5 bad money habits to give up sooner rather than later

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With a few easy shifts to your financial habits, you'll have a thriving savings account in no time.

• Pinching pennies won't help you reach your financial goals - but breaking bad money habits will.
• Keeping your money in a checking account instead of a high-yield savings account, for example, or not contributing enough to get the full 401(k) match at your job can hold you back from building wealth.
• Budgeting matters, too - knowing how much you're spending (even if you'd rather stay in the dark) will help you funnel money towards your goals instead of wasting it on unnecessary expenses.
• Read more personal finance coverage.

There's no time like the present to break bad financial habits, but we're not talking about giving up your store-bought coffee, abandoning your avocado toast, or penny pinching in other ways.

We're talking about ending habits that are holding you back from building wealth and preventing you from reaching your financial goals. With a few easy shifts to your financial habits, you'll have a thriving savings account in no time.

Read on for five habits to break ASAP.

1. Keeping your money in a checking account or typical bank savings account

If there's one thing that makes Business Insider's personal finance team crazy, it's seeing people keep their money in a checking account instead of a high-yield savings account. Do. Not. Do. This.

Think of your checking account as a pit stop for your money - your cash should pause there only briefly before going out to pay bills, cover expenses, and fund your savings and investment accounts. Your money is earning nothing in your checking account, and it's earning pennies if you're keeping it in a typical bank savings account.

Instead, choose a bank or financial institution that offers a high interest rate on savings - around 1.5% to 2% - and move your money there.

Online banks and financial institutions, such as Ally, Simple, Wealthfront, Betterment, and others offer interest rates at least 15 times higher than your typical brick-and-mortar bank, while keeping your money liquid and risk-free.

If you're not sure how much you're earning on your savings (and Google can't tell you), call your bank or check online to find out your interest rate. If you can get a substantially higher rate elsewhere, it's worth making the move. It takes just a few minutes to open a high-yield savings account online.

2. Not planning for seasonal expenses

The average American racked up over $1,300 of debt during the 2019 holiday season, a sum that could take years to pay off if you're paying only the minimum balance on your credit cards. It's tough to cut out this spending, though - giving gifts and traveling to see friends and family is a joy we all look forward to.

Instead, start planning now for seasonal or major one-time expenses so you can happily spend the money you've saved when the time comes.

Certified financial planner Lynn Ballou recommends an easy strategy: Start by reviewing your spending in these categories for the past two to three years. Look at holiday spending, how much you typically shell out for friends' weddings, property taxes or insurance premiums you pay once or twice a year, and any other major one-time expenses.

Once you know how much these things typically cost, Ballou says, "Review how you feel about how much you are spending and take this opportunity to think about what you'd like to limit your spending to and be sure it fits in your budget."

You may find you overspent on wedding-guest outfits or dinners out while you were home for the holidays. See if there's anywhere you can cut back and commit to making those changes.

Next, divide up those costs based on how often you get paid and how many paychecks you'll receive before that bill comes due, then save that amount of money from every paycheck in a special high-yield savings account designated specifically for that seasonal expense. When the expense comes up, you'll be ready for it.

3. Making only the minimum required payment on your credit card

Making a monthly payment on your credit card feels responsible, and it is. You should never miss a credit card payment. But paying only the minimum required amount (if you're able to pay more) is terrible for your wallet.

According to The Balance, if you made only the minimum payment on a credit card with a $5,000 balance, it would take 30 years and more than $21,000 in finance charges to get out of debt (assuming the card has an interest rate of about 21%, which is not uncommon). That's ... a nightmare!

If you can pay more than the minimum on your credit card, even if you have to sacrifice putting money into your savings account for a short while, you'll get out of debt faster and save yourself a ton of money on interest.

4. Not getting the full 401(k) match from your employer

If your employer offers a 401(k) match - meaning they will contribute up to a certain percentage to your 401(k) to "match" your own contributions - you would be wise to contribute at least as much as they're willing to put forth.

If your company is willing to contribute up to 3% of your salary, for example, you should contribute at least 3% to get the full match. Otherwise, you're leaving money on the table. If you put up just 2%, your employer will do the same - so don't cheat your future self out of that extra cash.

5. Not making (and sticking to) a budget

If you've never made a budget before, doing it for the first time can feel intimidating. Do you really want to know how much you spend on lunches during the week? Or would you rather keep your head in the sand? The best thing to do for your bank account is get a handle on your income and spending, no matter how cringe-worthy the latter may be.

Start by tracking your spending for a month or two: It may be annoying, but writing down every purchase you make (from gas to your phone bill to a haircut) will give you a clear idea of how much cash is going out. A budgeting app can help you with this.

Once you have a sense of your spending, divide your expenses into buckets and see where you can make cuts. Things like rent and utility bills are fixed expenses, but spending on meals out, entertainment, and even groceries (to a certain extent) can be trimmed. Give each category a limit that allows you to live within your means and funnel some money into your savings - then try to stick to those limits.

Says Ballou, "Creating budgets and living within them allows us to be safe in our financial lives."

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