How to escape a cycle of bad money habits

Published on 3rd September, 2021 at 12:51 pm

Want to know how to recognise your bad money habits, fix them and start creating generational wealth for your family? Read on to find out how, from the experts.

Bad money habits: where do they start?

The sooner we recognise unhealthy money habits, the sooner we can nip them in the bud and form new habits that become second nature. But first we need to understand why we adopt money habits from as far back as our childhood, before we’ve even become economically active in our own right.

Our parents or guardians have a major role to play in how we view money, and how we feel about it. “Our first perceptions we have about money are shaped by the interactions we have with our parents,” says Ilze Alberts, a psychologist and life strategist specialising in family dynamics. “The messages and feelings that arise from these interactions along with the meaning we extract from them form our experiences surrounding money,” she explains. “These experiences then go on to form money patterns or beliefs, which we can either accept (and repeat) or reject.”

Examples include having been told by parents or guardians that there was ‘never enough money’. You could internalise and respond to this in one of two ways: either reject it because it felt too restrictive, or choose to spend frugally yourself out of fear of running out of money. Perhaps your own parents or guardians had an inherent distrust of money and financial institutions, and often claimed it was the ‘root of all evil’. You could either have learnt and adopted this view yourself, or independently learnt about how you can manage your money and use it for good. Bad money habits are informed by unhealthy beliefs related to money, so changing these habits means making a fundamental change in how you think about money. “You also need to be conscious of your value system and what you want to impart to your children about money,” says Cristine Scolari, a clinical psychologist at Seriti Therapy & Assessment Centre.

Help empower your kids with these fun lessons for financial literacy. Need help with your own finances? Speak to a financial planner.

Beliefs into habits

The beliefs we internalise based on what we observe as children can manifest as unhealthy behaviours depending on whether we accept or reject them. For example, if your family struggled at the end of the month to make ends meet, but were also buying the latest gadgets and clothes or eating out frequently, this can indicate that a lack of budgeting and planning, and treating needs as a secondary priority, were bad money habits that could’ve been passed on to you. Below are some other bad money habits that can easily be passed down to younger generations if not stopped in their tracks, according to Scolari and Danelle van Heerde, head of advice solutions at SanlamConnect:

• Not saving enough, or at all
• Using credit irresponsibly
• Spending more than you have available
• Treating wants as needs
• A lack of planning
• Believing only money will make you happy
• Not budgeting, and instead buying on impulse

“The important thing to remember is that bad money habits are not generic traits that you just have to accept and live with – they are learnt, rather than ‘inherited’,” says van Heerde. “If you are mindful and focused, you can change your financial habits.”

Here are seven money habits to help you reach financial freedom.

Do research on yourself

Our money stories are unique to us. Your life experiences, lessons, relationships, challenges and associated trauma all play a role in how you view money. To understand your story, you need to ask the right questions. “Ask yourself what messages you were told about money when you were growing up,” Scolari suggests as a starting point. “These messages can vary from ‘money is evil’ and ‘money is scarce’ to ‘money is the key to happiness’, and so on. Did these messages influence you in any way?” Other questions to ask yourself to understand your money habits and empower you to change them include:

• What three things did my parent or guardian teach me about money?
• What is my earliest money-related memory and my most painful money memory?
• What is my biggest financial fear these days?

“Bad money habits typically lead to a stressful relationship with your finances,” says van Heerde. “If you don’t feel in control of your finances, think back to how your parents handled theirs – are you getting a sense of déjà vu or ‘Am I turning into my mom/dad’?,” she suggests. If you are, you probably learnt some bad money habits from them.

When it comes to financial self-care, a qualified financial planner is the perfect expert to enlist for help with how to look after your finances and, in turn, yourself. Book a meeting with one here.

How to rewrite your money habits

Okay, so you’ve dug down to the root of your bad money habits, and the good news is that you are now empowered to question your thinking and motivation for these choices, and can create positive change. Not only will this improve your own financial situation, but you can also model good behaviours for your children or dependants to adopt, and get on track to creating generational wealth. Van Heerde suggests the following steps for getting a comprehensive picture of your current financial situation before you highlight areas that need improvement.

