10 Money Habits That Keep You Poor

Finance experts warn that overlooked and neglected habits add up, and cost you more than you realize.

Just as success is driven by positive money habits, the wrong habits, on the other hand, lead to failure—or worse, keep us poor.

Kenneth Reyes-Lao, founder of the Financial Independence Retire Early (F.I.R.E) Movement Philippines tells The Business Manual, the 10 money habits that should be avoided to achieve financial success.

1. Impulse Buying

Impulse buying is one of the most common pitfalls in saving, and with technology, the temptation to spend unnecessarily has only been brought closer to home. Live selling on social media and online shopping sites have made it more convenient and tempting to make unplanned expenditures and satisfy one’s wants instead of needs.

Aside from shopping online, hanging out at the mall, the Filipinos’ main source of entertainment, also makes one prone to buy impulsively. To avoid this pitfall, Reyes-Lao advises to plan purchases and trips to the mall- make a list of things you really need to buy and stick with it. “Manufacturers and retailers have designed their marketing and sales to make impulse purchases easier.  So be conscious about it and resist the temptation,” he warns.

2. Mismanaging Subscriptions

Keeping track of all your free trials, setting spending limits, and consolidating plans with friends and family members are just some of the ways finance experts recommend managing subscriptions, which easily get overlooked and cause unnecessary and costly monthly expenses.

3. Not Managing Credit Card Debt

A credit card can easily be mishandled and give one the illusion of having more money than he or she really has. Because of this, accumulating credit card debt can happen fast, forcing one to pay high interest rates and landing you in the red.

To prevent this situation, Reyes-Lao advises paying off one’s credit card balance in full each month whenever possible.  “Credit cards as a tool are useful, but it is also designed to make us forget to pay or spend more than what we have,” warns Reyes-Lao.

4. Relying on Cash Advances and Payday Loans

Similar to a credit card, these options also encourage one to spend money he or she does not possess. Borrowing from digital lending apps for instance, gives one easy access to money, only to be slapped with exorbitant interest rates later on. “Buy Now, Pay Later” schemes likewise make spending money you don’t have easier, which can trap you into debt, if not careful.

5. Paying Bills Late

If you’re always late in paying your bills, Reyes-Lao advises asking yourself why? Do you just have a habit of forgetting and neglecting your responsibilities or do you have genuine cash flow problems? Either way, this is a bad sign that keeps you from gaining wealth.

To prevent late payments, he admits even keeping a calendar, to track the due dates of their family’s bills. This way, he avoids incurring additional fees simply out of negligence.

6. Not Having a Financial Goal

Without a financial goal, one has no direction or plan to grow. Reyes-Lao says, a “F.I.R.E (financial independence retire early) number” is one example of a financial goal to direct you towards financial security and freedom.  

To determine one’s fire number, multiply one’s estimated annual expenses in retirement by your number of years left until retirement. For instance, if you plan to retire in 20 years and expect to spend Php 50,000 monthly during retirement, then multiply Php 600,000 (50,000 x 12) by 20. This gives you Php 12,000,000 or a F.I.R.E number of 12. This means you need to be able to save Php 12,000,000 in 20 years, to secure your retirement fund.

Being aware of one’s F.I.R.E number, helps in spending more mindfully and in thinking of more ways to earn, save, and invest for the future.

“Simply saying ‘I want to be rich’ doesn’t accomplish anything,” he says. “Having a financial goal gives you a target. We’re lost without it.”

7. Not Having an Emergency Fund

This is one’s first layer of defense. According to www.investopedia.com, this should cover three to six months of your living expenses. To get started, find out how much you spend monthly and multiply the number by three to determine your initial savings goal.

Investopedia.com recommends breaking down your main goal into smaller goals to make it more achievable.

For instance, if your initial goal is to have an emergency fund of Php 100,000, you need to save Php 4,167 monthly to reach the amount in two years’ time. This is equivalent to saving just Php 139 per day which can be achieved through various ways— buying less gourmet coffee, bringing packed lunch to work, downgrading your cell phone plan, cancelling some of your subscriptions, ending your online shopping habit, reducing vacation days, and saving your next bonus, are just some of the little things that accumulate and add up when done consistently.

8. Overspending on Wants Versus Savings

“Savings are bricks used for your financial foundation,” admonishes Reyes-Lao. To build your savings, the basic rule is to set aside 10% to 15% of your monthly income. But some further increase this percentage through side hustles and passive income.

To him, saving and investing is also an opportunity for self-reflection. “You need to ask yourself what’s important to you and your family. What do you value most?” he advises.  

He cautions, that our expenses are a reflection of what we value most in life. If we spend a lot on material things for example, it could indicate that we care too much about status and possessions.

9. Not Investing

Saving money is not enough. One needs to invest his or her savings to make it grow and compound. This requires studying and educating oneself about various investment options and seeking the help of experts such as fund managers to manage one’s savings for you. Joining groups such as the F.I.R.E Movement Philippines may also help in exchanging knowledge and information about investments and keeps one on track in his or her investment goal.

10. Not Tracking Your Wealth

“Not knowing where your money is going does not help you progress,” explains Reyes-Lao. One needs to keep track of his or her wealth to know where your money gives you more return and works best for you. “It is a visual representation of how you’re building your wealth,” he adds.

In his case, he and his wife discuss where to invest and allocate their savings monthly.

To compute your net worth, add up all your assets, or the things that make you earn, and deduct your liabilities (things that make you spend such as your mortgage and car loan) from it.

In the New Zealand-based blog www.thehappysaver.com, Finance blogger Ruth Henderson, advises diligently tracking this every month, by customizing your own spreadsheet, to see where your money goes and how much you are able to save and spend.

In Henderson’s case, her net worth of $385,000 in 2009 more than tripled to $ 1,400,000 by 2023, thanks to this practice. “Had I not kept a record, I’d not have believed this growth to be possible. But it’s true; the numbers don’t lie,” she shares.

Finance experts say that many struggle with money, not realizing that it’s their daily money habits that are holding them back. Poor financial habits can lead to missed opportunities and even debt and bankruptcy.

But by staying aware, practicing discipline, and taking control of your finances, you can achieve financial stability and build lasting wealth.