#10 bad habits holding back your financial freedom

Achieving financial freedom is a common aspiration for many. It involves sustaining your living expenses through passive income rather than solely depending on earnings from a job, reflecting true wealth by having both time and money. The habits we cultivate in our daily lives significantly impact our journey toward financial independence.

Here are, in my view, the top 10 habits that impede an individual’s path to financial freedom, trapping them in the Rat Race.

This valuable lesson comes from Robert Kiyosaki’s ‘Rich Dad Poor Dad’ and is one of the most important lessons I’ve learned from this finance classic. It addresses how people typically approach their payday—clearing bills, treating themselves, covering other monthly expenses, and only then considering savings. The issue? Savings often get the short end. Result? A cycle of financial struggle. The fix is – reverse the order. When that paycheck arrives, allocate a portion directly into your savings before anything else. I’ve encountered people who claim they can’t save, yet ironically, they manage to spend on expensive hobbies and dine out on fast food. When you prioritize setting aside money for savings first, you’ll find yourself spending the remaining amount more thoughtfully. Prioritizing paying yourself first is essential for constructing a financial safety net.

Creating a safety net or emergency fund is vital for financial independence. It’s not a retirement fund, but it serves as a cushion for worst-case scenarios like job loss or unexpected expenses such as illness. This fund is where the money you set aside after each paycheck goes. I believe having a safety net for at least 6 months is crucial. To figure out how much you need, take a moment to calculate your monthly expenses (rent, groceries, gym membership, and other necessary bills), then multiply that by 6. Once your savings account reaches that amount by consistently paying yourself first every payday, you can start thinking about investments.

It’s surprising how many people I’ve met who avoid investing and leave their money in a savings account, but this leads to declining value due to inflation. The interest from a regular bank account isn’t enough to keep up. Once you’ve built your safety net, consider investing the first chunk of money from each payday. There are various options like stocks, bonds, ETFs, real estate, or even commodities like gold and silver. I get that buying property can be tough, but there are investment choices for everyone, big or small.

Investing even as little as 100 bucks monthly is a wiser choice than letting that money sit in the bank. Saving can only grow up to a certain amount based on the interest, ignoring inflation. Investing, on the other hand, doesn’t have such a limit. While it’s true that high-reward investments can be riskier, you can start with safer options until you gain enough money, knowledge, and experience to venture into riskier ones. Investing is the key to financial independence and shouldn’t be overlooked.

Getting involved in pricey habits that don’t truly contribute to well-being is essentially taking a step backward on the path to financial independence, unless one is wealthy. Partaking in costly hobbies, particularly during financial challenges, can worsen difficulties, causing financial stress and impeding the establishment of a secure financial base. Before diving into an expensive hobby, ask yourself: Is your safety net ready? Did you set aside money for monthly savings and investment? Are your essential expenses covered?

Credit cards are everywhere—big businesses, not just banks, now offer them. While using them responsibly can help build a good credit score, I’ve noticed many people using credit cards to purchase things they don’t really need and honestly can’t afford. If payments aren’t made on time, credit card interest rates can be quite high. Most credit card issuers compound interest daily, turning the borrowed amount into troublesome debt. This often results in spending much more on unnecessary items. A practical rule of thumb: if I can’t afford something without borrowing, it’s best not to buy it.

Another way credit cards are used irresponsibly is by having multiple cards. People might do this for various reasons, like not getting enough limit on one card or seeking additional rewards on specific purchases. However, the issue arises when managing multiple cards becomes challenging, making it difficult to track your budget. This complexity increases the risk of forgetting to make timely payments, resulting in accumulating bad debt.

Unchecked desires, coupled with debt, are what often lead to financial challenges.

Have you ever found yourself going window shopping on Black Friday or Cyber Monday, only to end up buying something unnecessary just because it’s on sale? We’ve all been there, which brings me to this point: it’s a bit of a bad habit that can impact your journey to financial independence. Big brands often sweeten the deal with buy-one-get-one discounts or gift cards for future purchases, tempting you to overspend when you didn’t plan to. Now, don’t get me wrong—I’m not saying you shouldn’t take advantage of discounts when you genuinely need something.

Buying on sale is a smart way to save. However, impulsively purchasing items just because they’re on sale isn’t a wise move, in my opinion. It can lead to unnecessary debt or depleting savings. Making thoughtful and budget-conscious spending decisions can help ease this stress and contribute to a more secure financial outlook.

Without a doubt, taxes constitute the most significant portion of our earnings—ironically, even before we receive them. One harsh reality about jobs is that, on average, we work around four months a year solely to fulfill our tax obligations to the government. The more we earn, the greater our tax liabilities, impacting our savings for emergencies, retirement, or investments. It’s crucial to self-educate about taxes and explore ways to reduce payments. Tax professionals are also available to assist in understanding and securing beneficial rebates.

Trust me, spending a little amount in tax education and assistance is a strategic step toward attaining and sustaining financial independence. Minimizing taxes is like keeping more of what we earn in our pocket.

Financial independence is about having control over our money and making intentional choices. However, this doesn’t imply attempting to control every financial aspect directly.  Instead, it highlights the importance of financial planning. Spending extra due to a lack of planning can be seen in various situations like buying impulsively without considering necessity or budget impact, not planning meals and frequently opting for takeout, making last-minute travel arrangements for a long-anticipated trip, and neglecting to research prices before significant purchases. Planning expenses thoughtfully and making informed financial decisions are essential steps in working towards greater financial freedom.

Keeping an eye on spending is a big deal for smart money management and reaching financial independence. Wondering why? Well, neglecting expense tracking is one of the reasons people might unknowingly repeat the eight mistakes mentioned earlier. Monitoring expenses gives a better idea of how money moves, making it easier to set and stick to a budget. It offers a clear view of spending patterns and enables us to spot trends and make informed decisions about cutting back or allocating resources wisely. Expense tracking also helps in emergency preparedness by pinpointing areas for potential savings. It aids in debt management and prevents overspending, ensuring bills are paid on time, keeping a credit score healthy.

Many of us have a job to earn a living, which is okay—it’s what we do to get by. The problem arises when we become too comfortable, and our jobs become our sole income source. We end up trading our time for money, stuck in a cycle of working to live and living to work—a Rat Race. I’m not saying jobs are bad, but I believe having side hustles and building assets for passive income is crucial. While getting a higher-paying job is good for now, it shouldn’t be the ultimate goal because it alone doesn’t lead to financial independence. Getting a raise doesn’t solve money problems; it often leads to more spending. The key is learning to manage, control, and make our money work for us.

Here are some signs that someone is stuck in a Rat Race: too much time spent on entertainment, earning more but spending more, relying solely on a full-time job with no career growth, procrastinating financial planning, thinking money is bad, and not following a strict schedule. Although I’ve mentioned it last, getting comfortable in a Rat Race is, in my opinion, the biggest barrier to achieving financial freedom.

Ultimately, embarking on the path to financial independence is a significant and courageous first step. Overcoming the 10 obstacles mentioned earlier may seem challenging initially, but understanding the “why” behind the desire for financial freedom reveals the “how” to overcome them. With the right motivation, purpose, and discipline, these challenges are not insurmountable.