Making ends meet can be a challenge, but if you make the right money moves, money expert Clark Howard says financial freedom can be easier to attain.
In contrast, not being intentional about how you use your money can keep you financially stagnate or worse, lead to financial ruin.
In this article, I’m going to go over some bad money habits that could be preventing you from getting there. I’ll also offer solutions based on Clark’s advice.
These Things Are Preventing You From Getting Rich
Do you find yourself struggling to pay your bills every month?
That could be a sign that your financial strategy could use some work. Let’s go over some things that could be impeding your way to financial prosperity.
1. Spending the Majority (or All) of Your Paycheck
Living paycheck to paycheck is something that will guarantee that you have no money at the end of the month. Instead of spending 100% of your paycheck, see if it’s possible to save a portion of it.
“It’s easy to say and it’s hard to do, but if you don’t set out upfront to take a portion of your paycheck out of the game, it’s hard to ever get ahead,” Clark says. “The old trite phrase is, ‘Pay yourself first.’ It’s simple but very accurate.”
The way to do this is to find out how much you can afford to live on each month and begin putting away a little amount with each paycheck.
“If you take a dime out of every dollar and live on the other 90 cents, slowly, steadily you’ll build up breathing space in your life,” Clark says.
If your budget isn’t working, read our guide on the CLARK Method to budgeting. Once you start to create breathing room to save money, open a high-yield savings account to help it grow even more.
2. Paying Interest on Debt
One of Clark’s credit card rules is to pay your balance in full each month. If you are only making the minimum payment, you’re not only paying for what you borrowed but also the interest, which steadily accumulates.
“Nobody ever got rich paying 18% interest to Visa or Mastercard,” Clark says.
One solution Clark offers is to double up on your credit card payments when you can.
“If you’re running a balance on cards, paying them twice a month instead of once a month will save you a substantial amount of money over time. You’ll save even more if you pay them every two weeks — every 14 days — instead of twice a month.”
To get out of debt faster, several methods can get you ahead:
- The Ladder Method
- The Avalanche Method
- The Snowball Method
Want the CliffsNotes? Clark advises that you start paying the bill with the highest interest rate first.
3. Obsessing Over the Stock Market
Whether the stock market is way up or way down, Clark says you should remain calm as an investor.
“It’s a really bad idea to worry about the noise of the moment with the market going up and down or individual stocks going up or down,” he says.
“The healthiest investing habit is to know why you’re investing and what your time goal is for it. And as long as you have the money, and it’s well-diversified, you just don’t worry about the noise that happens with rises and falls,” Clark says.
4. Buying a New Car
The vehicle market has been pretty crazy over the past several years. But when it comes to buying a new car versus a used car with all things being equal, Clark is still on Team Used Car.
“A new car is the ultimate destructive lifestyle choice because of the depreciation and loss of value,” he says. “And the effective costs per month are gigantic for a new vehicle buyer.”
But Clark acknowledges that there are some instances where it makes sense to buy a new vehicle.
“If you buy a new vehicle and you keep it for 10 or more years, that’s fine,” he says. “But the reality is that most new vehicle buyers tend to short-cycle the loan, where they don’t even own it long enough where they finish paying off the loan they took out on it.”
Better yet, Clark advises that you stay with your current vehicle until car prices drop further.
5. Neglecting To Open a Roth IRA
Clark is a big fan of the Roth IRA (Individual Retirement Account) because of the long-term savings potential.
“A Roth IRA is the most efficient place for you to have money grow for your retirement because the money in it grows tax-free and is spent tax-free,” Clark says.
Clark recommends that you open a Roth IRA with one of the top brokerages like Vanguard, Fidelity or Schwab. Once you do that, your money will grow over time.
Read our guide on how you can become a millionaire with an IRA.
6. Buying More House Than You Need
Many people who buy large homes think that their ultimate return will be higher than what they paid, but that’s not necessarily the case, according to Clark.
“The more square footage you buy, the more utilities you have to pay and over time, the greater the overall maintenance costs will be,” Clark says. “Plus you may face higher property tax by buying a bigger home. So the concept of buying the biggest house you possibly can is something that’s just accepted as fact, but it’s actually fiction because people will say, ‘Hey, I bought this big house and I paid this for it and I’m selling it 10 years later. Look how much more it’s worth.’ But they ignore all of the embedded costs they’ve had over that 10-year period of ownership.”
Have you found yourself in a home that’s larger than you and your family need? Downsizing your home could help correct that.
Final Thoughts
The key to wealth is to be a good steward of your money. Put away as much money as you can across various savings vehicles such as a Roth IRA. If applicable, Clark also wants you to take advantage of your employer’s 401(k) plan.
Also, make a conscious effort to cut down on unnecessary spending for “lifestyle” purchases.
If you haven’t done so already, create a budget and track your expenses so you can see where your money is going. Once you make the adjustments to cut back, your money will grow over time.
Did we miss anything? Tell us what you would add to this list of why you aren’t rich yet in our Clark.com Community!