Step #1: Keep a spending diary for a month
Is your money disappearing in small increments every time you order a takeaway coffee or buy clothing or gadgets on impulse?
Step #2: Look at all of your automatic deductions (stop orders, debit orders and subscriptions)
Have these deductions increased over time?
Step #3: Assess your typical end-of-month money situation
Is there money left in your account? And when you receive your bank statement, do you naturally feel curious, scared or confident?
Step #4: Categorise your debt
How much are you paying into a home loan or student loan, and how much is for discretionary spending like restaurant dinners and clothing?
Step #5: See where your savings stand
Are you saving? And if so, is it enough? If your savings are on track, are they accessible in the event of an emergency?

Looking at the information you’ve gathered by following these steps, can you see any problem areas you’d like to work on? Select two to three that bother you the most and create a practical action plan to start forming new, healthy habits to replace the old, unhealthy ones, suggests van Heerde.

Here are some practical strategies to get you started:
• If you find you spend too much on unplanned purchases such as takeaway lunches at work, make a list of ideas for meals you can pack, or plan your evening meals so that there are leftovers for the next day.

• If you are behind on your retirement savings, speak to a qualified financial planner who can help you put a plan in place to save more. Use this free online tool to help you find out how much you need to put away monthly to reach your retirement savings goal.

• If you find you aren’t putting enough money towards goals you’ve set for yourself, make them visual: save a photo of your dream holiday destination as your cell phone wallpaper, or put a photo on your fridge of inspiration for the renovation you’d like to do to your kitchen. Creating these visual reminders makes them more tangible in your mind, which, in turn, should encourage you to prioritise saving for them to make them a reality.

Use this savings calculator to help make your dreams a reality.

Pay good money habits forward to your children

“The strongest message we can teach our children is not through our words but through our role modelling,” says Alberts. Here are some lessons the experts believe are vital to teach children to form good money habits and a healthy relationship with money from an early age.

Money is earned
Whether one or both parents in your household are earning an income, your children need to understand that if they want money, they need to work for it, and that money really doesn’t ‘grow on trees’.
Set an example
“To help kids understand this, I advise parents to make a list of the chores in the house, like putting away dishes, feeding pets, making the bed etc,” shares Alberts. “Parents can then assign chores to their kids, and reward them for each chore completed.”

Planning and prioritising pays off
“There is a difference between wants and needs, and you need to manage them differently in your budget,” says van Heerde. “Your first financial priority is to make sure you can take care of your real needs, like food and housing.”
Set an example
At the start of the year, much of your income probably goes towards school uniforms, stationery and other expenses associated with the new school year. This means there is less disposable income to buy your children toys, casual clothes, takeaway treats and so on. Chat with your children before the December holidays have even begun to manage their expectations of the months ahead, and to give them an idea of when it will be feasible for your budget to spoil them again.

A qualified financial planner can help you plan to achieve your financial goals and ensure your money is spent on the right priorities. Book a meeting with one today, here.

Delayed gratification is better
Scolari says children also need to learn the importance of investing for the long term, and the difference between saving and investing.
Set an example
Every time your child earns pocket money for chores completed to your satisfaction, offer them the amount you agreed to pay them, but also give them the option to take, say, 80% of it, and put the other 20% into a savings jar. Over the course of six months or a year, this amount would’ve grown, which they can choose to spend, or continue saving for a bigger ticket item.
To demonstrate the difference between saving and investing, keep two jars per child: one jar only gets topped up every time your child chooses to save that 20%, and the other gets topped up with the 20%, plus an agreed percentage of the total amount that’s in the jar. Explain that the reason you add the extra amount of money is because they left their money to grow, and this is an environment that allows compound interest to work its magic.

See what money can do for you
“Financial management should be less about the money, and more about what the money can do for you,” says van Heerde. Allowing your relationship to be defined by this principle and having control over your finances is a natural step to gaining financial confidence.
Set an example
“Be mindful about what you spend money on – is it adding value to your life, or that of your family or community?” ponders van Heerde. “Are you investing in things, or in experiences and memories?” Having this discussion with your children closes the gap between incoming money that you earn, and outgoing money being spent intentionally on things that matter to you. This is a golden opportunity to foster healthy money habits by allowing your children to model their thinking by observing yours.

To empower yourself to understand how best to harness your money to form good habits, use these tools on Sanlam Reality’s Wealth Sense platform.