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Warning Signs: 10 Bad Financial Habits You Need to Drop NOW

Household debt is rising, and consumers are feeling the squeeze of higher interest rates everywhere, from mortgages to auto loans to credit cards. In this month’s issue we’ll share ten warning signs that signal financial trouble ahead and the ten bad financial habits you need to drop now to avoid it.

Sparklers and Champagne Glasses

Are you feeling the pinch in your pocketbook? If so, you’re not alone. Here are the results of a CBS poll taken at the end of last year, which shows that all age groups are suffering from the high inflation of the past couple of years.


Although inflation has significantly declined since its high of 9.1% in June 2022, at its current rate of 3.5%, it’s still more elevated than the Federal Reserve’s target rate of 2%. And that stubborn reluctance to decline is hurting consumers by increasing their monthly outlays—and their overall debt.

The primary reason for the added expense is that pretty much the price of everything—groceries, cars, utilities, travel, etc.—has risen, shrinking consumer discretionary incomes. But the largest impact has been due to the interest that we are paying on mortgages, auto loans, student loans, and credit cards, which are pretty quick to inflate when rates rise but tend to put on the brakes and decrease slowly as rates decline.

Today, consumers are paying more than 7% to get a new mortgage, 7%-14% for a car loan, and averaging rates of more than 22% on their credit card balances.

These high rates have driven personal debt to stratospheric levels—more than $17 trillion at the beginning of this year.


The largest growth has been in credit card debt, up 16.6% in the last year, climbing to a record $1 trillion—with average balances of $5,733 per person. It should come as no surprise that home equity credit was the second largest increase, up 8.4%—a result of escalating home prices that have allowed consumers to access the growing equity in their homes.

A Debt Crisis: 78% of Americans Live Paycheck to Paycheck

That’s a frightening statistic, isn’t it, and it’s on the upswing, growing 6% in the past year. And even scarier, as reported by Forbes, 71.93% of Americans have $2,000 or less in savings.

You can see the details of the survey in the table below.

How Much Do Americans Have Saved?

SavingsAll respondentsRespondents who are living paycheck to paycheckRespondents whose income does not cover standard expensesRespondents whose income exceeds standard expenses
$1 - $5008.17%7.30%14.00%3.80%
$501 - $1,00018.97%18.00%26.50%12.90%
$1,001 - $1,50025.40%28.60%29.90%16.70%
$1,501 - $2,00016.27%18.00%15.00%15.20%
Over $2,00019.73%14.80%6.00%39.70%

Source: Forbes Advisor

There are many reasons for this sad state of affairs, and you may be interested to know that they change a bit according to age ranges, as you can see below.

Respondents Who Are Living Paycheck to Paycheck

ReasonAllGen ZMillennialsGen XBaby Boomers
High monthly bills49.43%64.44%50.27%44.20%51.09%
Lack of budgeting and financial planning46.40%37.78%57.08%43.12%3.65%
Low income43.62%57.78%41.96%44.20%49.64%
Unexpected emergencies35.27%48.89%38.69%33.33%13.14%
Increase in the cost of living31.67%35.56%25.75%31.16%64.23%
Social pressures27.50%24.44%33.38%23.55%5.11%
Medical expenses6.38%0.00%4.77%9.06%12.41%
Financially supporting family members6.06%13.33%4.22%7.61%8.76%
Increase in the cost of living31.67%35.56%25.75%31.16%64.23%
Social pressures27.50%24.44%33.38%23.55%5.11%
Medical expenses6.38%0.00%4.77%9.06%12.41%
Financially supporting family members6.06%13.33%4.22%7.61%8.76%

Source: Forbes Advisor

A couple of things in the chart above are especially daunting to me: 1) Baby Boomers (my generation) are struggling with low incomes (probably because so many of us have retired now and haven’t saved/invested enough money) and 2) the rising cost of living. We can all probably relate to that! While inflation has retreated quite a bit (at least according to the stats), I don’t see any reductions in the price of food, utilities, or clothing, do you?

How Did We Get Here?

I don’t have to tell you that it’s a different world from the one our parents and grandparents inhabited. I came from a moderately low-income family with working parents. They retired with a paid-off (modest) home and were able to live on basically Social Security. Their generation didn’t have a lot of (or any) money for investing but managed to make do. Of course, they didn’t have new cars, fancy houses, designer clothes, expensive vacations, or go out to eat much. And they didn’t take on debt they couldn’t pay for.

Hmm… things are different today, aren’t they?

Let’s see how Americans “evolved” into the financial crises they now face.

