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Personal Finance

Bad Financial Habits You Should Avoid

By May 3, 2023July 4th, 2023No Comments
a chalkboard with "old habits" and "new habits" written side by side; a red arrow is drawn below old habits and a green one is under new habits, each pointing at opposite directions

Developing good financial habits is crucial for achieving long-term financial stability and success. However, many bad financial habits can hinder your progress and leave you struggling with debt and financial stress.

In this article, we will explore some of the most common bad financial habits that you should avoid.

Spending more than you are earning

Spending more money compared to what you are earning is one of the most common financial mistakes many people make. A lot of us would fall into the traps of the “I deserve this!” mindset, which will then lead to spending more money than we can spare. If this habit is left unaddressed, it could cause an accumulation of debts and financial stress.

To avoid this habit, there are several practices you can observe doing:

  • Always create a weekly or a monthly budget

Create a budget that outlines your income and expenses. Start by tracking your expenses for a month or two to get a clear idea of where your money is going. Then, prioritise your expenses by categorising them into needs (such as rent, food, and utilities) and wants (such as entertainment and dining out).

Set a limit for each category and stick to it. Be sure to include savings as a category as well. A budget can help you manage your finances, avoid overspending, and reach your financial goals.

  • Avoid making impulse purchases

You can avoid the pitfalls of impulse purchases by avoiding online shopping apps or by simply being mindful of the things you spend your money on.

When you feel like you want to make a purchase that is outside your needs, try to pause for a while to rethink if it is really necessary to buy the product. If possible, leave the store or close your online app for a day or two and come back again to evaluate if you still want to push through with buying the item.

Avoiding impulse purchases will help you save money and keep you on track towards achieving your financial goals. Remember, it’s okay to treat yourself once in a while, but it’s important to do so within your means and with careful consideration.

Constantly using your credit cards for your purchases

Relying too heavily on credit cards for purchases is another bad financial habit that can lead to accumulating debt and high-interest payments. It’s important to use credit cards responsibly and to always stay within your means.

Make sure to pay off your credit card debt in full each month to avoid interest charges. Also, limit the number of credit cards you have and only use them for necessary purchases.

Using credit cards to purchase luxury items that you can’t afford can lead to a vicious cycle of debt that can be difficult to break. Instead, focus on building up an emergency fund and saving money for big-ticket items.

Applying for multiple loans simultaneously

Applying for multiple loans simultaneously can negatively impact your credit score and increase your debt-to-income ratio. Keep in mind that when you apply for a loan, the lender may do a hard inquiry, and each of these can hurt your credit score.

If you have too many inquiries in a short period of time, it can indicate to lenders that you are in a desperate financial situation and may not be able to repay the loans. This can lead to higher interest rates or even loan denials.

Instead, take the time to research and compare available loan options and make sure you understand the terms and conditions, interest rates, and fees associated with each loan. And most importantly, only apply for a loan that you are sure you will be able to repay.

Putting all your money in one account

Putting all your money in one account is a bad money habit that can make it more difficult to track your expenses and savings. When all your money is in one account, it can be challenging to determine where your money is going, and you may not have a clear understanding of your spending habits. Additionally, it can be challenging to save money when all your funds are in the same account, making it easy to spend money that you had intended to save.

To avoid this habit, consider opening multiple accounts, such as a checking account for daily expenses and a savings account for emergencies and long-term goals. You can also consider opening separate accounts for specific goals, such as a vacation fund or a down payment for a home.

By dividing your money into different accounts, you can track your expenses and savings more easily and make it less tempting spend your money in unnecessary expenses. Additionally, having multiple accounts can help you stay organised and on track to achieve your financial goals.

Not checking your credit report

Not checking your credit report is a bad money habit that can lead to errors, fraud, and missed opportunities to improve your credit score. Your credit report is a record of your credit history, and it’s used by lenders, landlords, and even employers to evaluate your creditworthiness.

Make it a habit to check your credit report regularly (at least once a year) to ensure that it’s accurate and up-to-date. You can get a free copy of your credit report from each of the three major credit reporting agencies (Equifax, Experian, and Illion), or you can opt to try free credit report apps in Australia such as Tippla.

Review your credit report carefully and look for any errors or inaccuracies. If you find any, you can dispute them with the credit reporting agency to have them corrected. Additionally, checking your credit report regularly can help you detect any signs of fraud, such as unauthorised accounts or credit inquiries.

Not keeping an emergency fund

Ideally, the amount of money to have in an emergency fund is equivalent to 3-months worth of your salary as this will serve as your safety net if an unexpected financial crisis arise.

Having an emergency fund ready can save you from acquiring too much debt if you suddenly need funds for medical expenses or house repairs. Make sure to keep your emergency fund in a separate account, such as a high-yield savings account that’s easily accessible but is not linked to your regular spending account.

Having an emergency fund can provide a sense of security and peace of mind, knowing that you have money set aside for unexpected expenses.


Achieving your financial goals will not be a walk in the park and it will require steady discipline and patience to do. As the saying goes, old habits die hard. The first step is to acknowledge that a change in behaviour and spending habits is needed.

It may take you multiple tries to actually break free from the financial practices you’ve been so used to doing, and that’s okay. As long as you make a conscious effort to improve your situation, you will eventually reach your financial goals.

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