9 Money Habits Keeping You Poor

1. Goal Setting

In 1953, Harvard asked their MBA graduates about their goals. Only 3% had written goals, 13% had goals but hadn’t written them down, and 84% had no goals at all. Ten years later, the 13% with unwritten goals were earning twice as much as those with no goals, while the 3% with written goals were earning ten times more than the other 97% combined. This study highlights how important it is to set goals not just financially but for any area of your life that you want to improve.

Setting goals helps us understand what are priorities and what are distractions. For example, if your main financial goals for the year are to earn $100,000 and of that, you want to invest $50,000, take a $10,000 vacation, and keep your living costs at $40,000, then anything else like buying a new car or renovating the house is a distraction. This doesn’t mean you can’t get a car or renovate your house, it just isn’t the main priority for this particular year. This is what makes this quote by Oprah Winfrey so powerful, “You can have everything, just not all at once.” And the reason why this quote holds true is because if you think of your financial resources as a river. If you scatter the river in all different directions without a clear plan, the river becomes shallow and weak. But if you focus your energy and resources on specific goals, the river gains strength and momentum, pushing you toward achieving those goals.

To help you get started, after reading this article, get a pen and piece of paper and write down one financial goal that you would like to achieve this year.

2. Budgeting

I know budgeting is like a swear-word to many because many think budgeting is about restricting spending. We felt exactly the same way when we were first introduced to this concept but after years of applying this concept we realized that budgeting isn’t about limiting yourself; it’s about understanding where your money goes which allows you to make intentional decisions that align with your financial goals.

For us, creating a budget was a game-changer. This process revealed surprising spending patterns and areas where we could easily cut back on without feeling like we were making sacrifices. By doing so, we saved an average of $424 per month. Now $424 may not sound like a lot of money but when you compound $424 over 12 months it equates to $5,090. By not applying this simple concept it would cost us $50,900 over the next 10 years, how much do you think it’s costing you by not knowing where your money is going.

Comment down below if you have tried budgeting before and what was your experience? Were you like us and found a chunk of money that you were wasting?

If you are new to this concept and aren’t sure where to get started, I’d recommend either downloading a budget tracking app from the App Store or Google Play Store or you can download our free budget tracking spreadsheet.

3. Percentage Thinking

This idea came from an interview I watched with Mark Cuban. He explained that so many people spend so much time trying to find the perfect investment when something as simple as buying a bunch of toothpaste on sale guarantees a better return on investment on that money compared to putting that money into the stock market, because the savings on that money is immediate and tax-free.

When I heard this, it shifted my perspective completely. I began to compare all prices based on percentages rather than the actual dollar amount.

Here’s a practical example: Imagine you’re buying a bottle of water. One bottle is $1, and the other is $1.20. If you are comparing based on the actual price, you may not care much about the 20 cent difference. But if you compare these two bottles based on percentages you’ll realize there’s a 20% difference in the price. Since the average market return is only 10% per annum, just by picking the $1 bottle over the $1.20 bottle you actually beat the market by 10%.

This concept becomes powerful when you compound these seemingly insignificant expenses over years. For illustration, imagine your current expenses are $20,000 per year. By applying the percentage thinking on average let’s say you only able to decrease your expenses by 10% which means each year your ROI on the $20,000 is an immediate $2,000 that’s tax-free and over 10 years, that’s $20,000. Let me make this clear, you’re not sacrificing anything that you would normally buy, you are buying the same things; you’re just being more conscious and looking for the best deals.

4. Emergency Fund

Life is unpredictable, and without an emergency fund, you might find yourself in a situation where any unexpected expense or job loss can derail you from achieving your financial goals. I don’t know about you but situations like a sudden car breakdown or an unforeseen medical bill seem to happen when we least expect it.

So how much of an emergency fund should you set aside? Most recommend at least 3-6 months however I would recommend that you have as many months as you need to feel secure, but the minimum should be 6 months. For Tamz she needed a few years in our emergency fund so that’s what we set up a while back.

The biggest benefit we’ve found with having an emergency fund is it allows us to negotiate from a position of strength. It gives us the confidence to ask for higher rates, charge more for our services, or walk away from deals that don’t align with our values. When we contrast this to when we had no emergency fund, we were forced to take on any job that came our way because we couldn’t afford to go without the income.

