Apr 18, 2018

How to Break Bad Money Habits

By Jarrod Upton

Photo credit: Getty Images

Too often Americans don’t receive much of a financial education. Typically, no such programs exist at the elementary school and high school levels and even in college, students aren’t usually taught the basics of personal money management. However, right around the time they turn 18, the credit card companies make a major marketing push to sign young people up, offering them generous initial interest rate terms and lines of credit. Suddenly, young people who have never had a credit card before are like kids in a candy store – they have the wherewithal to buy whatever they want, whenever they want, and for many young people, this is a recipe for financial disaster. They can put themselves in a financial hole very quickly from which it’s difficult to recover. Plus, they also begin to form bad money habits which can often be difficult to break.

Young people (and some older people too) often lack impulse control and discipline. All of us are constantly bombarded with marketing messages urging us to buy or consume, whether it’s small purchases like the latest fashion accessory or dinner and drinks with friends, or a major purchase like a new car or vacation. Plus, when combined with student debt from college loans, the personal levels of debt can quickly become catastrophic.

Current Self vs. Future Self

I’ve talked many times before about the importance of budgeting. Yes, it’s often a pain – especially in the beginning – but it’s essential if one expects to exert control over their financial circumstances. Without a budget, too often an individual reaches the end of the month and has no idea where their money went or what they spent it on. And if that’s the case, then it’s highly unlikely they are saving money of any kind – not in a 401(k), nor for a down payment on a home, nor a college or rainy day fund. Part of the motivation for budgeting stems from being able to answer this question – “What kind of financial future do you imagine for yourself and how do you intend to achieve it?” Or another way to think about it is this – “Are you always just going to satisfy the needs and wants of your Current Self or are you able to think ahead and plan for the concerns of your Future Self?” If planning for the future is important for you, then creating a budget is absolutely necessary and there are plenty of tools to help you to get started, including Excel for Budgets, Mint.com, or Pearbudget.com.

Setting Goals

It’s also critical to establish goals and to work toward them. And especially in the beginning, it’s okay to start with small goals. For example, maybe you say it’s your goal to save $1000 dollars in the next 12 months. That’s roughly $100 dollars a month, or $25 dollars a week. As you examine your spending habits to see where that $25 dollars a week can be saved (perhaps a few less visits per week to Starbucks or packing a lunch for work, etc.), then it’s important to write it down and track your progress. It’s the joy and satisfaction that is derived from seeing progress made toward your goal that will keep you on track.

Additional Resources

When one is determined to make changes in their financial habits, there are plenty of available resources to help them make progress. Along those lines, there are two books that I can heartily recommend. The first is The Richest Man in Babylon by George Samuel Clason, which was published in 1926.

The Richest Man in Babylon dispenses financial advice through a collection of parables set in ancient Babylon. Through managing their household finances and with their experiences in business, the characters in the parables learn simple lessons in financial wisdom.

The second book is Rich Dad, Poor Dad written by Robert Kiyosaki and Sharon Lechter. It emphasizes the importance of becoming financially educated, and establishing financial independence through investing in various kinds of assets, as well as starting and owning businesses. The book is designed to increase one’s financial intelligence and to improve one's financial aptitude.

Breaking any kind of habit is not easy and it’s true of bad financial habits as well. But if you’re sincerely willing to make changes and if you’re willing to do the work – setting goals, tracking your spending, establishing and maintaining a budget, and taking advantage of available resources – then it’s possible to overcome these bad habits And if you do, I’m certain that your Future Self will thank you.

United Capital Financial Advisers, LLC (“United Capital”) is an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization. United Capital does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances.

Goldman Sachs does not provide accounting, tax, or legal advice unless explicitly agreed in writing between you and Goldman Sachs. Nothing communicated to you, including within this document, should be considered tax advice. We have made no representations with respect to the tax consequences of the transactions contemplated herein. We understand that you have obtained, or will obtain, independent tax advice with respect to the transactions contemplated herein. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the U.S. federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.