10 Ways To Break Bad Money Habits In 2024

When it comes to bettering your financial health, one of the best tactics is to take a shame-free approach. Whether you’re trying to break bad money habits or continue to build toward long-term goals, it feels more encouraging and enjoyable to work on them without feeling like you’re doing something wrong. Plus, it'll show you that addressing these bad money habits can help you take better care of yourself financially.

Below, you’ll find the most common bad financial habits, and some suggestions on how you can work toward replacing them with more positive financial behaviors.

1. Avoid Overspending

It’s one thing when you don’t make enough money to pay the bills (in this case, it’s worth exploring other ways to earn a higher income or find programs that can provide financial relief in the meantime). However, it’s another when you do have enough, and you end up consistently spending more than what’s financially healthy. Overspending could mean you’re unable to pursue other financial goals, like saving for retirement or setting aside money to pay for your next family reunion.

To avoid overspending, you can set reminders of what it means to be able to have enough to reach your other financial goals. For example, you can put a picture of your desired vacation destination as a background image on your phone to give you some pause before you buy that next outfit. Or, you can have someone help keep you accountable, whether it’s a friend or a financial advisor.

Looking at what you’re spending regularly and how much money you’re putting toward your goals can also be helpful. Instead of shaming yourself when you make impulse purchases, take a more proactive approach to see what you are doing right and how you can adjust your behavior if not.

2. Make A Budget And Stick To It

The term “budget” can feel negative. However, it’s merely a plan on how you’re going to spend and save your money. Having this plan can ensure you’re breaking some of your bad money habits like overspending or not taking advantage of your employer-sponsored retirement plan.

There are different budgeting strategies like the 50/30/20 rule, the cash envelope system and the zero-based budget. While you can use manual methods to maintain a budget, consider using apps — Rocket Money^SM, for example, is free to use.

3. Start An Emergency Fund

An important money habit to break is not having an emergency fund. This set amount of money is typically held in a separate savings account that you can rely on when there is an unexpected event or emergency. Occasions of when an emergency fund could be helpful include when you have a car repair, a larger-than-expected medical bill, or you need to pay expenses after losing your job.

Creating an emergency fund starts with knowing how much to put in one. A good rule of thumb to consider is to set aside at least three to 6 months’ worth of your basic expenses. If this number seems large, you can set your sights on a smaller goal — $1,000 for instance — and work your way up to a larger amount.

4. Pay Off Debt Instead Of Letting It Grow

Debt happens, but letting it grow can have severe consequences to your financial health. For one, if not managed well, it could hinder your other financial goals or even stretch your budget too thin. For instance, if you are too busy paying off your debt, you may not be able to set aside as much for retirement as you’d like.

Having a plan is crucial to paying down debt. First, look at all your loans, what you owe and the interest rate on each one. There are different tactics you can try, such as prioritizing high-interest loans first by paying more toward it, while you keep making minimum payments with the lower interest rates. Whatever you choose, make sure you pay them on time and you are consistent in your approach.

5. Set A Savings Goal You Can Measure

Having a savings goal can help you focus, build wealth and even stay within your budget. Your goal should be specific to your wants and needs. For instance, maybe your short-term goal is to have enough for a down payment on a car, while a long-term goal is to increase your retirement contributions to maximize the employer match on your 401(k).

When setting a savings goal, make it measurable by creating a timeline and targeting a specific amount you’re saving for. That way, you can keep track of your goal and be able to see tangibly whether you’re moving towards or away from it.

6. Save Automatically Instead Of Doing It Yourself

We all have enough to do in the day, why not make it easier on yourself by automating some of your finances? One simple action to take is to automate your savings. Essentially, you’ll set up recurring deposits into a savings or retirement account for a set amount on a regular basis without you having to do it manually. Different financial institutions have various ways you can do so, whether it’s filling out a form or even using a debit card that automatically does it for you each time you make a purchase. Rocket Money can also set up automatic savings so you don’t have to think about it.

7. Borrow Wisely

There’s nothing wrong with having to borrow money — many do so when getting a college degree or buying a house. However, borrowing beyond your means can hinder your financial situation. Late payments, for example, could get costly, especially with late fees. You could also see your credit score go down if you’re struggling to make on-time payments.

Before taking out a loan, consider whether this is a loan you really need and whether you can comfortably afford the payments. If you do decide to take out a loan, take the time to shop around so you can find the best terms and rates for you.

8. Cancel Unneeded Subscriptions And Memberships

Although having a few subscriptions doesn’t seem like a big deal, not using them is wasting money. Those amounts are probably better off being used for your other financial goals. Take the time to look through any memberships and subscriptions you don’t use and consider canceling them. You may even consider using an app like Rocket Money that can help you see what subscriptions you have and cancel them for you.

9. Kickstart Your Retirement Savings

Retirement may seem light-years away, but starting early can help to ensure you have more than enough to live out your golden years. Plus, you don’t need to start off by investing a large amount — you can increase the amount as you go.

There are different types of retirement and investment options including:

• An employer-sponsored retirement plan like a 401(k)
• Individual retirement plans (IRAs), traditional or Roth IRA
• Taxable brokerage accounts
• Self-employment retirement accounts

Each type of these accounts comes with its own advantages and disadvantages, so it’s best to do your research before committing to one.

10. Rethink Your Credit Card

Credit cards are very useful tools, but using them can easily turn into a bad money habit if you’re not careful. For instance, if you tend to overspend on credit cards, it could land you in more debt than necessary, paying more in interest because of the higher balance. Or maybe you signed up for a few rewards credit cards with fees, but you never ended up taking advantage of the benefits these cards had to offer.

Take the time to look through your credit card transactions and determine how you feel about using credit cards. Are you really taking advantage of the benefits of your credit card, like cash back or access to airport lounges? Or do you feel constantly tempted to spend when you have your credit card with you? Are you paying interest on the cash back or travel rewards cards you have, which negate the rewards you receive?

Being honest with your answer, and whether you need to change your credit card behaviors moving forward, will help you break those bad money habits and move you toward more positive ones.

The Bottom Line: Better Financial Habits Can Improve Your Financial Future

While it can feel embarrassing to admit that you may have bad money habits, know that you’re not alone. Everyone starts from somewhere, and taking this step to learn what you may have to change is sending you off in the right direction. Start with the more common money habits, such as not having a budget, not having an emergency fund, overspending and setting savings goals that aren’t relevant to you.

Getting on better financial footing doesn’t mean you have to go at it alone. There is plenty of professional help out there, or you can start by taking advantage of free resources, like downloading the Rocket Money app today.