It feels like every day I hear about another student loan default, bankruptcy, or foreclosure. People get in over their heads, and it’s either a slow burn or a brutal ambush.
I’ve often found that the friend who complains the most about their finances is also the sloppiest spender and a master of bad money habits. Financial security begins with a simple premise: don’t overspend or waste money on unnecessary stuff.
Here are five money habits that could be eating away at your wallet.
1. Buying overpriced coffee and eating out frequently
Some people wake up, brush their teeth, and wait in line for 15 minutes just to spend $9 on an iced coffee. And it wouldn’t bother me if only a few people were doing it.
No matter the time of day, the Starbucks line wraps around the entire parking lot. Sometimes it spells a Z, other times a QZXY. The coffee costs $2 to make. They charge you $7 to wait in line.
I’d be on board if there was protein or if it was some type of meal replacement drink. Incremental waste has a corrosive effect on our wallets. It seems like just a little extra buy here and there, but this habit can add up over time.
And eating out multiple times a week can have the same effect.
For example, I used to buy lunch at my office cafeteria daily and bring it to our employee lounge. I spent a good $20 a day. That’s $100 per work week. An accountant friend from China, Wei, used to say (in a very thick accent), “Why you not pack lunch?”
She was incredulous that I was throwing money every day at this one thing. She’d come from humble beginnings and learned that money mattered.
And she was totally right. I was wasting money on eating out every day when I could have prepped lunches for much cheaper.
I’m not saying you should never eat out during the week. In fact, it’s good to treat yourself to your favorite coffee or meal. Just don’t let your eyes get bigger than your wallet.
2. Investing in assets that are bigger burdens
Sometimes, we invest in things that we think will be an asset but end up costing us more time and money.
One such burden: owning a swimming pool. I had one for a couple of years. You get all sorts of pine needles in them. You have to monitor the chlorine levels and scoop out dead animals in the morning (and a few lucky ones who manage to survive). You have to scoop the surface of random crud in it and drain it if someone breaks a glass in it.
I’m biased. I grew up swimming competitively, so maybe I’m just over pools. But I’ve found that they were a total hassle — and if you have small children, that presents an entirely new challenge dimension to the equation. And then there’s the creepy crawlers that like to get themselves tangled up in the drain.
A friend said, “Hey, a pool is only an hour of work each week for me.”
But an hour a week adds up to more than a full work week in a given year. That’s time (and money) I could be spending elsewhere.
3. Hoarding money to combat inflation
There’s something that a lot of people seem to miss about inflation. Yes, gas and other commodity prices go up and eventually come back down.
But many of those prices never come down. With milk, cereal, electronics, and other goods, the price remains stubbornly permanent. The damage is done — all while your cost-of-living hikes up in the background.
Then you have to either wait for your employer to tweak your salary or find a higher-paying job.
Don’t make it a habit to hoard a bunch of money in your bank account. Put it to work for you. That doesn’t mean going and buying scratch-off tickets.
Low-risk mutual funds or a Vanguard total market fund will help hedge against inflation risk. The challenge is that inflation often rises when the country faces a downturn or pending recession. The instinct can be to hoard three years’ worth of living expenses, but this can hurt us in the long run.
4. Buying just to say you own it
When you study human nature up close and take a step outside of your being, it gives a better perspective of our goofiness.
Economist Thorstein Veblen invented the term conspicuous consumption. It describes why people rock $500 Jordans and $3000 Chanel purses.
The Jordans aren’t any better than the $20 sneakers Michael Jordan played with during high school. The purse doesn’t store your money any better than a $100 purse. However, it might make you a better target for a purse snatcher.
This spending habit is conspicuous consumption in action—it’s the status game. There are few games more expensive than trying to look rich or cool.
There is still a virtue in dressing nice and wearing clothes that actually fit (men often miss this lesson). But you can do this without giving in to the need for status. Most people don’t pay much attention to it anyway.
One of my favorite things is looking up the most expensive watches on Amazon and then reading the reviews.
They are pure comedy — and often ooze sarcasm, with reviewers talking about using their watch to prop up a wobbly table. These people get it.
The underlying problem is that buying for status doesn’t bring lasting contentment. The happy feelings decay quickly. If you want to be happy, look elsewhere.
5. Spending hundreds on fake anti-aging products
The anti-aging cosmetic industry is running north of $60 billion a year. If your curiosity gets the better of you, check out those infomercial channels between 8–10 AM. There’s usually a channel with a few older ladies talking about some latest cream with incredible anti-aging benefits. It features before and after photos that seem too good to be true.
And there’s always some gimmick about how if you order now, you’ll get six or seven months of free treatments, or maybe even an extra year of results. All for the low, low price of six payments of $199.
The problem? There’s zero science behind these products. They prey on people’s insecurities and their fear of surgery.
There’s nothing wrong with wanting to look younger, and there are ways to help, like living a healthy lifestyle and managing weight. If you want age-defying solutions — you should probably just call a surgeon.
There’s this funny thing I’ve noticed. Nobody admits to getting plastic surgery — but there sure are a lot of plastic surgery clinics within a mile of every house I’ve lived in.
The broader lesson is that we shouldn’t waste money on things that we want to be the solution. I’ve become a bigger proponent of paying a higher cost upfront and solving something for good. It often saves me more in the long run.
I’d prefer to commit. Put me under the knife. Make me a beautiful, beautiful butterfly.
The takeaway and caveat
You hold the final vote on what is and isn’t a waste of money. Everything is relative.
I go to the casino once or twice a year. I know well that I’m not likely to win. I set a limit before I go in — and even when I lose money, I never leave feeling like I’ve made a huge mistake. The thrill of slot machines is a form of entertainment for me. But it’s never developed into a bad money habit.
If you want to buy a pool, anti-aging cream, or $20,000 watches — and you feel comfortable knowing you’ll be glad you did — have at it. There are no absolutes in this life.
Just make sure you are saving where you can and that you aren’t engaging in poor money habits. You’ll hedge your bets against financial catastrophe later on.