Bad spending habits — everyone has at least one of them. Maybe for you it’s adding “just one more thing” to your shopping cart, or repeatedly getting slapped with overdraft or late payment fees.
These bad habits may seem innocuous at first but could easily turn into financial self-sabotage.
“Breaking a habit like these can be really difficult because these habits have developed over the years, and they provide us with psychological comfort and safety,” says Thomas Oberlechner, founder and Chief Science Officer at FinPsy, a San Francisco-based consulting firm that integrates behavioral expertise into financial services and products.
Oberlechner says the key to overcoming a bad money habit lies in knowing when you’re using the impulsive, right side of your brain — as opposed to the focused, concentrated left side — in financial decision-making.
“It's really about psychological experience. It's about behavior. If we understand the role of emotion, then we have a chance to fix it,” Oberlechner says.
Once you understand yourself and can identify your bad habit, Oberlechner adds, then you can create a plan “that turns your impulsive or unconscious behavior into the healthy financial behavior that [you] actually want.”
Of course, breaking any bad habit is easier said than done.
MagnifyMoney spoke to financial professionals to hear how they and their clients broke their bad habit. See if any of their hacks could help you break yours.
Bad money habit #1: Spending money as soon as you get it
The solution: Automation
If you’re constantly feeling broke just a few days after you receive a paycheck, you may be guilty of this bad money habit. One way to make sure you hold onto some of your cash is to use what the behavioral finance community calls a “commitment device” to lock you into a course of action you wouldn’t choose on your own, like saving your money.
In this case, the device is automation. Automating your savings won’t help you stop siphoning money from your checking account the same day your direct deposit clears, but it can make sure you save what you need to first. Check with your bank or the human resources department at work to have a portion of your paycheck automatically sent to a savings account instead of putting the entire sum in your checking account.
You should automate your bills and credit card payments for the pay period, too. Once your obligations are automated, “you can be impulsive with your play money,” says Oberlechner.
Bad money habit #2: Reaching for your credit card all the time
The solution: A cash diet
Paying for everything you buy with a credit card can be good practice if you pay off your card every month. If you’re chronically swiping your credit card for things you can’t afford to pay off by the next billing cycle, leave your card at home and use cash instead.
When you don’t pay off your card each billing cycle, you rack up interest charges on everyday purchases, and that may cost you a lot more money in the long run. If you’re using more than 30 percent of your total credit limit each month, you may also be harming your credit score.
To break your habit, leave your credit card at home and use cash or a debit card for your purchases.
“Take a certain amount of cash and say ‘I can spend no more than that,’” says Vicki Bogan, an associate professor at Cornell University in Ithaca, N.Y., who researches behavioral finance. “If you have a huge [spending] problem, try to limit yourself so that you only have access to a certain amount of money.”
If you really want to challenge yourself, you can try going on what’s called a spending freeze, where you stop spending any money on non-essentials for a period of time. On top of helping you save money, the freeze can help you notice how much money you may be wasting simply because you’re always pulling out your credit card. After your freeze ends, you may be less inclined to swipe your credit card.
Another rule that could help you break your swiping habit is the $20 rule. The financial rule of thumb is simple: Anytime your purchase is less than $20, pay in cash, not credit. The $20 rule forces you to think about whether or not a purchase is worth swiping your card for. Chances are, if what you’re buying costs less than $20, it’s not something you’d be OK paying interest on.
Bad money habit #3: Spending beyond your means
If you chronically spend beyond your means each pay period, you are likely digging yourself into debt. Get a handle on this habit by understanding how much money you have coming in and how much you can afford to spend on a monthly basis. You can use budgeting apps like Mint or YNAB to make that part easier. These tools can also help you identify the spending categories that are costing you more than you might realize.
Oak Brook, Ill.-based certified financial planner Elizabeth Buffardi tells MagnifyMoney that after examining one of her client’s expenses she found the client was spending a lot of money at drugstores picking up snacks and little things after work. So the client gave herself a budget of $10 per drugstore visit to save money.
“We've been seeing her spending at drugstores go down steadily over the last few months,” says Buffardi.
Buffardi had two other clients who struggled with overspending because they loved to shop online. They both created boundaries for themselves when it came time to pay for the items in their online shopping carts. One client decided to buy a certain amount of gift cards that she could use on a given site.
