Financial Habits to Break in 2023

People achieve success in life, in part, by the realization that your life is shaped by the habits that you choose. When you close your eyes and visualize your ideal life, your highest self, what do you see? Do you see yourself hitting snooze on the alarm 5 times before finally getting up, grumpy and late, eating out again because you didn’t have time to pack a lunch? No. Most likely, you see yourself living your best life- waking up early to go to the gym with a friend, showing up to work motivated and thriving, loving what you do and having time for your family, your friends, and yourself. Your daily habits are the main difference between these two realities. You have the power to control your habits and to allow them to take you to new heights. How do we do this? First, by recognizing the habits that we want to break and the habits that we want to build.

It's no different when it comes to achieving financial success so let’s start by identifying some of the top financial habits to break in order to accomplish your goals and live your ideal life.

12 Financial Habits to Break in 2023

1. Not paying yourself first

This is the single most impactful habit you can break in your financial life. Automating your savings will change the game for you. Determine how much you can save each month and set an automatic deposit from your checking account into your savings account for the day after you get paid. Treat your savings like a bill, rather than attempting to save what is left over each month.

Here’s a tip: Aim high! Don’t start with a smaller amount hoping to increase it over time. Chances are, a year will fly by before you know it and you never increased your auto transfer.  Instead, start with your “stretch goal”, an amount that might (and should!) make you nervous, but on paper should still be doable. If you struggle sticking to this, try setting up a savings account that is out of sight, out of mind. If you can quickly and easily pull from your savings every time your checking account is running low, you might need to help yourself out by making it harder for you to see and access your savings.

2. Not having your money work for you

Once you have mastered the habit of saving, you need to break the habit of hoarding. Seeing your money accumulate and grow can be so rewarding but over time, cash is only depreciating against inflation. You want your money to work for you, not against you. Start by keeping your emergency fund money in a high-yield savings account and then look for higher interest options for the money you are setting aside for longer term goals.

Here’s a tip: One of the main silver linings of interest rates increasing this year is that CD’s are finally worth talking about again. CD’s can be great options for short-term savings goals with a specific timeframe, like buying a house in a year or two!

 3. Not using a credit card or using it incorrectly

Like most things in life, making smart financial decisions is all about finding the right balance. Credit Cards are tricky, and people tend to either steer far away from them, having the notion that “DEBT IS BAD” ingrained in them from an early age, or they find themselves deep in the trap of credit card debt, never able to get out.

If you're carrying high-interest debt, it's important to pay it off as quickly as possible. You might be surprised by how much money you're actually spending on interest each month.

Here’s a tip: Be cautious of the “snowball trap”. This occurs when you focus all of your energy on one goal, like paying off your debt, and ignore everything else. If all of your money is going toward debt and you aren’t putting anything towards savings, when those unexpected expenses occur, your only option is to use your credit card! And round and round we go.  

If you aren’t using credit cards at all, you could be missing out on numerous benefits. Credit cards can help you build credit and give you rewards like cash back or travel points. You just have to be sure to pay it off in full every month!

4. Ignoring your finances

Money can be a taboo topic and let’s be honest, who really wants to face their finances anyway. If you tend to ignore your finances until there is a problem, you are letting your money control you. Take the time to get clarity on your financial situation. Do you know your net worth? What about how much debt you have or the interest rate on that debt? Do you know how your money is being invested? If you can't answer these questions, it's time to start tracking your finances so that you can take control of your financial future.

5. Not making a budget  

People hate the word budget. They feel like a budget is constraining but in fact, it is just the opposite. Taking the time to understand your current financial situation and track your spending is what leads to financial freedom! How you manage your cash inflows and outflows is the most important part of your financial life and the part that you have complete control of.

Track your spending and record every purchase, no matter how small! This can be tedious work but if done diligently will give you an accurate picture of where your money is going and allow you to be proactive with your spending.

Here’s a tip: Set monthly money dates on your calendar to update your budget and review your goals. It can be so easy for people to create a budget and then not look at it again for another year, or longer! Reviewing your budget monthly and creating space to think about your financial goals and update your plan as you go along, is what creates good financial habits- not just a budget.

6. Spending impulsively

When it comes to your money, it’s easy to get caught up in the day-to-day and make decisions on a whim. But this is not a habit you should stick with if you want to achieve your financial goals. Impulse purchases and overspending in areas that aren’t necessities can be a big bank account drainer without you even realizing it. Sticking to your budget in the short term will create long-term savings. Take time before making any big purchases (even something as small as an extra $100 for dinner) by asking yourself: What is this purchase going to cost me? Will I regret this decision later? How will my financial situation change if I do (or don't) make it?

