Accounting Principles Explain The Money Habits Keeping You Poor

Accounting Principles Explain The Money Habits Keeping You Poor

Many people struggle with their finances and find themselves living paycheck to paycheck. No one wants to be in this situation, but it’s a reality for many people. One reason why people struggle with their finances is that they have bad money habits. In this article, I will explain nine of the most common bad money habits from an accountant’s perspective that hold people back and give tips on how to break out of them.

1. Paying Yourself Last

One of the most common bad money habits is paying yourself last. When you get your paycheck, you pay your bills, subscriptions, and debt payments, and then you save whatever is left over. This is a poor money habit. The rich habit is to pay themselves first. Put at least 10% of your paycheck into your savings account. Treat it like paying a bill. By doing this, you’re guaranteeing that you save money every month and are structuring your spending and finances to last the whole month. You will need to both increase your income and decrease your expenses to be able to do this. Most people can’t start with 10%, but you can start at whatever percent is possible for you and grow this habit as your income increases or you get out of debt.

2. Getting Comfortable with Bad Debt

Debt has become the norm in today’s society. People use debt to buy minor things, including presents and clothes. Unless you can afford to pay for something outright in cash, you shouldn’t buy it with any debt. Credit card companies want you to make bad financial decisions about going into debt because that’s how they make money. The average credit card interest rate is 20.4% currently in 2023 when you carry a balance, which cancels out any benefits and rewards these companies provide. If you can’t immediately pay off your credit card debt, you’ll pay much more in interest.

3. Not Having Savings

It’s important to save enough so that you have a buffer of six months. This ties into paying yourself first. Once you have your emergency savings account, you can use the additional money you save to build your investment fund. This savings account can keep you out of debt by funding emergencies like your car breaking down, insurance deductable, or losing your job.

4. Not Knowing Your Income or Expenses

You won’t know where you want to be until you know your starting point. There’s something called lifestyle inflation, which means your spending will rise as your income increases. The more money you make, the more you spend. Financially savvy people know their assets and liabilities and have clear financial goals. They’re more likely to build wealth than people who fantasize about money but have no idea how to go about it, how to plan to acquire it, or how to manage it. Just being mindful of your finances and seeing those numbers in black and white will trigger you into action. Everyone should have short-term and long-term financial goals that they work toward daily.

5. Having Expensive Hobbies

Many people have expensive hobbies, like shopping, concerts, traveling, and sporting events. We’re constantly bombarded with marketing messages about where we should be in our lives, what we should own, what we should wear, and where we should go on vacation. Avoid those situations or rein in those expenses. Invest in yourself instead. Focus on developing your skills, experiences, or education. These are things that people can’t take away from you and can be used later on to get higher pay and add more value.

6. Focusing Purely on Saving

If you want to improve your financial position, you can save more of your existing income or make more money and create more income streams. The ideal combination is a mixture of both. You can’t build wealth if you’re making more money and spending it all, but you can if you focus on saving. There’s a cap to how much you can save; being frugal will only get you so far. To truly build wealth, you have to think of both sides of the equation. It’s not what you earn; it’s what you save. Also, growing income is unlimited, but you can only save so much of your current income. It is easier to grow income and increase savings than just spending less and less money with your existing income.

7. Paying Too Much in Taxes

While everyone has to pay taxes, many wealthy people know legal corporate structures with tax advantages. They hire tax advisors that help them minimize their tax bills. If you want to get one step ahead, one of the best ways to increase your wealth is by understanding tax rules in a way that stacks up in your favor. For example, investing through a 401k or IRA is an investment account that shelters your dividend and capital gains from taxes or operating under a business instead of an individual if you’re a solopreneur. The tax savings can be incredible if you are a company owner.

8. Waiting Too Long to Start Investing

When you start having savings, you have an emergency fund, that buffer we discussed. Then you want to start looking at investing that money so that your money starts working for you. You want to diversify those investments to weather different market environments and opportunities in the financial markets. But you want to avoid leaving that money in a bank account because inflation is real and relentless, which means you lose spending power continuously. You need a mixture of safe and riskier investments that balance each other out over time. Start looking at different investment strategies once you’ve saved up enough. Don’t leave any additional money that you don’t need in a bank savings account earning little if any interest. The earlier you start investing consistently the more you can also benefit from compounding returns.

9. Not Caring About Finances

If you don’t care about something, you won’t do your best at it. Most people don’t care about finances, and even worse than that are people who think that finances don’t matter. Master this and immerse yourself in this world where you can learn to use your finances in a way that gives you freedom, peace, and independence. It may just be finding the right teacher, strategy, or online tools that help you resonate with your finances in a way that most appeals to you, whether that’s through an employee perspective, an entrepreneur perspective, or someone who’s less of a risk-taker, or someone more of a risk-taker. But there will be someone who matches your personal finance and investing style closely.


These are some of the most common bad money habits that hold people back. You can build wealth and achieve eventual financial freedom by recognizing and breaking free from these habits. Remember to pay yourself first, avoid bad debt, build a stockpile, know your income and expenses, avoid expensive hobbies, focus on saving and making money, minimize taxes, start investing, and care about your finances. By doing so, you’ll be well on your way to achieving your financial goals.