It’s not often that financial gurus agree on much of anything, but most do signal accord with this:

The 10 Most Common Financial Mistakes

These mistakes were reiterated in a 2022 Survey of Household Economics and Decision-making by the Federal Reserve, which reported that “the overall financial well-being of adults who were worse off financially from one year ago rose to 35%, the highest level in nearly a decade.”

Here’s why:

Excessive and Frivolous Spending. Oh, boy, now I have to think about how many times I go to the coffee shop every week!

And this does bring back a funny, but poignant memory. After my mother was widowed, she was, of course, lonely, so every day, she went to the grocery store, Walmart and K-Mart, where she inevitably ran into someone she knew who would chat with her for a while (it’s a small town!). But while there, she also spent money on stuff she didn’t need. When she had to give up driving, my sister and I would take her shopping weekly, instead of daily. At the end of the first month of our chauffeuring services, she called us over, saying, “You girls have messed up my checking account—I have $200 more than normal at this time of the month!” We explained that since she wasn’t shopping daily and spending her money “frivolously,” she was actually saving some serious money. I’m not sure she really believed us, but it was true!

Seriously, it is the little things that add up. There’s a reason why stores have inexpensive, cute items, near the checkout lanes. While you’re waiting, you may buy something there on simple impulse.

But think of (and I recommend tracking) all of the purchases you make for a week—count your frappes, your dinners out, and all the items you buy when you go grocery shopping that are not on your list!

The Fed survey noted that “Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra credit card or auto payment or several extra payments.” Think about that: you can still take a cruise for $1,300 or less.

Never-Ending Payments. In my parents’ time, they had the normal monthly payments—mortgage, utilities, and automobile expenses. But think of all the things we pay for that are new to current generations: Pandora and other music streamers, cable TV or TV streaming subscriptions, gym memberships, beauty regimens like massages and facials, magazine subscriptions you don’t have time to read, Sirius radio in your car, etc.

I find that it’s really easy to let these expenses add up without a second thought. And before you know it, you are paying out hundreds of dollars a month that could be used for something else. So, it’s a good idea to review the services you need and those you don’t, on an annual basis. And you may want to start with those streaming costs—I’ve had good luck reducing my outlays by threatening to cancel my subscription or going to a competitor. You may be surprised by how many expenses you can lop off—extra money to save and invest!

Living on Borrowed Money. A recent Clever Real Estate survey reported that nearly half—48%—of Americans depend on credit cards to cover essential living expenses—especially younger generations, with 59% of Millennials saying they use credit cards for living expenses.


It’s nuts just how commonplace this has become. I’ve known several people who set up their businesses using credit cards (not really recommended!), paid for vacations on credit (not smart!) and even used credit cards to pay for over-the-top weddings (also not a good idea!)!

I admit, I use credit cards for some everyday expenses like gas for my car, car repairs, automatic annual renewals for things like newspapers, magazines, and some business expenses. But I also really try hard to pay them off monthly, as I don’t really want to waste money paying more than 20% on balances!

So, if you can’t pay your cards monthly, I’d recommend that you do a serious and realistic review of your expenses to see what you can cut.

And know that if you make a habit of living on borrowed money, you will worsen your financial difficulties. At its worst, living under financial duress may take you to a point of no return where you will be forced into bankruptcy.

Buying a New Car. Okay, I have to fess up. I love, love, love having a new car. The smell, the look, the small amount I have to put aside for car repairs! But I also tend to keep my cars for close to 10 years, so the average annual cost works out pretty well. However, I know plenty of people who trade in their cars every couple of years (or even annually!). Statistics say a new car loses 20% of its value in the first year, then 15% every year until it’s about 4-5 years old. If you’re rich, no problem. But for most of us, purchasing a car that’s a year or two old is a smarter money proposition.

And another consideration—think about what kind of vehicle you really need. I love SUVs and probably won’t ever go back to driving a regular car (unless I win the lottery and buy that Porsche Carrera!). However, when I wrecked my vehicle (totaled) last November, I decided I didn’t need such a large SUV any longer. So, I saved a few bucks when I ordered my new car. That consideration may also save you more on insurance and repairs. Just think about it.

And while I’m on the subject of vehicles, what about leasing? My sister has leased cars for the past 30 years. She gets a new one every three years. She thinks it works out okay for her, as she drives very little—except she never has any equity in her car, and she has to pay a bit more for auto insurance. I’ve talked with her about the benefits of just buying a car (which she could probably now keep for the rest of her life) but to no avail.

I have only ever leased one car, and I did it because I was trying out a sporty convertible to see if I liked a convertible. Turns out I did, and I bought one right after my lease was up! However, I drive way too much these days to lease.

Spending Too Much on Your House. Yes, I own a real estate company and I should never say that! However, after 20 years in that business, I’ve seen too many bad decisions when folks decide to “keep up with the Joneses.”