The answers may help motivate you to break free from the cycle of frivolous spending that can keep us chained down financially—and eventually prevent us from reaching our dreams. 

7. Not having an emergency fund

Keep some money on hand for emergencies—you know, those unexpected costs that pop up from time to time and catch us off guard. Without an emergency fund, those unexpected costs could affect your budget and cause us to fall back into bad financial habits. It might, for instance, require you to pay a medical bill with a high-interest credit card and cause you to be right back into the debt cycle. The rule of thumb is to save three to six months of your living expenses in an emergency fund.

8. Not saving for retirement

It can be tempting to focus on your short-term goals and delay saving for retirement, especially if you feel like retirement is a lost cause or too far away to even envision. If this is you, know that you are not alone. According to a recent survey by Bankrate, 55% of Americans believe they are behind on retirement savings, and over a third of Americans don’t believe they’ll ever retire.

It is never too late to start saving for retirement but the earlier you can start saving and allowing your money to compound, the better. The rule of thumb is to save 15% of annual income (including any employer contributions) for retirement.

If your employer offers a 401k, make sure you’re taking full advantage of it. This is especially important if your employer matches retirement contributions since you’re basically leaving free money on the table if you don’t contribute up to their match limit.

If your employer doesn’t offer any retirement savings options, you can still contribute to a Traditional or Roth IRA. The contribution limit is $6,000 for 2022 and $6,500 for 2023.

Here’s a tip: If you haven’t maxed your retirement contribution yet for 2022, you still have time! You can contribute to your IRA for 2022 up until April 15th of 2023.

9. Saving only for retirement.

It's important to save for retirement, but don't forget about your other goals: buying a house, paying for your kids' education, or even traveling! Setting up separate accounts for each of your goals will help you save and stay motivated. For longer-term goals, establish non-retirement investment accounts. If you aren’t clear on your long-term goals, that’s ok! Consider having a goal of simply building wealth, and set aside a certain amount per month to invest for this goal.

10.  Missing out on Tax Advantages

Missing out on legal tax savings available to you is basically saying no to free money. Make the most of the tax advantages available to you. If you are investing in taxable accounts, be aware of the tax consequences of selling your positions or generating income from your investments. Educate yourself on tax-loss harvesting strategies, municipal bonds, and other tax-advantaged ways to invest.

11. Thinking you can make up for lost time

One of the easiest bad financial habits to fall into is thinking that you can make up for lost time. Don’t procrastinate getting serious about your financial goals because you think you have time to start saving down the road. More often than not, this mindset leads to other bad financial habits like impulse spending and getting into debt. If you fall into this trap, when you finally “get your act together” you have to focus all of your savings on paying down debt. Once that major goal is achieved, far too often, people find themselves entering the most expensive chapter in their life. They are planning for a wedding, having kids, etc and before you know it, they don’t have the time. Years fly by, and they are finally getting serious about their financial goals and saving for their future in their 40s. At this point, they have significantly lost out on the power of compounding interest and the time value of money.

What is compounding interest? It is the impact of the interest your investment earns, being rolled back into your principal investment so that it is earning interest as well. The longer you can allow compounding interest to work for you, the better.  

Let me give you an example. Say two twin sisters inherit $50,000 at age 25. One sister decides to invest it and it earns 10% on average over the years. The other sister decides to hold on to it for a few years but eventually decides to invest the full $50,000 at age 30. When they turn 65, sister 1 has $2,262,962 in her account (assuming 10% annual return with no additional investments). Sister 2 has $1,405,121 in her account, using the same assumptions. Even though she invested the same amount of money and only missed out on 5 years, the lost compounding interest cost her over $850,000! The more examples you can see about the power of compounding interest, the more impactful this will be for you.

12.  Letting your money beliefs limit you

Your relationship with money plays a huge role in how you manage it.

Whether you love it, despise it, or try to ignore it, at the end of the day, we all have a relationship with money and we all need money to survive. How you were taught to feel about money can create limiting beliefs that are hard to shake off. Don't let your inner critic convince you that you can't take your power back and achieve financial freedom. You are capable of more than you think - start believing it. 

Once you identify the financial habits you want to break, you can focus on the financial habits you want to build. Start by listing out your SMART financial goals, create a plan of action that changes your routine, and then reward yourself along the way. This will help you turn your goals into habits and before you know it, you will look in the mirror and see yourself living your ideal life.

If you still need help creating your financial goals, check out one of our previous articles here.

Don’t feel like you have to do this alone- find an accountability partner! Share your goals with your partner, trusted friend, or your financial planner. We are here to provide support and help you manage complex goals and keep you on track. Connect with us to take the next step toward reaching your own infinite heights!

*The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.