Habits expert James Clear once said: “Success is the product of daily habits – not once-in-a-lifetime transformations.” The same rule applies to money.

Financial success is the product of daily habits. If you’ve got harmful habits, they could be draining your bank account. But if you switch to positive habits, you could transform your financial future.

Here are 10 bad habits that might be costing you:

1. Not having emergency savings

Unless you’re very lucky, you’re going to encounter a few unforeseen events like broken appliances or natural disasters. You might also lose your job unexpectedly or fall ill.

If you don’t have an emergency reserve, you’ll need to run up debt to pay for these incidents which adds to the cost – because you’ll be paying interest on top of the repair or replacement costs. This interest can be substantial if you need to use expensive credit like credit cards and personal loans.

But if you have a reserve equal to at least three months’ earnings, you should have enough to overcome short-term setbacks without incurring debt.

If you have a home loan, you can consider keeping your reserve in your offset account. You’ll pay less interest on your home loan and you’ll be able to access the money as soon as you need it.

2. Not paying your credit card in full each month

Credit cards can be useful because they’re convenient – instead of paying for the expenses upfront you can invest that money and pay for the expenses a month later.

But if you’re using the credit and only paying the minimum amount, you’re probably paying a lot of interest, which is a wasted cost.

It can also trap you, because if you’re wasting money on unnecessary interest payments, you might not have the funds you need to pay down the debt.

3. Not saving

It makes sense to prioritise expenses like mortgage repayments or rent, but saving should also be a priority.

If you begin by spending and then saving whatever’s left over at the end of the month, you might find there’s very little or no money left. But if you first allocate a portion of your income to investing – a concept known as paying yourself first – you’ll probably end up saving more, which will help you build long-term wealth.

4. Not benefiting from compound interest or capital growth

If you start investing when you’re young, your investment has many years to grow and build wealth.

For example, if you invest $200 per month for 40 years and receive an 8% return on your investment, it will have cost you $96,000 to earn about $626,000.

In contrast, if you only save for 10 years, you’d need to invest $3,600 per month to earn the same amount (assuming an 8% return).

So the sooner you start investing, the cheaper it is to build wealth.

5. Not creating a budget

Without a budget, it’s hard to know how much money you have to spend, save, or invest each month, and you may end up overspending or missing important financial goals.

Failing to create a budget can have serious consequences on your financial health.

Without a budget, it’s easy to overspend and lose track of where your money is going. You may end up living beyond your means and accumulating debt, which can lead to financial stress and instability.

Moreover, you might miss important financial goals such as saving for retirement, purchasing a home, or paying off debt.

Budgeting allows you to prioritize your spending, allocate your resources wisely, and achieve your financial goals.

By taking the time to create and follow a budget, you can improve your financial health and enjoy greater peace of mind.

Try now: Well Money Budgeting Calculator tool

6. Living beyond your means

Living beyond your means is one of the most common and detrimental financial habits that can cost you big in the long run.

This habit involves spending more money than you earn, often by relying on credit cards, loans, or other forms of debt.

Living beyond your means can lead to financial instability and debt accumulation, making it difficult to achieve important financial goals like saving for retirement or a down payment on a house.

Furthermore, if you don’t create a budget (see above) or track your spending, it’s easy to fall into the trap of overspending, which can lead to financial stress and anxiety.

Breaking the habit of living beyond your means requires discipline, planning, and a willingness to make sacrifices.

It may involve reducing your expenses, finding ways to increase your income, and avoiding unnecessary purchases.

By taking control of your finances and living within your means, you can free yourself from the burden of debt and enjoy greater financial stability and security.

7. Failing to invest for the long term

One bad financial habit that can cost you big is failing to invest for the long term.

While it can be tempting to focus on short-term gains or seek out quick returns, the real key to building wealth is investing in a diversified portfolio for the long haul.

This approach can help you benefit from the power of compound interest and capital growth, allowing your investments to grow and accumulate over time.

Failing to invest for the long term can mean missing out on these benefits and failing to achieve important financial goals like retirement or a college fund for your children.

By prioritizing long-term investing and seeking out professional advice when needed, you can build a solid foundation for your financial future.

8. Not seeking out financial advice or assistance when needed

Another bad financial habit that can cost you big is failing to seek out financial advice or assistance when needed.

Whether you’re dealing with debt, taxes, or investment decisions, there are many complex financial issues that can be difficult to navigate on your own.

Failing to seek out professional assistance or advice can lead to costly mistakes, missed opportunities, and unnecessary stress.

Seeking out a financial planner or advisor can help you gain clarity on your financial situation, identify potential risks or opportunities, and develop a plan to achieve your goals.

By taking the time to seek out financial assistance or advice when needed, you can avoid costly mistakes and enjoy greater peace of mind about your financial future.

9. Impulse buying or making emotional financial decisions

One more bad financial habit that can cost you big is impulse buying or making emotional financial decisions.

Whether it’s a new pair of shoes, a fancy gadget, or a flashy car, impulse buying can be a major drain on your finances. It’s easy to get caught up in the moment and make purchases based on emotion rather than practicality or need.

This habit can lead to overspending, credit card debt, and financial stress.

To avoid this trap, it’s important to practice mindful spending, set realistic budgets, and avoid making impulse purchases without careful consideration

10. Not reviewing your home loan regularly

It’s important to review your home loan regularly, because you might find you could switch to a lower-rate loan and potentially save tens of thousands of dollars over the remaining life of your mortgage.

Even if you were able to get a low interest rate when you took out your mortgage, a lower rate might become available in the future.

One reason is that if your financial situation improves, lenders might be willing to offer you a lower rate. Another reason is that Australia’s mortgage market is very competitive, so new deals become available all the time.

So you may be able to save money by reviewing your home loan every three to four years and refinancing it if necessary.

Also read: Five positive money habits to teach your children

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