8 Grown-Up Money Behaviors Keeping You Broke
At some point in our lives, most of us decide it is time to become full-fledged adults. This usually means no more sleeping in just because we want to. No more eating cereal for dinner and no more staying out late on a Wednesday night just because we can. Eventually, all good things come to an end, and that includes those early years when you get to be young and carefree.
Still, adulthood can be strange in the fact that “adult behaviors” we’re told we need to emulate can work against us. These behaviors can keep us broke — even if we are trying desperately to build wealth in other ways.
Trust me — I’ve been there! When I started out as a financial advisor, I left for work each day wondering what in the world was going on. I barely felt an adult, yet I was wearing a suit and acting the part. I was an adult in some ways, but there was a part of me that was still holding onto hobbies and behaviors from my college years.
It took me a while to realize that many of the “adult behaviors” we’re told are part of life were preventing me from growing up and holding me back from my financial potential.
Here are some of the behaviors might want to reconsider if you’re ready to stop wasting money so you can build wealth:
#1: Happy Hour and Buying Drinks
It’s easy to think that happy hour is the place to be when you get off work and don’t have a family at home. Your day was long and boring, and all your co-workers are ready to have a few drinks and unwind. Why not pony up to the bar and enjoy life for a while?
The problem is, happy hour can take a serious toll on your budget. Drinks alone can cost $5 to $10 each and potentially a lot more in cities like New York and Chicago. If you’re buying three drinks per weekday and paying $10 per drink, you’re spending $150 per week or $600 per month on alcohol. Also keep in mind that’s only if you’re not also buying dinner when you’re out, and that doesn’t even count cash you could be spending on weekend nights. If you’re someone who is always buying people shots, you could be spending even more than that.
If you want to build wealth, it’s crucial to cut money behaviors like this one from your life. This could mean drinking less or drinking at home part of the time. If you could start investing $600 extra dollars per month instead of pouring it down your throat, you could start building wealth at a much faster pace.
#2: New Wardrobe
When you get your first real adult job, it’s only natural to feel you need to dress the part. I totally get it. I remember when I first became a financial advisor and needed to buy dress shirts and suits. Even though I was smart with my clothing budget, I still had to invest some money to look my best.
But, you don’t have to spend hundreds of dollars per month to dress for work. There are a ton of ways to dress well for less including shopping at consignment stores, shopping out of season, and heading to discount stores. One of my favorite stores for clothing is T.J. Maxx. You can find all kinds of deals on quality business attire in that store and their selection changes all the time.
It’s estimated that Americans spend between $200 and $300 per month on clothes. That’s nearly $4,000 per year on shoes, shirts, and pants, guys! If you could cut that figure in half, you would be a lot better off.
#3: Credit Card Debt
Don’t get me wrong; debt isn’t the devil at all. In a piece I wrote about using debt to your advantage, I referenced a study from Discover Personal Loansthat showed that 68% of those who have taken out a personal loan said that their loan helped them accomplish their financial goals. I also talked to financial advisors who shared the many ways you can use debt to actually build wealth, including purchasing a home or borrowing money to start a business.
At the same time, it’s hard to deny that unsecured credit card debt is mostly bad news. In 2017, Americans paid over $104 billion in credit card interest! That’s a ridiculous amount of money — especially when you consider that it adds no value to your life. Paying credit card interest is the same thing as setting money on fire every month. You send the money in, and you get absolutely nothing in return.
While it makes sense to have a credit card if you’re an adult, real adults use credit cards to their advantage. They pay their balances in full each month, and they may even utilize credit cards for travel perks or rewards. If you can’t use credit responsibly, the adult thing to do is to stop using credit cards and stick to cash or debit instead. It’s as simple as that.
#4: Brick and Mortar Banks
I’m sure your parents harped on the fact you needed to save money the entire time you were growing up. They probably told you to open a savings account and stash away savings from all the jobs you had in high school and college.
This is good advice for the most part, but it’s possible you’re still saving money with the bank you grew up with. If that’s the case, you could be missing out on higher interest rates and valuable perks like mobile banking and online bill pay. Some bank accounts even offer signup bonuses!
I’ve been there, folks. Before I switched banks as an adult, I found out that my long-standing bank was paying just .05% in interest each year! That’s basically nothing, right?
