The Most Toxic Spending Habits and How to Fix Them

People often wonder how they are left without any money at the end of the month. The truth is, everyone has toxic spending habits that are slowly but surely ruining them financially. Toxic spending habits cause financial instability and leave a wasteland of devastatingly empty bank accounts in their wake.

Those who want to change these damaging tendencies first need to become painfully aware of them. So here’s a list of the most toxic spending habits and ideas on how to solve them.

Not Having a Game Plan 

When people spend money without any sort of plan, they usually find themselves a dollar or two short at the end of the month. And the worst part is — they have no idea where all their money went.

The most common cardinal error people make, finance-wise, is that they avoid making a budgeting plan. That’s how tiny expenses sneak in every month, pile on, and turn into a massive problem. 

If a person knows all their monthly and yearly costs, they’ll be aware of how much money they actually have at their disposal. Being financially responsible isn’t just about savings. It’s also about reasonable and planned spending.

With a budget, a person is less likely to overspend and go into debt. What’s more, a budget will come in handy to those who are already in debt with no clue as to how to pay it off. 

How To Solve It: Budgeting Is the Mother of Responsible Spending

To make a working budget, one can use Dave Ramsey’s great tip and give every dollar a name. Simply sitting down and putting all monthly expenses on paper and figuring out whether there’s enough money for them isn’t budgeting. It’s a waste of time.

Real budgeting requires combining all expenses — daily (leisure expenses), monthly (utilities, groceries, and rent), and yearly (car payments and insurance) — and dividing the final number by 12. If one does that, they’ll spend an equal amount of money on necessities. 

But that’s not all. One also has to figure out what to do with the rest of the money.

Setting aside money for leisure, fun, savings, and other things that aren’t providing the bare necessities is the most logical way to go about spending money. However, figuring out how much money should be in each of these categories is the path to financial responsibility. The end goal is sticking to that set amount. 

Overspending on Little Things

Those worried that huge monthly expenses, such as rent and car payments, will ruin them financially might be right. However, more often than not, it’s the little things that drain a person’s budget. In other words, it won’t be the cable bill that sends people into debt. It will be those $7 lattes and overpriced takeout. 

When a person is in a financial pinch, they will take a cold, hard look at their huge costs to see if they can shave some off. But it’s likely that they won’t even pay attention to little, everyday expenses. A dollar here and there seems so inconsequential. That is actually one of the most toxic spending habits.

How To Solve It: A Give-And-Take One-Person Dance-Off

Handing over $5 for a coffee or getting $40 takeout here and there isn’t a cardinal sin. In fact, one of the ways that a person can stop themselves from overspending on little things is to indulge from time to time. People should allow themselves to spend money on frivolous things. However, that permission should never be a blank check.

One should always set a limit. Every person should keep track of every dollar they spend over one month. Then, they should look reality in the eye and see if those little, everyday expenses are truly necessary. The answer will probably be no.

Let’s say that a hard-working individual buys a $5 cup of coffee every day on their way to work. That’s $100 per month or $1,200 per year just for coffee. That number can be even higher if they buy a pastry or treat a colleague to a cup of Joe as well. 

So if someone keeps finding similar holes in their budget, what should they do? 

Well, they should stop money from simply seeping through their fingers. They must decide exactly how much they are willing to spend on coffee (or anything else that eats away at their budget). 

Once they do, they’ll have a hard limit that they shouldn’t go over. Generally speaking, “Make a budget and stick to it” is the solution to most toxic spending habits.

Making Compulsive Purchases While Emotional (Or Under the Influence)

Even when someone makes a budget, they can fall down the slippery slope of impulsive shopping. Some people have a habit of calling this phenomenon “retail therapy.”

The truth is that it’s stopping them from having money to, say, actually go to therapy (if needed). In all seriousness, compulsive purchases are blowing considerable holes in people’s budgets. 

The same goes for convenience purchases. A person sees something and tells themselves, “Well, why not buy it?” and then buys the item before even giving it a second thought. 

The “why not” isn’t as important as the “why” here. Do they really need that item? Can they even afford it? Do they have the same or similar item at home but have forgotten about it? These are valid questions that go unasked (and unanswered) in the lives of impulse buyers.

Impulse buying is one of the most toxic spending habits that comes down to:

• Convenience purchases
• Emotionally charged purchases

Luckily, someone who’s starting to realize that they have a problem with one or both can solve it rather quickly. All they need is a budget, a wish list, and a checklist.

How To Solve It: A Wish List and a Checklist

Once someone sets a monthly budget and gives every dollar they earn a purpose, they’ll know how much money they have for leisure spending. Yes, one deserves to treat themselves to a new pair of shoes. And because they do, they can put it on their wish list. The list can serve as a reminder of what one wants (wants, not needs!) to buy in the near future. If there’s money in the budget for “wish list” spending, then by all means, they can go ahead and buy that pair of shoes. 

However, they shouldn’t buy them just because they are feeling down, sad, anxious, or depressed. If that’s the case, the best thing to do is sleep on the decision. The shoes will still be there in the morning, but their resolve to get them might not be.

Aside from the wish list, everyone should also have a checklist. The saying, “Never go shopping while hungry,” is completely sound. That’s why every shopping spree, even a small run to the store, should have a checklist. If it isn’t on the list, they simply can’t buy it!

Not Having an Emergency Fund

The worst of all toxic spending habits is failing to set some money aside for emergencies. If a budget only includes money for expenses and leisure, then any unforeseen situation is a potential financial disaster. Why? 

Well, it’s because, in that case, every emergency means going into debt — loaning money from friends or taking out loans to cover the unexpected expenditure. Then, because debt is a vicious cycle, people find themselves loaning money to pay it all off, consequently going deeper and deeper into debt.

