10 Money Habits That Are Leaving You Broke

UPDATED: May 19, 2023
PUBLISHED: January 3, 2022
10 Money Habits That Are Leaving You Broke

If you occasionally stress over money, you’re not alone. Only 51% of Americans said they were financially secure, according to the March 2015 Pew Survey of American Family Finances. Fifty-five % of respondents reported either breaking even or spending more than they make each month, and 33% indicated they had zero savings.

Chances are you should be saving more and spending less. Instead of waiting for your situation to magically improve, take a hard look at some of the not-so-good money habits you may have developed over the years.

I spent five years studying the daily habits of more than 350 rich and poor people. In my best-selling book Change Your Habits, Change Your Life, I expose the financial habits that are responsible for creating wealth. Long before the self-made millionaires in my study became wealthy, they forged certain money habits that most everyday people don’t practice.

Habits—unconscious behaviors, thinking and decisions—have a purpose: They conserve brain fuel by allowing us to perform tasks without thinking. These ingrained reactions and mindsets chart a course for success in every aspect of life. Recognizing a problem is the first step toward fixing it, so you need to be aware of any habits that could derail your success. Here are 10 bad boys that can disrupt financial security, plus my prescriptions for curing them. You have it within you to make these changes. Make this the year you cull your broke habits and cultivate new wealthy ones.

Broke Habit 1: You spend too much on housing.

Housing costs, of course, start with rent or a mortgage but also may include property taxes, utilities, insurance, repairs and maintenance. Housing costs normally constitute the largest component of your spending, so it’s imperative to keep them as low as possible.

From my research, total housing costs should equal no more than 25% of your net monthly income. Sixty-four% of the wealthy in my study kept their housing costs below 25%. My study also found that those who spent more than 40% of their net income on housing costs struggled more financially.

But my research may be understating the problem. According to the 2015 report Projecting Trends in Severely Cost-Burdened Renters: 2015-2025 by Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners Inc., more and more families’ monthly housing expenses exceed 50%of their net monthly income.

How can you reduce housing costs? The solution is to downsize, find less expensive housing or share housing with family members or friends. If those aren’t viable options, here are some other ideas:

  • Reduce utility spending. Lower the thermostat in the winter a few degrees and raise the thermostat a few degrees in the summer. There are thermostats you can program to increase or decrease the temperature during certain hours. Also, cut your water usage: Take shorter showers and do less outdoor watering; turn off the tap when you brush your teeth; wash only full loads of dishes and laundry; etc.
  • Select a less expensive TV and internet package.
  • Maintain the landscape yourself. Mow the lawn; prune the shrubs; be hands-on when flower beds need mulch.
  • Protest your property taxes. You can fight city hall.
  • Raise the deductible on your home insurance.
  • Negotiate a lower rent with your landlord.

Bringing your housing costs closer to that magic 25%target means you will be able to save. If you change only one money habit, make it this one. Control of housing costs has to be your No. 1 financial priority if you want to prosper.

Broke Habit 2: You spend too much on cars.

Like housing costs, spending on cars can eat up far too much monthly net income. New cars lose value as soon as they roll off the lot. Consider buying high-quality used vehicles to avoid losing the big bite of the initial depreciation. Forty-four% of the rich in my study purchased used cars, typically a 2- or 3-year-old vehicle coming off a lease. And these wealthy individuals then kept their cars for a long time.

Yes, as a car ages, you’ll incur repair costs; those typically kick in at 125,000 miles. After this point, expect to cough up about $1,500 a year for repairs, which is still significantly less than the cost of a loan or a lease for a new car.

Be smart: Buy quality used cars and drive them until the wheels fall off. That’s what 94% of the self-made millionaires in my study did. It’s a good money habit.

Broke Habit 3: You develop habits by association.

We pick up almost all of our habits from those in our environment: parents, teachers, family, friends, co-workers, neighbors, mentors, celebrities, coaches, etc. When it comes to money habits, this could be positive or negative. If you have less-than-stellar money habits, it’s likely that many of the individuals you associate with on a regular basis also have trouble managing money. Their bad spending and savings habits can rub off on you—a night out on the town with a friend can ring up an unexpected $300 expense, or a vacation can turn into major debt.