So I recommend that you start saving for this fund as early as possible as it will reward you in more ways than you can imagine.

5. Credit Card

Credit cards remind me of the saying “with great power comes great responsibility”. They’re powerful tools if used correctly and a wealth killer if used incorrectly.

In my opinion, the correct way to use a credit card is to only use it for purchases you can pay off in full at the end of the month and the incorrect way is the opposite.

According to creditcard.com the average interest rate is about 21% which is mind-blowing because if you have $10,000 invested in the market that returns on average 10% per annum and you have $10,000 of credit card debt at 21% per annum. This means that your portfolio is actually depreciating by 11% per annum.

Our rule to ourselves is quite simple, if we don’t have the money in the bank to pay for the item in full then we can’t afford it.

6. Friends

“You are the average of the five people you spend the most time with” is especially relevant when considering spending habits. If you take the 5 friends that you hang out with the most, and average the amount of money they spend per month, that number will probably be very close to what you spend in a month.

Research from the National Bureau of Economic Research highlights how peer influence affects financial decisions. Essentially, the financial habits of your social circle play a crucial role in shaping your spending patterns and overall financial well-being. For instance, if your close friends prioritize saving and making good financial decisions, you’re likely to adopt similar habits, leading to better financial health. Conversely, if your friends frequently splurge on luxury items, expensive dining, and impulsive purchases, you might find yourself mirroring these behaviors. You might not spend as much your friend but you will find that you would start spending more than you intended.

So I’d recommend that you choose your social circle wisely if you are looking to make a change to your financial well-being.

7. Fixed Costs

One of our main priorities in our life is to maximize freedom. We approach every situation by asking whether it enhances or diminishes our freedom. And let me tell you, fixed costs are definitely freedom takers.

Fixed costs are regular, unavoidable expenses like subscriptions (Netflix, Hulu, Apple Music, internet), gym memberships, car payments, mortgage payments, car insurance, and health insurance. These are expenses you must pay every single month, regardless of your circumstances.

Imagine you earn $10,000 per month, but your fixed costs amount to $8,000. This means 80% of your income is already committed to these recurring expenses. Essentially, for most of the month, you’re working to pay for your house, car, insurance, and other fixed expenses

Fixed costs trap you in a cycle where most of your income is pre-allocated, restricting your ability to make spontaneous decisions, take risks, or invest in opportunities that could enhance your financial freedom in the long run. When we minimized our fixed costs, we freed up more of our income, allowing for greater financial flexibility and the ability to make choices that align with our personal and financial goals.

8. Lifestyle Inflation

As you earn more, it’s common to start spending more, a phenomenon known as lifestyle inflation. You see this all the time when friends or family start earning more money they buy a more expensive car, move into a larger house, or start indulging in luxury items. This habit can sabotage your financial goals and make it more difficult to build wealth.

Now, does this mean you shouldn’t treat yourself for working so hard to grow your business or get that raise? Not at all, however, it’s crucial to increase your lifestyle in accordance with your financial goals. For example, our financial goal or budget is to live off 5%-9% of our cash flow per month and invest the rest. So if our cash flow increases by $1000 this month, we would have the option to increase our lifestyle by $50-$90 for that month. This allows us to enjoy the rewards of our hard work while staying on track to hit our financial goals.

9. Focusing Only on Investing

There’s nothing wrong with investing; in fact, Tamz and I do our best to maximize it. But relying solely on investing to grow your wealth can be problematic. It’s like a sports team focusing only on defense and neglecting the offense. To become a championship team—or financially successful—you need both.

Points 1-8 help you build a strong financial defense, and getting aggressive with point 9 helps you with the attack. If you think about it, if you invested $1000 at the average market rate of 10% you would have $1100 at the end of the year. But if you invested $1000 into developing a skill that could help you increase your income by just $40 per week, at the end of the year you would have an extra $2080. That’s a 108% return on investment compared to 10% and that’s if you only increase income by $40 per week.

That’s why I highly recommend that once you’ve implemented the first 8 points (your defense), start compounding your skills to compound your wealth faster. If you aren’t sure what skills you can learn to earn more money, then check out this blog on where I go through the 4 Easy Side hustles that can help you earn an extra $1000 per week.

Conclusion

So those are the 9 money habits that were keeping us poor. If you found this article helpful, please consider joining our community. Thanks for reading, and see you next time!