10 Ways We Sabotage Our Own Finances

While the U.S. economy has been adding jobs every month since late 2010 and several key indicators  point to strong economic growth, plenty of Americans still struggle. A Federal Reserve study from last year showed that nearly half of Americans couldn’t come up with $400 to cover an emergency expense. And even though wages in some professions are growing, the rising cost of everything from healthcare to food to childcare makes it harder for the average family to get ahead.

Of course, not all economic issues can be blamed on outside factors. For every financial burden created by inflation, taxes, or lousy wages, there are a handful of self-inflicted financial punishments we create ourselves.

10 Ways You Might Be Sabotaging Your Financial Goals

Sometimes it’s a lack of planning that leads us to sabotage our own efforts, while other times it’s bad spending habits. Either way, it’s not always easy to change long-term patterns – especially when you don’t recognize a problem to begin with.

If you’re doing well on paper but not making the financial gains you crave, it’s possible the way you view money is holding you back. If you suspect maybe you’re the source of your money woes, you could very well be right. Here are 10 ways we sabotage ourselves and our finances every day:

#1: Trying too hard to keep up with neighbors and friends

Having friends who live large can make it that much harder to rein in your own finances – and that’s especially true if you try to keep up with them. If you end up in a situation where you’re spending like they do without the income to match, you could easily spiral into a cycle of stress, regret, and debt.

When it comes to money (or anything, really), always try to avoid comparing yourself to others. Doing the best you can with your budget may not leave you with lots of fancy stuff, but it will leave you better off.

And, let’s be honest: There’s a good chance your friends can’t afford their lifestyle, either.

  • Related: How to Get Past the ‘Keeping Up with the Joneses’ Mentality

#2: Using debt as an extension of your income

While a lot of people think of debt as the devil, it’s possible to use debt responsibly. Most of us need to borrow money to buy a house or reliable transportation, after all. And without a business loan, it can be nearly impossible to get your new start-up idea off the ground.

But debt becomes a problem when you use it without thinking. If you use credit cards to buy things you don’t need and can’t afford, you can wind up throwing hundreds – or even thousands – of dollars in interest payments down the drain every year.

Instead of using debt as an extension of your income, use it sparingly – and only when you must. By avoiding pointless credit card debt and the bills that come with it, you can keep more money in your bank account, where it counts.

#3: Buying the first thing you see without shopping around

Prices can vary on nearly everything you buy, from regular monthly subscriptions and bills to insurance products, clothes, groceries, and cars. If you don’t shop around for the best deal, chances are good you’ll overpay.

While some expensive purchases require weeks of research, you should strive to shop around for anything you buy – even small stuff. Fortunately, you can compare prices for most consumer goods online, and with very little ease. Heck, you can compare prices at almost any store on Amazon.com.

Whether you’re buying a sweater, a holiday gift, or auto insurance, make sure to compare prices with at least three competing businesses before you buy. That way, you won’t wind up paying more than you should without even knowing.

#4: Trading in your car every few years – no matter what

As of the first quarter of this year, the average car payment for a new car loan was $506 a month and 68 months long. With that kind of statistic hanging over our heads, it’s no wonder so many of us are struggling with debt and living paycheck-to-paycheck.

If you’ve gotten in the habit of trading in your car for a few one every few years, stop. Consider keeping your car a few years longer, paying it off (in full), and basking in the glory of debt freedom for a while. Once you’re no longer forking over that monthly payment, you may find a newer car isn’t even worth it.

Just think how much money you could save if you weren’t paying $300 to $600 a month for your ride! If you waited just one extra year before trading in, and pocketed the average car payment of $506 for just 12 months, you’d have $6,072!

#5: Paying the minimum balance on credit cards

Carrying high-interest credit-card debt is bad news. But paying only the minimum payment is an absolute disaster.

A family with a $10,000 balance on a card with an 18% APR who pays only $200 each month would need more than seven and a half years to pay it all off. Worse, they would pay $8,622 in interest in the process.

If you’re carrying debt, making minimum payments is only delaying the pain and adding interest to your bill. By confronting your debts head-on, you can pay them down faster and get out of debt sooner.

#6: Trying to save ‘what’s left’

Far too many people wish they could save money but can’t figure out how. So, they approach their finances in the most backwards way possible – they pay all their bills and spend what they want, then try to save “what’s left.”

If saving what’s left leaves you depleted month after month, try paying yourself first instead. By setting up an automatic deposit into your savings account on payday, you can ensure you’re saving money and not shortchanging yourself.

#7: Refusing to use a monthly budget

For some reason, many people see budgeting as something that stands between them and the life they want. But those who budget regularly see it for what it really is – a tool that can help you afford the life you want.

If you’re struggling with money, a budget could be exactly what you need. It doesn’t have to be restrictive, either. Think of a monthly budget as a plan for the money you earn — you’re simply prioritizing what’s most important to you. So if you want to plan for a splurge or a fun vacation, you can. Your monthly budget is there to guide your spending, reduce wasteful spending, and make sure you’re saving first.

#8: Picking up expensive hobbies

If you have an expensive hobby and can’t seem to save much money, you shouldn’t wonder why. Following a professional sports team, playing golf, or collecting antiques can easily set you back if you’re not careful.

That’s not to say you shouldn’t have any hobbies; instead, make sure you can afford your hobbies before you invest in them. Are you saving money for retirement? Do you have a fully stocked emergency fund in place? If not, you may want to think twice and hold off before getting your scuba license or buying a new set of clubs.

#9: Forgetting to set up contributions to a 401(k) or other retirement plan

It’s easy to think you’ll “save for retirement later” or “start contributing when you earn more money.” But, what happens when you don’t?

What happens when you forget to sign up… and several years go by? What happens if you don’t contribute to retirement until you’re 30, or 40, or even 50? Unfortunately, we all know exactly what happens – you wind up short on funds and working until you die.

Whether you’re self-employed or working for someone else, it’s your duty to save for retirement as if your future depends on it. Because it does.

#10: Tapping into your home equity

Banks wish you would see your home as a giant piggy bank. That’s why most homeowners get mailers for home equity lines of credit (HELOCs) and home equity loans ad nauseam. “Just borrow from the growing value of your home,” they’ll say, while never quite pointing out the obvious downsides.

While there are times when borrowing against the equity in your home makes sense — particularly if you’re reinvesting in the home, by replacing your roof, for example — it can be a tough cycle to break. If you continually borrow against the value of your home, you may never own it outright.

And isn’t that the whole point of home ownership – owning your home?

Stop Sabotaging Yourself, and Do This Instead

Are you guilty of any of these self-sabotaging behaviors? If so, there’s no better time to change than right now. Once you figure out what you’re doing that’s holding you back, you can figure out why. From there, you can create a comprehensive plan to stop shooting yourself in the foot and start getting ahead with your money.

Don’t let self-sabotage stand between you and your financial goals. Building wealth takes patience, perseverance, and grit, but it also requires getting out of your own way.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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What ways have you sabotaged your own finances in the past? What would you add to this list?

Holly Johnson

Contributing Writer

Holly Johnson is a frugality expert and award-winning writer who is obsessed with personal finance and getting the most out of life. A lifelong resident of Indiana, she enjoys gardening, reading, and traveling the world with her husband and two children. In addition to The Simple Dollar, Holly writes for well-known publications such as U.S. News & World Report Travel, PolicyGenius, Travel Pulse, and Frugal Travel Guy. Holly also owns Club Thrifty.