Think long and hard about how your friends and the people you associate with daily (co-workers and family members, for instance) affect your spending and savings habits. After all, if you surround yourself with good spenders, you’ll likely become one, too.

If you want to adopt good money habits, associate with people who possess positive habits and pull back from those who don’t. If all of the close friends, relatives and role models in your life share your desire to live below their means, their good money habits are almost guaranteed to become your good money habits.

Broke Habit 4: You rely on credit cards to finance your lifestyle.

When you spend everything you make, obviously you’re not saving. What’s worse, spending more than you make forces you into debt to maintain your standard of living. If you resort to the use of a credit card to meet your monthly living expenses, you are by definition living beyond your means. When you do this, you are essentially using future earnings to finance your current lifestyle.

What do you do? Here are a few recommendations:

  • Track 100% of your spending for one month. This will create awareness of what you spend on.
  • After a month of tracking your spending, you can create a monthly budget. Set monthly goals or targets for each spending category in your budget. This gives you the ability to compare what you actually spent during a given month for each category against the goal to see whether you were on, over or under target for each expense.
  • Take my 100-Day Spending Challenge. For 100 days, focus on reducing or eliminating spending on one daily expense you can control. An example is lunch, which often costs $10 to $15 at restaurants. Make your lunch for an annual savings of around $1,500. You probably also fritter away money on items such as doughnuts, newspapers, candy bars or coffee, and you could forgo those during the challenge. Or you could abstain from using your credit card for 100 days. (If you enlist one or more friends to do the challenge with you, you’ll likely multiply your chances of success.)

Broke Habit 5: You spend on a whim.

During the mid-1970s, a team of behavioral scientists, psychologists, health professionals and experts from other disciplines embarked on an ambitious study of more than 1,000 children born within the same one-year period in Dunedin, New Zealand. The researchers’ goal was to analyze each child’s self-control and determine, 40 years later, how the children were doing in life. They found that the kids who exhibited the greatest self-control grew up to become wealthier. Self-control emerged as the single greatest predictor of financial success from the study.

Spontaneous spending is driven by emotions and a lack of self-control. You’re worn out after 30 minutes of wheeling a cart around the store, something not on your list catches your eye at the checkout counter, and you suddenly buy an item that wasn’t on your shopping list. Stores capitalize on this self-control weakness. They have marketing experts who set up product placements in checkout lines to exploit the likelihood of impulse purchases.

Spontaneous spending is a subconscious act, so the remedy is awareness. Awareness turns on the conscious part of your mind, which can overpower your subconscious. When you are tuned into this marketing ploy, you’ll find it easier to stick to your list. That leads to a feeling of control over your spending. With repeated triumphs, you strengthen your self-control muscles so you’re less susceptible to retailers’ tactics.

Broke Habit 6: You gamble too much.

In my study, 77% of poor people gambled on the lottery every week, and 52% gambled on sports every week. The odds of winning the Powerball are 1 in 292.2 million. Bob Martin, the late manager of Las Vegas’s first casino sportsbook, was once quoted as saying the number of bettors who win betting pro football is so small that “it is virtually the same as if no one won.” According to Sports Insights, a sports bettor has only a 2.3% chance of winning 53.2% of bets on games.

Accumulating wealth is an ongoing process, not something that happens overnight. Save the money that you might ordinarily spend playing the lottery or gambling on sports. Slow and steady always wins the financial-fitness race.

Broke Habit 7:

You overspend on entertainment.

Spend no more than 10% of your monthly net income on entertainment. Entertainment includes vacations, hotels, recreational travel, restaurants, bars, movies, theater, toys, games, entertainment equipment such as TVs and speakers, etc. Most who struggle financially spend far more than 10% on entertainment. These individuals have a live-for-today mindset, which may sound appealing, but that mindset becomes tricky if you live a long life. Plan on living a long, financially secure life and reduce your entertainment spending today.

Broke Habit 8: You don’t save.

Self-made millionaires make a habit of saving. The more you can save at an early age, the more wealth you’ll accumulate. Ninety-four % of the self-made millionaires in my study developed the habit of saving 20% of their income during their pre-millionaire years.

