For many people, the lyrics to that classic ode to wealth — “money, lots of money, whole lotta money, that’s what I want, that’s what I want” — reflect their personal desires. Not for selfish reasons, either: Having money can provide a pathway to a better future for their loved ones generations down the line, while also offering a more stable today.
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Alas, even if it’s what they want, that doesn’t mean they’re able to keep it in their pockets. Just ask any financial advisor. These professionals have seen it all, and much of what they’ve seen are the bad habits that keep people broke. While you may be tempted to shrug off the possibility that you could ever fall into these patterns, especially if you’re not overspending on extravagant things every day, you should know that they’re more common and easier to slip into than you might expect.
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1. Keeping Up With the Joneses — Even if It Keeps You Broke
When O. H. “Harry” Daniels, Jr., CPA, CFP®, PFS, CVA, a finance expert at JustAnswer Finance, considers the question of bad habits, another song comes to mind.
“An American rock and roll group called The Monkees sang a song back in 1967 titled Pleasant Valley Sunday. A well-known line in the song was ‘here in status symbol land,’” he explains. “Trying to maintain an overabundant lifestyle, material possessions, and keeping up with the Joneses is about the fastest way to a financial downfall that I know.”
He describes people maxing out not only their credit cards, but also their lines of credit. When they have nowhere else to turn, some even begin adjusting their income tax withholding, which can amount to robbing Peter to pay Paul.
2. Playing a Dangerous Game With Your Taxes
As a tax professional, Daniels can tell you exactly why it’s so dangerous for people to cut their withholding taxes in the hope of subsidizing their inflated lifestyles with extra income.
“They end up digging a hole with the IRS that they cannot recover from,” he said. “They have no credit cards available, no credit line available, the bank is not willing to loan them any money given all of their other debt, and now the IRS is knocking on their door for unpaid back taxes along with penalties and interest. That is the price of bad money habits.”
If you can’t afford a lifestyle of the rich and famous, it’s better not to force it. Instead of a McMansion, you could end up with a mountain of debt.
3. Indulging in Expensive Hobbies
Jing Zheng, founder and financial planner at Neat Financial Planning LLC, knows hobbies can bring meaning and joy. Unfortunately, she’s also seen clients quietly lose their savings to pricey hobbies, especially if those hobbies involve collecting “expensive and illiquid” items like rare watches, vintage cars, luxury handbags or limited-edition art.
“These assets often tie up significant capital and can’t be quickly converted into cash without taking a loss,” she said. “The market for such collectibles is usually thin and highly sensitive to economic downturns — meaning you might not get what you bought for or wish to sell for in a recession. What looks like an ‘investment’ today could become a financial liability when liquidity is most needed.”
4. Getting Too Accustomed to Borrowing
Zheng also acknowledges that borrowing and using credit can be part of a healthy financial life. When used responsibly, these practices can help you build your credit history and provide short-term financial flexibility. But when credit is misused, the damage can ripple across your entire financial life and into your future.
“If you often find yourself turning to credit cards, buy-now-pay-later plans, or personal loans just to get through the month, it’s a sign to revisit your cash flow and break the borrowing cycle,” she said. “Chronic borrowing doesn’t just solve today’s problem — it eats into your future income and makes it nearly impossible to save or invest.”
5. Thinking a High Income Is Enough
Think again. According to Clorissa Ritchie, senior content manager at Westerra Credit Union, believing that a high income alone will save you from financial trouble is a dangerous myth.
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“Reality: 60% of high-income earners live paycheck to paycheck,” she said. “Don’t be fooled by your salary. Without a plan, your six-figure income can vanish just as fast as it came.”
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Source:
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O. H. “Harry” Daniels, Jr., CPA, CFP®, PFS, CVA in private practice and finance expert at JustAnswer Finance
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Jing Zheng, founder and financial planner at Neat Financial Planning, LLC
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Clorissa Ritchie, senior content manager, Westerra Credit Union
This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: 5 Bad Money Habits That Leave People Broke the Fastest