Even before I got into real estate—when I was a banker—I ran a bank in a very exclusive neighborhood. My customers had beautiful, large, estate homes on the golf course or a lake. However, some of them had overbought, leaving them few dollars left to actually furnish the home! I’m not kidding; some had furniture that would rival a college dorm!

And if you overdo it on a larger or more lavish home than you need, you will most likely also be paying more for home insurance, HOA, maintenance, and utilities.

It’s often difficult for these over-extended homeowners to make their payments in a strong economy; and you know what happens in a bad one, as you can see in the following graph:

5-24 Foreclosure rate.jpeg


Foreclosures peaked in the last recession and then declined precipitously, but as you can see, they have begun to creep up again—due to high interest rates as well as elevated housing prices that have put a lot of pressure on homeowners.

Listen, I’ve made the mistake of overbuying. And I lived to regret it. It’s no fun to see the majority of your income going towards a mortgage payment. So, just don’t do it.

Just like with buying a car, consider what you need. Today, I live in a very modest home that I chose because of its fenced-in yard (for my dog) and for its proximity to city amenities, such as the 9-mile greenway within walking distance. And since I don’t have a huge housing outlay monthly, I have extra money to go to the theatre, travel, and invest back in my business and retirement.

Using Home Equity Like a Piggy Bank. Oh my, in my real estate business, I see a lot of this. Home equity is often tapped for vacations, weddings, college expenses (maybe ok, but there could be better alternatives), and refinancing debt. In most cases, you can find better options. I would recommend that you never use it (or your 401k for that matter) for vacations or weddings.

It may make sense to use your equity if you can pay off high-interest-rate debt, but the problem arises when folks do this and then keep racking up debt. You’ll face higher mortgage payments and accumulate more interest that you have to pay. When you do this, you have effectively wasted your home equity! The other issue, of course, is when the economy is weak, your home may lose value, and if you have to sell before you want to, you could have little or no equity to purchase your next home.

Living Paycheck to Paycheck. The personal savings rate for Americans hasn’t been this low since it hit 1.40% in July 2005 (during the crazy run-up to the subprime mortgage crisis, when everyone was buying houses they couldn’t afford!). According to the U.S. Bureau of Economic Analysis, the current rate is now 3.6%, considerably lower than the average 8.48% that we saved from 1959 until 2024.

Consequently, those folks living paycheck to paycheck are not seeing their financial lives improving.

And when the next recession arrives, a job is lost, or a medical crisis occurs, this financial plight can drastically change a person’s lifestyle, pushing them towards foreclosure or even bankruptcy, and leaving them with few options to recover.

That’s why it’s so important to create and maintain an emergency expense fund—at least three to six months’ worth of living expenses. I would recommend at least a year’s worth, just to be safe.

Not Investing in Retirement. I know, I harp on this all the time, but I do so because if you are counting on Social Security to fund your golden years—and support your current lifestyle, you’d better think again.

According to the Social Security Administration, the average monthly retirement benefit is $1,905.31. I don’t know about you, but here in my corner of Tennessee, the average monthly rent is around $1,367 for an apartment that is less than 1,000 square feet. And if you need an assisted living facility, the U.S. national monthly average is $4,500.

Look, I’m not saying this to scare you (although it should!), but if you don’t have funds saved or invested to supplement your Social Security check, you are vulnerable to becoming a statistic.

Here are the average retirement savings, by age:

Vanguard: “How America Saves 2023"

Age RangeAverage Retirement Savings
Under age 25$5,236
Ages 25-34$30,017
Ages 35-44$76,354
Ages 45-54$142,069
Ages 55-64$207,874
Ages 65+$232,710

Source: Vanguard

I know that $232,710 sounds like a lot of money, and it is. But let’s look at the math.

In the U.S. the average mortality is 76.33 years. Let’s say you retire at 65, so you have about 13 years to make your money last. That $232,710 (not counting interest, dividends, etc.) divided by 13 is $17,900.77, and then divided by 12 months in the year is roughly $1,491 per month. Taken together with the average Social Security check of $1,905, that gives you some $3,397—which still doesn’t come up to the average cost of an assisted living facility. And if you are lucky enough to stay in your own home, will that amount cover your mortgage (if you have one) or rent, utilities, health, home and auto insurance, car payment, out-of-pocket health costs, and groceries? Probably not.

It’s essential that you get your money working for you. Now. It’s never too late to begin. Start squeezing your expenses to ferret out something to put into your retirement account every month. If you are fortunate enough that your employer offers a 401k, take advantage of it. Every dollar they contribute is free money to you!

