put you over the edge if the balance gets out of control. Unless it’s an emergency, always avoid spending money you don’t have!

Paying bank fees

Bank fees, such as insufficient funds or overdraft fees for a checking account can cost, on average, $34-$38 for each occurrence. If you overdraft every month, that can add up to more than $400 by the end of the year.

One way to avoid overdraft fees is to link your savings account to your checking account. If the checking account gets overdrafted, then the bank will automatically pull money from your savings and avoid charging you an insufficient funds fee. But that only works if you have a savings account and contribute to it regularly. Open one today and start small, but be consistent. Just $10 a week will net you $40 a month, or almost $500 a year.


Conversely, just because you have the money to buy something doesn’t mean you should. Even if you’re not relying on credit cards, draining your bank account so you’re living from paycheck to paycheck will increase your stress as you will have nothing to fall back on in case of an emergency. Instead, try to distinguish your wants from your needs.

For example, you need to pay your rent or mortgage and buy food, but you don’t really need four pairs of running shoes. If you are fortunate enough to have some extra cash left over every paycheck, sock it away. And then, if you really need something, you won’t have to jeopardize your finances and can withdraw cash from your savings.

Having a financial safety net can do wonders in easing financial stress, even if it’s only a couple hundred dollars at first.

Taking out unnecessary loans

If you have to take out loans or use credit cards regularly just to cover your bills, you know you’re in trouble. By consistently using credit, you are also adding interest costs every month, which leads further into debt.

Take steps, such as visiting a nonprofit credit counselor, or drafting up a budget to get a clearer picture of what you owe versus what you are bringing in, to help you figure out what you need to do to get your finances under control.

You may find you need to get creative, such as taking on a second job for a while or renting out a room in your house, to eliminate debts. The silver lining is that once you buckle down, pay off your debts and have some savings to fall back on, that financial stress will lessen tremendously.

Once you begin to put an end to the vicious cycle of mismanaging your finances, you will quickly start to notice the positive effects of financial freedom.

Having your financial life in order will allow you to begin feeling more relaxed, focused and ultimately, less stressed out. These positive effects can carry over into the workplace, improve your health and ultimately lead to a better quality of life.