Fortunately, I started searching and found online banks that paid up to 2% or more. That’s not enough money to make anyone rich, but it’s a much better return than I was getting before.
The bottom line: Don’t stay loyal to the bank you grew up with unless they’re offering competitive rates and other perks. If you fail to check around and compare, you’re selling yourself short.
#5: Kids Birthday Parties
Maybe you don’t celebrate your adult birthdays to the extreme, but it’s hard to not go overboard when you have kids. You wouldn’t believe the amount of cash I’ve seen parents spend on their children’s parties when you tally up things like catering, bounce houses, clowns, and games.
According to recent statistics, 26% of parents spend $500 or more on their child’s first birthday party. That’s a ton of cash, and for what?
Here’s the truth: Your kid won’t remember their first birthday party, nor will they care how much you spent. They won’t remember their cake, the pony rides, or the whiskers a clown painted on their face.
Once you’re a real adult, you realize that spending more than you need is an absolute waste. You’re a lot better off saving that money for the future and using it for almost anything else.
#6: Extended Warranties
Once you’re an adult, you get to buy adult toys, electronics, and appliances. Each time you do, you’re offered an extended warranty that will replace your item if it breaks down during the first few years.
While these warranties can be inexpensive and seem like the right thing to do, companies make money on these warranties because they make them almost impossible to redeem. You pay for the warranty upfront, but if your appliance breaks down, you are forced to jump through a million hoops to get them to honor the deal.
It’s recently been estimated that some appliance manufacturers receive 60% of all their profits from extended warranties. This just goes to show that extended warranties are a losing proposition for consumers.
#7: Buying a Home
So, you want to get out of your run-down apartment and buy a home. That’s fine, but that doesn’t mean you’re in the financial position to move out quite yet.
While it’s easy to feel like you’re throwing your rent money away each month, it’s important to understand how things change when you take out a mortgage on a home. First, if something breaks down, it’s 100% on you to fix it. Second, when you make a mortgage payment each month, most of it goes to the interest of your loan and not the principal of your balance. It will take several years to build any real equity in any property you buy, and that can be a problem if you lose your job or need to move.
Buying a home might feel like the “adult” thing to do, but it’s possible you’re better off renting as long as you can. When you rent, you can keep your options open and continue saving money. Maybe you’ll buy a home down the line and maybe you won’t, but you could be avoiding a big mistake.
#8: The Dreaded Car Payment
I totally get that you need reliable transportation to get to and from work. You need a car that is safe enough for your kids to ride around in, and one that won’t constantly break down and leave you stranded on the side of the road.
But, no matter what anyone says, you don’t need a fancy or expensive ride. I hear so many people argue they need a new car, but this is untrue. You can get a reliable used car and get by just fine — and you’ll pay a lot less if you do.
In a piece I wrote for Forbes about the hazards of huge car payments, I shared how the average monthly payment for new cars is $499 per month. The crazy thing is, the average length of these new car loans is 67 months! Even nuttier is the fact that 25% of new cars are financed for more than 72 months.
Whatever happened to three-year and five-year car loans? These days, people are willing to pay more longer just to get into a ridiculously overpriced car they can’t afford.
As Minnesota Financial Advisor Jamie Pomeroy noted when I interviewed him on the topic of car payments, people are conditioned to think only about their new monthly payment – not about the overall costs of a car or even the value of their investment.
And they often do it because they are conditioned to follow the herd. As Portland financial planner and the founder of Three Oaks Capital Management Grant Bledsoe told Forbes, it’s a matter of instant gratification. “If you want that shiny new Audi your neighbor just bought, you can head over to the local dealership and walk out a few hours later with your own A6,” he said.
As a real adult, you need to start looking beyond the monthly payment and at the opportunity cost of paying so much toward a car each month. Just because you can afford a monthly payment doesn’t mean you’re building wealth. As a matter of fact, when it comes to depreciating assets like cars, you’re just throwing money away.
The last time I checked, throwing money away is not the grown-up thing to do. So, think long and hard about the habits and behaviors you’ve learned and whether they’re working for you or against you. If you find you still have habits that are holding you back, pledge to become a real adult and drop those behaviors for good.