Emergency funds are comfortable cushions that people can fall back on. They are safety blankets in case of an accident, a high medical bill, or a job loss. However, most people don’t set aside enough money to cover a small issue, let alone a massive expense, like an unexpected surgery.

How To Solve It: Pace Yourself and Save, Save, Save

The solution here is rather simple. Those who don’t have an emergency fund need to set one up immediately. They have to look at their budget and see how much money they are comfortable setting aside for emergencies. If there’s no room in the budget for this, then they need to redirect some money into an emergency fund (from the fun and leisure money fund, for example).

Not having an emergency fund leaves a person (or a household) vulnerable. It means they are one broken water heater away from debt. If they had six months’ worth of living expenses in the bank, the broken water heater would be nothing more than a nuisance.

Of course, those who are starting from scratch can’t have that much money set aside. Therefore, they should establish a weekly or a monthly sum (based on their budget) and start saving that for emergencies. If they are having trouble keeping up, they can set a payday specifically for the emergency fund. 

Alternatively, there are quite a few apps out there that offer money-saving tips and will show people where they can cut their expenses, as well as remind them of their (empty) emergency accounts. 

As far as toxic spending habits go, this one might seem like an afterthought to many. Making an emergency fund isn’t as pressing as making a food budget or even a “fun money” fund. And that’s true — but only until something happens.

Being Too Generous

This isn’t one of the most common toxic spending habits, but it can be rather damaging nonetheless. Being too generous and giving out loans to friends and family, as well as wanting to look cool and picking up the entire check is very nice — if one can afford it.

Wanting to be the helping hand when someone is in a pinch is admirable. However, unless a person has millions of dollars in their bank account, they’ll probably have to dip into one of their own funds (savings or emergency) to help someone else out. That, again, leaves them vulnerable. 

Furthermore, there’s no guarantee that the person in need of money will be able to pay it back at a reasonable pace (or at all). Lending money is always a gamble, and if one does it often, no matter on which end of the exchange they are, they’ll end up financially unstable.

The situation is similar when people want to be social influencers and thus splurge and treat their friends and family all the time. Picking up a check is a fantastic display of generosity. However, one should stop and think about how it’s affecting their budget. If someone is neglecting their bills to be able to pay for several rounds of tequila in the club or a family dinner for ten people every week, then they are probably quickly nearing financial ruin. 

How To Solve It: Find Alternative Solutions and Be More Frugal

The main issue with lending money and covering checks is that people start to expect it. Unfortunately, this can create a lot of resentment among friends and family. 

For example, the generous person might find themselves waiting on payments from the person they lent the money to. While doing so, they’ll casually check up on their spending habits. Naturally, this might lead to some awkward situations.

To avoid that, one should avoid lending money altogether. The best policy a person can have is not to lend money that they need. In other words, unless they can afford to give the money away, they should probably find another solution to help their friend or family member in need.

Being more frugal and more creative will go a long way with this bad habit. For example, someone might not be able to give their friend $1,500 for a car repair, but they can offer to drive them to work or to run errands instead. Helping shouldn’t be mutually assured destruction.

Living Beyond One’s Means 

Spending more money that one has seems like a stupid decision. And it is! If a person spends their entire income, that means they don’t have any emergency funds. What’s more, they probably don’t have any savings either, which, in turn, means they are living without any financial goals. Forget about vacations and big purchases! People who spend all their income can either have staycations or take out loans to pay for luxuries.

As far as toxic spending habits go, going into unnecessary debt without a budgeting plan for paying it off is the most damaging one. Living beyond one’s means usually entails relying on credit cards to buy things that people can’t afford in cash. And those who do this are not alone, as Americans have around $900 billion in credit card debt, according to CardHub’s investigation of the Federal Reserve numbers. 

Any sort of loan, including a credit card balance, will lower credit scores. Thus, even if a person is capable of making monthly payments on time, they are still damaging their financial future. 

How To Solve It: Get a Quick Reality Check

If someone can’t afford something, then they shouldn’t buy it. People often go into debt to create a particular image of themselves or to keep up with whoever. But at the end of the day, buying new cars, eating out, buying designer clothes, etc., will only bring them a bucketload of worry. 

It won’t help them feel better about themselves, and it won’t make them financially stable. It’s an illusion that will quickly shatter. So the best thing they can do is set a budget according to their real income (not the imaginary one) and stick to it.

If one has credit card debt brought on by living as if they earn as much as Kanye, they should make hefty payments frequently. Paying off the minimum on a credit card will get them nowhere. In fact, not making extra payments on the credit card debt is another toxic spending habit everyone should shy away from. 

Going Into Debt to Pay Off Debt 

Living beyond one’s means and going into debt to pay off debt are two toxic spending habits that go hand in hand. Moreover, they usually follow each other. A person spends all their money every month and relies on credit cards to make more purchases (or worse, cover the bills and rent), which leads to taking out loans to pay off their credit cards. Then, they find themselves taking out additional ones to pay back the first round of loans, and at the end of the day, they have a mountain of debt on their hands. 

How To Solve It: Make a Loan Payment Plan

Using credit cards to pay off other credit cards, taking out loans (or worse, payday loans), and other means of credit can only lead to more debt. Even worse, one ends up spending more money than they initially loaned, thanks to transaction fees and interest.

So the best way to solve all loan-related toxic financial habits (apart from not taking out loans) is to set up a payment plan. This has to be a restrictive plan with the goal of paying off the loan as quickly as possible. As such, it might entail cutting back on everything except the essentials.