Are your monthly money habits setting you on the path to wealth—or holding you back from your full potential?
The answer might surprise you.
Unless you’re prone to undeniably bad habits like overdrafting your checking account and maxing out your credit card, it’s easy to assume you’re on the right track. But there are some obstacles to wealth that often don’t even register as red flags because the behaviors are so widespread. As a result, many of us brush them off as no big deal.
“A lot of people don’t even realize they are in a fragile situation—or just one crisis away,” says Bob Gavlak, a Certified Financial Planner at Strategic Wealth Partners in Columbus, Ohio. “And if you don’t realize that your habits are putting you at risk, that may be even more dangerous.”
Here are four big—but surmountable—blockers to wealth, and advice on how to get back on track if they apply to you.
“Think of everyday things that could happen, like the radiator in your car going out or plumbing issues at your house,” says Charlie Harriman, a Certified Estate Planner and partner at Cloud Financial Inc. in Huntsville, Ala. “If you don’t have the cash to pay for emergencies like that, you are very financially fragile.”
According to a PwC report, nearly 50 percent of Millennials fit this bill. While it might seem like having little or no money in an emergency fund is a glaring sign your finances need some TLC, it’s not always so obvious—especially if you haven’t been hit with any big expenses.
“Some people have great jobs with a large salary and no debt, but they don’t have money in the bank for unexpected expenses,” Harriman says. “If they lose their jobs or have an accident and can’t work, then what? The smart thing is to know that at some point the unexpected will happen, and be ready for it.”
What to do: Start socking away cash now. (It’s America Saves Week, so the timing is perfect.) Even a little bit can add up–$50 a month would get you to $600 after a year. Increase that to $20 a week, and you’ll have more than $1,000 after a year. Gavlak recommends opening a high-yield account at a credit union or bank that’s different than where you have your checking account, so you’re not tempted to tap into it.
“Set up a direct deposit from your paycheck and opt out of online banking, so you have to actually drive to get the money,” he says. “That will help you avoid spending it in a non-emergency situation and allow you to build up a good emergency fund.”
“If you owe $10,000 on a credit card, and you’re paying just $140 each month, for example, it will take you 25 to 30 years to pay it off,” Gavlak says. What’s more, you’ll pay thousands in interest—and your credit score will likely suffer because of the high-utilization ratio.
Gavlak says this might surprise those who mistakenly believe that carrying a balance helps build a solid credit history. But the only real way to build great credit—and wealth—is to pay off everything you charge at the end of the month.
What to do: Develop a plan for wiping out your debt for good—even if it means making tough sacrifices in order to triple or quadruple your monthly payment, or seeking other consolidation methods, like applying for a balance-transfer card.
You can also consider a personal loan through sites like SoFi, Earnest, Upstart and Prosper. “These sites [require] higher payment amounts [in exchange for] lower interest because they are for shorter time frames,” Gavlak says. “This can help you if you’re not disciplined enough to pay higher monthly amounts on your own, and you can be in a better situation in two or three years.”
Always paying with a debit card won’t get you into debt like relying on credit—but if you’re still not keeping tabs on your transactions, you could find yourself in hot water. Even all-cash dieters who don’t diligently watch their spending might visit the ATM a few too many times each month.
Bottom line: Not watching your daily spending won’t necessarily dig you deeper in the hole, but mindless spending can prevent you from having funds available to save, pay off debt or use in an emergency. And that keeps you from getting rich.
What to do: If you don’t already have a budget, the first step is to create one. With that in place, you can set up systems that make it simple to stick with it.
Prefer plastic? Consider an app like Mint, Mvelopes or Personal Capital that tracks and categorizes your expenses for you. If you like cash, you might give the physical envelope system a try. Each week, you stuff different envelopes (labeled “lunch,” “gas” and “prescriptions,” for example) with money, based on the categories and values in your budget.
“You go to the bank at the beginning of the week and take out the cash you’ll need to for all purchases throughout the week,” Gavlak explains. Then when you’re out, you’re out.
There’s a difference between knowing you owe money and truly understanding how much you owe, the interest rates and what it’ll take to be debt-free one day.
“A lot of people don’t really take ownership of their debts; they just glide along,” says Andrew Rafal, president and founder of Bayntree Wealth Advisors in Scottsdale, Ariz. “Maybe they feel like as long as they’re making payments, they’re doing the right thing. But if you don’t have a timeline for becoming debt-free, you will probably never get out of debt.”
What to do: If you don’t have a handle on how much of your income is dedicated to debt—or for how long you’ll be paying it down—Rafal recommends tapping the same tech resources you use to track your spending.
They’ll give you a more comprehensive financial picture and often let you enter your balances and interest rates, in order to help you prioritize which debt to pay first. (Hint: Start with the balance attached to the highest interest rate to save the most money.) You can also use online credit card calculators or other debt calculators.
Rafal likes this process because it teaches you to build a roadmap, set goals and hold yourself accountable—the same process you’ll lean on again and again, whether you’re endeavoring to pay off another card or to become a millionaire.