6 Bad Money Mindsets You Need to Break

Young couple working on their money management by calculating receipts and documents using a calculator

Richard Elliott / The Image Bank / Getty Images

What's the most important key to successful finances? Changing the way you think—your mindset—about money.

If your money mindset is off, you’ll never really be able to get ahead, whether you bring in $30,000 a year or $300,000. Once you get your perspective straight, it will be easier to maximize the money that’s coming in.

Here are six common bad money mindsets you may be falling into, and how to break free of these mental traps.

No Matter What You Earn, Your Mindset Matters

If your money mindset is off, you’ll never really be able to “get ahead,” whether you bring in $30,000 a year or $300,000.

Living (Only) in the Now

It’s hard to make your money stretch when you’re only focused on what’s easiest and most appealing right now. Sure, it’s quicker to grab a coffee on the go than to make it at home, but those $5 lattes could add up to an extra student loan payment. The latest smartphone may be calling your name, but if you’re willing to live with last month’s model, you could put that money toward building emergency savings.

What's the point of living below your means? In a word: freedom. The next time your car breaks down, you won’t find yourself scrambling for funds. The next time you're hit with an unexpected medical bill, you won't find yourself losing sleep at night. Rather than living only in the current moment, set aside extra for your future self to enjoy.

Extreme Frugality 

Bargain-hunting is one thing; being cheap is another. Don't focus purely on the price tag. Instead, think about the quality and overall value.

Shell out an extra $20 or $30, and you could get shoes that last for years, rather than a pair that unravels at the end of the season. Spring for buying the ingredients for fresh homemade meals rather than living off the dollar menu at your local drive-thru and the positive effects on your health could save you thousands in future medical bills.

Likewise, don't waste your precious time trying to pinch pennies. While it's good to be money-conscious, don't forget that your time is your most important asset. If chasing a deal requires an additional hour or two of inconvenience, and it only saves you $5, it's not worth your time.

Living Outside Your Means

Credit card debt can keep you in financial shackles for decades. Stop telling yourself you deserve things you can’t afford. Remind yourself that what you deserve is a life where you don’t have to work until you’re 80 to keep the bills paid. 

Don't purchase consumer items on credit. Instead, save money in advance so you can treat yourself to an item that you can truly afford.

Winging It 

It doesn’t matter how much money you make if you don't know how it escapes from your wallet. If you don’t have a budget, come up with one—stat. The same goes for building an emergency fund and creating a retirement savings plan. When you don’t track where your money is going, it tends to get away from you fast.

The best way to "pay your future self" is by making a budget. But this can take a variety of forms. You could try a traditional line-item budget. You could try a modified five-category budget. And if traditional budgeting doesn't appeal to you, try the anti-budget.

Hating It 

Budgeting doesn’t have to be a dirty word. Neither does savings or retirement planning. There are so many apps and tools out there that can take the hard work off your shoulders and even turn maximizing your money into a game (or at least, a fun challenge). Find the tools that feel the most intuitive to you and money management will come much easier.

Ignoring Taxes 

It's tempting to overlook taxes. They seem boring and complicated. But these make a big difference in the amount of money that stays in your pocket. Tax planning is as crucial as budgeting, investing and all other forms of financial management.

Talk to a CPA about how to lower your tax bill, and think about the tax implications of the decisions you make. If you decide to move to another neighborhood or state, for example, think about how this move will impact your tax bill—and consequently, how it will affect your overall budget.

Final Thoughts

Money doesn't need to be stressful or boring. Look at smart money management as a gift that you give to your future self. Free yourself from negative attitudes and feelings toward money. Improving your money mindset is the first and most important step in creating a successful financial future.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.