“If she spent all the gift cards in the first day, then she was done until the next paycheck. If she wanted something that was more expensive than the amount she had on the gift cards, she had to hold off on other purchases in order to purchase the more expensive item,” says Buffardi.
The other client simply removed her credit card number from her payment profiles so it would be more difficult to make thoughtless purchases. Her theory, Buffardi tells MagnifyMoney, was that if she was forced to stop and pull out her credit card before she could make the purchase, it might slow her down and give her time to think about the purchase she is about to make and — maybe — stop some purchases from happening.
Bad money habit #4: Always buying lunch from a restaurant
The solution: Plan your lunches a week in advance
If you’re losing $10-$15 a day to the local deli during the workweek, remember this: You don’t have to buy lunch if you bring it to work with you. However, organizing your day so that you actually have time to prepare and pack your lunch may be where you struggle.
Leave room in your busy schedule to pack your lunch in the mornings, or during the evening when you may have more time to yourself.
Melville, N.Y.- based certified financial planner David Frisch says he packs his lunches in the evening because he knows he runs late in the morning. He puts together everything but the dressings and sauces he plans to eat while making dinner, so lunch is already 90% done, then he adds the last 10 percent in the morning.
Frisch suggests setting a budget for how much you’d like to spend on food per pay period, then tracking how much money you typically spend on the convenience of frequently going out to lunch. Again, a budgeting app can be handy here to easily identify places where you spend the most.
Compare that amount to how much you spend on food for entertainment purposes, like going out to dinner with friends over the weekend and for your necessities, like eating lunch to fuel your workday.
“If you are spending so much money on convenience, you have that much less money to spend on everything else,” says Frisch. If you’re spending money from your food budget for convenience purposes, you may be more reluctant to go out on Saturday night for dinner.
If you’re already packing your lunch, but purchase a second lunch because you’re still hungry or you no longer want to eat what you packed, try packing a larger meal or having leftovers for a second lunch.
Bad money habit #5: Ordering out for dinner because you’re too tired to cook
The solution(s): Prep when you have time/energy; try meal delivery services
It’s easy to spend more than $50 getting dinner delivered three to four days out of the week, or buying groceries that go to waste because you’re too tired to cook. Oberlechner suggests doing some of the “work” of making dinner when you know you have more energy.
“If you’re too tired to cook in the evening, replace the spontaneous behavior by preparing dinner in the morning. So in the evening you don't have the work of preparing anything,” he tells MagnifyMoney.
Another hack Oberlechner suggests is making a little extra dinner for the days you know will be especially long, when you won’t want to cook dinner. For example, if you know Tuesday is a really long day but Monday is not, cook a little extra on Monday and have those leftovers for dinner on Tuesday.
If cooking dinner simply isn't a habit for you, you can try a meal kit service like Blue Apron, Plated, or HelloFresh to get interested in cooking, suggests Brooklyn, N.Y.- based certified financial planner Pamela Capalad. She tells MagnifyMoney she’s advised many of her clients to sign up for a meal kit service, then transition into grocery shopping and cooking at home regularly.
Generally, the services cost about $10 to $15 per serving and can serve up to four people.
Bad money habit #6: Letting your kids throw extra things in your shopping cart
The solution(s): Shop solo or lay ground rules early
Frisch says he and his wife solved this problem with their now 15-year-old triplets when they were four years old.
“Up until they were four we couldn’t bring them to a supermarket because it was impossible for my wife and I to watch three kids at the same time,” says Frisch. The easiest recommendation, he says, is to have somebody watch them at home while you go do the shopping. You may spend some money on a sitter, but you are also saving money without an eager child sneaking candy and toys into your shopping cart as well.
If an extra set of hands at home isn’t available, then try to set ground rules before you go to the store. For Frisch, that meant allowing the triplets to get one — just one — extra item at the store.
When a child wanted to add something “extra” to the cart, Frisch or his wife would say, “If you want this now, then you have to put the other one back.”
“Ultimately what happened was they kind of had to make a decision as to which one they would really get,” says Frisch.
The triplets quickly realized they could all benefit from working together.
“They actually started to communicate and say ‘if you get this and I get this, we can share,’” Frisch told MagnifyMoney. “They just figured out that if they all got one thing and shared, they ultimately all got more than they would have.