Bad financial habits and decisions can prevent you from building wealth and keep you trapped in a vicious cycle of living paycheck-to-paycheck. If you feel like no matter how much you earn, you’re still struggling to get ahead, your financial lifestyle and habits might be the culprit. Here are some common habits that can keep you poor—and how to break them.

1. Spending More Than You Earn

The Problem: Living beyond your means, whether through excess discretionary spending, lifestyle inflation, or impulse purchases keeps you in a cycle of debt. Lifestyle inflation is particularly dangerous—lifestyle inflation refers to increasing your spending as your income rises. This is a trap that many people fall into. When they get a raise or bonus, they increase their standard of living, by buying nicer cars, houses, clothes, etc. Furthermore, once you increase your standard of living it’s very hard to downgrade your lifestyle. Even though you may be making more money, you’re spending more money and that prevents you from building true wealth and making progress towards financial freedom.

How to Fix It: Oftentimes people that are spending beyond their means simply don’t have a good picture of how much money is coming in and going out. Use a budgeting app like  tools like Empower or Rocket Money to track where your money is going and how much is coming in. Stick to a budget using the 50/30/20 rule, which allocates 50% of your monthly income to needs, 30% to wants, and 20% to financial goals like saving and investing. This ensures that you are living within your means and not spending more than you earn. 

When you get a raise, avoid immediately looking for new things to buy or upgrade—instead, allocate at least a portion of it, say 30-50%, toward savings, investing, or debt repayment. Ask yourself: Will this expense truly provide value and happiness to me, or am I buying it just because I’m making more money and have more money to spend?

2. Relying on Debt for Everyday Expenses

The Problem: Using credit cards or BNPL services for daily expenses leads to high-interest debt that’s difficult to escape. It’s possible to use credit cards properly to accrue points and cashback, but if you are paying interest on credit cards or BNPLs, any rewards you might get are meaningless. It will create a dangerous cycle where you’re constantly making payments while interest continues to accumulate. We previously wrote about the hidden costs of BNPLs, if you’d like a deeper dive on why utilizing BNPLs can be dangerous.

How to Fix It: Build up an emergency fund and focus on paying off high-interest debt. For a more in-depth guide, we previously wrote about how to get out of debt. 

If you can’t afford something without going into debt, consider whether it’s truly necessary. If you have trouble staying out of debt, try sticking to cash or debit cards for everyday purchases to keep your spending in check. If you eventually want to use credit cards to earn points and rewards, be sure you can pay off your balance in full every month before getting started.

3. Not Investing

The Problem: Even if you are spending less than you earn and are saving money every month, if you don’t invest, your money will lose value every year and you’ll be missing out on compound growth. Many people simply save money in a regular savings account earning less than 1% interest per year, which is less than inflation.

How to Fix It: Automate investments by setting up automatic transfers to retirement accounts like your IRA or 401k. Even if you start with just $100 a month, it can add up considerably over time with compound interest. Simply invest in ETFs that track the S&P 500 or overall market, and let it grow over time. We previously discussed in depth how to get rich with stocks in your 20s.

4. Ignoring Financial Education

The Problem: Not understanding how money works can lead to poor financial decisions, from overspending and getting into debt to bad investments. Many people don’t take the time to learn about personal finances because they find it intimidating or think it’s something that only rich people need to learn about. However, without a solid understanding of money management, it’s easy to miss out on simple ways to build wealth.

How to Fix It: Read personal finance books, listen to personal finance podcasts, and follow blogs like ours that share practical and insightful advice. The more informed you are, the better financial decisions you’ll be able to make. Knowledge is power when it comes to financial freedom.

5. Not Having a Financial Plan

The Problem: Without clear financial goals, it’s easy to coast through life spending every cent that’s coming in and without building wealth. Many people live paycheck to paycheck simply because they haven’t dedicated the time to creating a clear financial roadmap. Without goals, saving and investing often take a backseat to short-term desires.

How to Fix It: Think about the future you want to build, and set your goals from there. Check out our post on 5 impactful financial goals for Gen Z in 2025, for some inspiration. Whether it’s paying off debt, saving for a house, or reaching an investment goal, having a roadmap keeps you accountable and on track. Break bigger long term goals into smaller milestones to track progress and stay motivated. 

Final Thoughts

Your financial future is shaped by your daily habits. Breaking bad habits doesn’t happen overnight, but small and consistent changes can lead to huge results. The key is to be intentional with where every dollar is going, educate yourself, and make decisions that set you up for long-term success. By addressing these common financial pitfalls and making smarter choices, you can work toward financial stability and independence.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.