During my research, I uncovered a unique savings process used by millionaires; I call it the Bucket System Savings Strategy. Here’s how you can use it:

1. Allocate savings into four buckets.

  • Bucket 1: Retirement savings – This includes 401(k) plans, individual retirement accounts, and other retirement plans or retirement-specific products such as annuities.
  • Bucket 2: Specific expenses – This includes a separate checking account, savings account, money market account or education savings account (for example, a 529 Plan) for major future expenses such as education costs for you or a child, wedding costs, expenses associated with the birth of a child, home down payment and so on.
  • Bucket 3: Unexpected expenses – This includes a separate checking account, savings account or money market account for expenses such as wedding gifts, medical costs, sudden loss of income (unemployment, medical issues or the birth of a child), major repairs (plumbing, air conditioning or auto, for instance) and the like.
  • Bucket 4: Cyclical expenses – This includes a separate checking account, savings account or money market account for birthday gifts, holiday expenses, vacation costs, back-to-school costs, etc.

2. Establish savings goals.

To make this bucket system work, you need to establish the overall amount of savings you will set aside each pay period. For example, let’s say you decide to save 20% of your net paycheck. You would then want to allocate this 20% into each bucket as follows:

  • 10% (half of your overall savings) into Bucket 1 (retirement).
  • 4% (20% of your overall savings) into Bucket 2 (specific expenses).
  • 3% (15% of overall savings) into Bucket 3 (unexpected expenses).
  • 3% into Bucket 4 (cyclical expenses).

3. Automate the savings process.

This is where the rubber meets the road: implementation. Direct the above savings amounts into each bucket account via automatic transfers between accounts. 

If you want to be financially independent one day, you must make living below your means a habit. One way to do that is to force yourself to live within 80-90% of your monthly net income by automating the savings process. If you can’t set aside 10-20% of your monthly net pay, set aside something, even just 5%. The key is to get into the habit of saving. You can increase your savings down the road as your income rises.

Broke Habit 9: You don’t track your spending.

Knowing where your money goes gives you control over your finances. You may find you are paying for things you don’t use—gym memberships or streaming subscription services, for example. Also, many expenses can change over time.

If you’re not tracking what you spend, you’ll never know you can purchase something for less money. A good example of this is insurance. Insurance costs often change over time. Make sure you pay the lowest insurance rates for homeowners, auto and life insurance. Internet and cable costs can increase or decrease without you being aware of it; calling your providers to secure the lowest fees available should be an annual process.

Periodically shop smartphone plans, too. Increased competition in the cellular industry is driving down monthly rates. Make sure you don’t pay more than necessary for your phone service—and all of your other recurring costs.

Broke Habit 10: You don’t bargain-shop.

Make bargain-hunting a habit. Some of the wealthiest individuals in my study shopped at Goodwill stores. Looking for the best deals, clipping coupons, seeing movies during the early discount showings and shopping around for the lowest price will add up. Put the cost difference into your savings account.


Accumulating wealth isn’t complicated. You need to spend less than you make and save the difference. Over time, your savings will grow and generate interest income, dividend income and capital gains. It can be tough to break deeply ingrained money habits, but it is the key to financial independence. After all, the last thing somebody wants is to ask family members or friends for money. Developing good money habits can put you in control of your life and empower you to live up to your potential.

Make 2022 the year you begin to manage your money like a wealthy person does. Pretty soon you will be a wealthy person.

Spending Habits of Millennials

Nicknamed the “thrifty, fun—and fueled by caffeine” generation in TS Bank’s Consumer Spending Index poll, millennials spend their earnings differently than other generations. The Poll found the following about this generation:

  • Cash is King. They use cash, debit cards and checks more than the average consumer.
  • Medium latte to go. They grabbed coffee or food to go 11 times each month, as compared to seven times a month for Generation X and five times a month for baby boomers.
  • Fine dining. They dine out around 13 times per month, which was more than Generation X (eight times) and baby boomers (five times), but they spent less overall on meals ($103, compared to $123 and $139 for Generation X and baby boomers, respectively).
  • Good judgment. Millennials spend less annually on discretionary items (food, clothes, travel, entertainment) than others—$26,000 compared to the national average of $32,000.

Source: TD Bank

This article originally appeared in the January 2017 issue of SUCCESS magazine and has been updated. Photo by @Korneevamaha/Twenty20

Tom Corley is the author of the best-seller Rich Habits: The Daily Success Habits of Wealthy Individuals. He writes from Rich Habits Institute headquarters in New Jersey.