If you don’t fix these 6 money habits, you’ll stay broke - no matter how much you earn. This isn’t about working harder. It’s about how you think, spend, and make decisions with money. And right now, those habits are working against you.
The first habit is to pay yourself last. Many people think they fail to save because they don't earn enough. This is one of the most common lies we tell ourselves. The truth, however, is that without a proper money management system, spending can be like a bottomless pit, regardless of your income.
Imagine sitting in a restaurant in front of a bowl of tomato soup. You probably think you'll eat until you're full, right? Well, as it turns out, not at all. Brian Wansink, a consumer behavior researcher at Cornell University, conducted an interesting experiment. He sat people in front of bowls of soup connected to hidden tubes under the table. These tubes refilled the soup at the same rate as the subjects ate it. And the bowls were practically bottomless. The result? People ate 73% more soup than the control group. But most interestingly, they didn't feel any fuller. Their brains weren't concerned with signals from their stomachs, only with how much soup was left in the bowl. Since the bowl was still full, they kept eating. Unfortunately, the same thing happens with our bank accounts. A paycheck is like a bowl of soup. If the bowl gets bigger after a promotion or a raise, our brain automatically increases consumption. Not because we need more, but because we perceive we have more. This is called lifestyle inflation. Parkinson’s Law works the same way: work expands to fill the time available. As you can see, when we act without planning and forethought, we tend to use up all our resources, regardless of whether it's time, soup, or money. So, what's the solution to this problem?
In this case, the "pay yourself first" principle from George Classon's classic book, The Richest Man in Babylon, should be applied. It works by shrinking what you see as “available” money by transferring a certain percentage of your earnings to a separate account immediately after receiving your paycheck. This could be 10, 20, or even 50% of what you earn. The money is spent immediately, but not on bills or purchases. It goes straight to a savings or investment account - a fund for your future self. Hence the name "pay yourself first." By leaving a smaller portion of soup in plain sight, we switch to savings mode, and suddenly it turns out that this will easily last until the end of the month.
But now let's move on to money habit number two: wrong social circle. We need to realize that our social circle isn't just about whether we'll have a good time together. It's also a kind of financial thermostat that gets adjusted without you realizing it. In 2007, two researchers, Nicholas Christakis from Harvard and James Fowler, analyzed data from the massive Framingham Heart Study. They discovered something that shocked the scientific world: the phenomenon of social contagion. They found that if your immediate friend becomes obese, your chances of becoming obese increase by 57%. But that's not all. If a friend of your friend - someone you don't even know - gains weight, your risk still increases by 20%. This study suggests that behaviors and habits spread through groups like a virus. Now, this isn’t 100% definitive, because it could be that people with similar habits simply choose each other as friends, or that shared neighborhoods and infrastructure play a significant role. In short, more research is needed to reach any conclusions.
It's difficult to change your financial life without changing your environment, because your brain will always strive for the average of your surroundings so as not to be excluded from the herd. But what do we do about it? First, let's not go to extremes. Some people online will tell you to absolutely cut such people out of your life and cut off contact. It’s better to get down to business and be busy enough that you don't have time to listen to such people.
The third habit is the use of bad debt. It acts like an anesthetic for your brain, causing you to lose touch with the true value of money. Two MIT professors, Drazen Prelec and Duncan Simester, conducted a study on an NBA ticket auction. They divided people into two groups. One could only pay with cash, the other only with a credit card. The result: those with credit cards bid an average of 64% higher than those with cash. Some were willing to pay twice as much for the same ticket simply because they bid on credit and didn't feel the physical drain of cash. Why is this happening? Parkinson's Law also applies, stating that work MRI scans show that paying with cash activates the center in our brain responsible for feeling physical pain. In short, paying hurts. Unfortunately, using bad debt - such as credit cards or deferred payments - desensitizes the brain. We don't feel the pain of loss, only the dopamine from a new purchase. Bad debt disables your warning system, allowing you to rob yourself of future earnings before you even see them. The practical solution is very simple. Don't use credit for consumption, such as a car, vacation, wedding, or TV. It's a trap that's really hard to escape.
Habit four: spending money to signal status. Do you know what happens when we spend money to show how important and awesome we are? In trying to prove our worth to the world, we lose an important tool that could actually build that worth: capital. In evolutionary biology, there's a handicap hypothesis formulated by Amotz Zahavi. Think of a peacock's tail. From a survival perspective, it's absurd, heavy, garish, and makes it an easy target for predators. And it uses a lot of energy. So why hasn't evolution removed it? Because the tail is an important social signal. The peacock uses it to signal the female: look, I'm so strong and have such good genes that I can afford to carry this useless burden and still outrun a tiger. People do the exact same thing. A new expensive car lease we can't afford, or an expensive handbag worth two paychecks. That's the peacock's tail. We're trying to send a signal to our surroundings. “I have so many resources that I can waste them on luxury items.” Money spent on status is money that doesn't work for our financial future. Strive for wealth, not money or status. Wealth is possessing assets that earn money while you sleep. Money is how we exchange time and wealth. Status is a place in the social hierarchy. It's better to be rich than to appear rich.
Habit five: victim mentality. In 1967, psychologist Martin Seligman conducted an experiment that changed our understanding of depression and poverty. He placed dogs in cages where the floor shocked them with electric shocks. One group of dogs had a lever that turned off the current, and the animals quickly learned to use it. The second group had a lever that did nothing. The current kicked them regardless of what they did. Later, both groups were moved to a cage with a low railing, over which they simply jumped to escape the current. The dogs in the first group jumped immediately, but the dogs in the second group simply lay on the floor and whimpered, surrendering to the suffering, even though the exit was within reach - or rather, their paws. This was called learned helplessness. Many people are trapped in learned financial helplessness. The easiest way to break free from these beliefs is to regularly feed your mind valuable content. This could be, for example, watching videos or reading books on personal finance and wealth building. This will greatly help reshape how you think and change your identity.
The sixth mistake is not using leverage. In 1984, a certain basketball player received an offer from Nike. Back then, Nike wasn't the basketball giant it is today. Instead of a typical endorsement deal, however, the company received an unusual offer. The basketball player wanted a percentage of sales of shoes bearing his name. That player was Michael Jordan, and this story is the creation of the Air Jordan brand. In the first year, shoes sold for $126 million, and today the brand generates over $5 billion annually. He earns over $200 million a year from it, even though he hasn't played basketball for 20 years. Basketball was his job, but his brand was his leverage. Jordan, or rather his agent, didn't want a lump sum payment, but shares, and a powerful personal brand allowed him to finalize negotiations and promote the product. Leverage amplifies the efforts of our work, making them felt for a much longer period of time. Leverage can be, for example, skills, the work of others, capital, technology, and media. The simplest, though certainly not easy, ways for an ordinary person to start leveraging is, first, building their own company, leveraging capital, the work of others, and technology. This is important because you won't get rich selling your time. To achieve financial freedom, you need to own shares - that is, a part of the company.
