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7 Money Habits That Can Make or Break You


Why do you keep buying things you can’t afford? It makes no sense: it’s not rational. Nobody wants to be in debt.

The answer is simple: debt problems are emotional, not rational. Debt results from unconscious habits and attitudes that cause you to spend more than you can afford.

In other words, everyone knows the first law of finance is to spend less than you make. That is how you stay out of debt. Unfortunately, knowing what to do and actually getting it done are two different issues.

That’s why being on the right side of these seven financial practices is critically important to your financial success. They can close the gap between knowing what to do and actually getting it done – simply by changing your daily habits. It is the easiest way to solve your debt problems and begin building wealth.

The good news is this means you have the power to improve your financial situation no matter where you are at today. You created your habits, and your habits produce your long-term financial results. That means you’re in charge and have the power to make positive changes.

Consider the following seven financial practices that can take you to debt or wealth. The habits you choose will determine your financial success or failure.

1. Emotional Spending

Here is a simple test to determine if you’re an emotional spender:

  • Do you use shopping to relieve stress or escape boredom?

  • Do you use shopping as a pick-me-up or entertainment?

  • Do you celebrate by shopping for a treat?

  • Do you ever shop as a form of “retail therapy?”

  • Do you use shopping for social connection?

  • Do you have clothes in the closet with the tags still attached?

  • Do you have more than one of the same item?

  • Is your credit card bill so large that you can’t afford to pay it off at the end of the month?

  • Do you ever feel an endorphin rush when making a purchase?

  • Do you experience anxiety, guilt, or remorse after shopping?

  • Do you ever hide purchases from friends or loved ones?

If you answered “yes” to one or more of these questions, then you might have an emotional spending problem.

Emotional shoppers become addicted to the temporary endorphin high that comes from buying. You’re genetically programmed to pursue what makes you feel good, turning spending into a physiological habit like a drug. That’s why excessive spending is about the emotional experience from buying stuff and not the stuff itself. The purchase brings temporary yet immediate gratification (even if it causes debt).

The wealthy habit is to spend based on needs — not wants — and to plan purchases rather than buy spontaneously. A good habit for breaking emotional spending is to force a two-day cool-off period for all non-planned purchases so your emotions can settle down. If you still want it after two days then it may actually be worth buying.

2. Addiction

Closely related to emotional spending is addiction, but this can be an addiction of any kind — not just shopping. Gambling, drug and sex addictions are highly destructive — both financially and otherwise. The ensuing debt spiral may be the least of your worries but is often a consequence.

The wealthy habit is to avoid all forms of addictive behavior and live in balance — admittedly easier said than done. If you face addiction issues, the solutions are beyond the scope of this article. Seek professional help and consider one of the 12-step “Anonymous” programs tailored to your specific addiction.

3. Entitlement

Entitlement thinking is the belief that you magically deserve all the good things in life regardless of what your financial statement says. After all, why shouldn’t you have designer clothes, a big-screen TV, pedicures and a new car? Everyone else does, right?

The wealthy habit is to only purchase what you can afford to pay for immediately. The wealthy attitude is you are only entitled to what the balance in your savings account shows you’ve earned.

4. Instant Gratification

Closely related to entitlement is a debtor’s tendency toward instant gratification. You want everything now and are willing to pay on credit, thus multiplying the cost of the item.

The wealthy habit is to pursue delayed gratification from a 10- to 20-year time horizon instead of immediate gratification today. That means paying cash for all purchases to lower the cost. This isn’t a sacrifice to the wealthy mindset because you are choosing long-term freedom over immediate lifestyle by investing for tomorrow instead of spending today. It could also include career training or night school instead of watching television so that you can improve job skills and earning capacity.

5. Self-Worth Connected to Stuff

Advertising tries to manipulate you into believing products will make you more attractive, smarter, happier, or live longer. The debtor buys into this by believing happiness is connected to more/better/different stuff. It’s not.

The wealthy habit is to separate your spending from your feelings of worth. You are not defined by your possessions. Ask yourself why you spend: Are you satisfying a genuine need or a contrived want? Your things do not determine your worth as a human being.

6. No Plan

Debtors tend to disconnect spending, saving and earning from each other. There is no budget, no plan for retirement, no tracking of numbers and no strategy for increasing earnings. In short, the debtor lives month-to-month because there is no plan to do anything different. Many questions are never considered such as how to handle a job loss or medical emergency. The default answer is often debt because there was no better plan.

The wealthy habit is to run your personal finances like a business with plans and action steps designed to produce a financially secure result. Develop reserves for the inevitable rainy day and insure those risks you can’t afford to lose. Save monthly from earnings for retirement. Planning is a wealthy financial habit.

7. Complacency

Nothing accelerates a debt spiral like complacency. The debtor attitude might be: “I’m already in debt, so what’s the big deal if I spend a little more?” Complacency is a dangerous emotional state because the pleasant feelings you experience when buying are disconnected from the painful feelings you experience when the credit card bill arrives. The problem is that a series of small impulse purchases, even when minor, will eventually add up to serious debt. You can get away with it for one day or one month, but over a period of years the compounded effect can mean foreclosure or bankruptcy.

The wealthy habit is to respond proactively to any warning signs of impending financial problems. Living paycheck to paycheck, using credit to pay for living expenses, and stressing over money are all warning signs that you need to take action.

Your habits determine your health, wealth, and happiness. Your debt may appear to be a financial problem but that is just the symptom. The cause of your debt is your habits and attitudes, which determine the actions you take every day. These thousands of small, daily actions result in either debt or wealth.

If you want to permanently solve your debt problems then you must change the habits and attitudes that caused your debt in the first place. You must replace debt-building habits with wealth-building habits so you can convert debt into wealth.

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