Paying off Debt with Savings. I mentioned this earlier when I talked about using your home equity to pay off debt. I understand it makes some sense if you are paying 22% interest on credit card balances and you’ve been earning 9%-10% on your retirement accounts. But as I see it, there are three issues with using your retirement funds to bail you out of debt:

1) If you are under 59 ½, you will pay a 10% early withdrawal penalty. That can really impact your future, depending on how much you withdraw.

2) The money you withdraw will lose the power of compounding, leaving you with less for your golden years.

3) Even if you take out enough money to cover your outstanding debt, you may not be that motivated to start replacing that money in your retirement account, which can severely limit your assets in the future.

Sure, you may be able to borrow from your retirement funds, but I would recommend not, for the same reasons I cited above. Just, please, hands off your retirement!

Not Having a Plan—Financial and Time. Ben Franklin is famous for a lot of adages, but when he said, “If you fail to plan, you are planning to fail!” he couldn’t have been more right. Talk to any successful athlete, business person, philanthropist, doctor, etc., and you will find people who have a plan.

Some athletes develop plans for entire games ahead of time. Business owners (the good ones) have 1-, 5-, and 10-year plans. Doctors and lawyers often know what they want to be when they are small children and plan accordingly. I ask you, if you don’t know where you are going or want to go, how are you going to get there?

Now, you don’t have to plan every minute of every day, although I’m telling you, it would be to your benefit if you did this for a couple of weeks, so you know exactly where your time is going.

I tracked my time for two weeks when I began a coaching program a few years ago. I wrote down what I was doing every 15 minutes of my days (and nights) for two weeks. I didn’t know I got so much stuff done! In fact, my coach asked me when I had time to sleep! But when I really looked at how I spent my time, I found more than a few places where I could become more efficient.

And more importantly, you should take stock of your financial plan, using the same strategies and asking these questions:

1) What are your assets, liabilities, income, and expenses? Yes, I’m talking about starting a budget.

2) Where do you want to be, financially, in 1, 5, 10 years—even 30 years into the future?

3) What large expenses—education, home ownership, charitable contributions, and family legacies do you need to consider?

4) What is your goal for your retirement assets?

5) Do you want to start a business at some point? If so, do you have a business plan?

6) Where do you want to live in retirement (that might change your dollar goals)?

7) Where do you want to visit and how much will it cost?

Essentially, you need a road map to get to your goals. After all, you wouldn’t take a long-distance drive without a map (even if it’s on your phone), would you?

Lastly, as you get closer to retirement, reevaluate your plans. If you aren’t quite reaching your goals, perhaps you can consider a side hustle to add income.

Now, as part of making a plan, my first recommendation is to figure out where you are, financially. And to help you with that question, I’m going to first discuss the scary part—determining if you are in financial distress, and then I’m going to talk a bit about budgeting.

The 10 Warning Signs That You’re in Financial Trouble

These warnings come from AdvantageCCS and are meant to help you recognize the symptoms of financial trouble—before it’s too late to recover.

You may not realize how “on the edge” you are. You have a little savings, something of a retirement fund, and can make minimum credit card payments, so you think you’re okay.

The sad truth is, you are probably closer to disaster than you think. What happens if you lose your job or you have an expensive medical event and, adding to that trouble, you can’t work? What if your car breaks down and you need another one? It’s painful to face this, but you will be much better off if you get your “head out of the sand.” And it’s worth noting that if you are over your head with debt, your credit rating will decline, making it very difficult to use borrowed funds to help out.

Inability to Pay Bills on Time. If you are getting late notices, take heed. The credit bureaus do, and your credit score will fall. Additionally, you will add to your balances in the form of expensive late fees and more interest. And worsening your situation, as your credit score falls, the interest rate on your outstanding debt will most likely rise.

Making the Minimum Payment. It’s understandable to use credit cards for certain emergencies that will require more than a month to pay off—things like medical bills, unexpected auto repairs, or home maintenance, but you just have to get out of the habit of depending on credit cards for everyday expenses, or you will be digging yourself a very big hole.

Let’s look at an example, using the average credit card balance of $5,733, with a 22% interest rate:

Making the minimum payment of $106.10, your payoff time is 222 months, or 18.5 years! And instead of paying just the balance of $5,733, you’ll spend a total of $23,757. Why would you want to do that?

For your own credit card reality check, consult this website.

High Debt to Income Ratio. Creditors look at this ratio to determine if they want to extend credit to you. If you are looking for a mortgage, for example, lenders typically look at two ratios:

Front-end: Your mortgage payment, including interest taxes, and homeowner insurance should be no more than 28% of your gross monthly income.

Back-end: The above housing payment plus all other monthly debt you have should be no more than 36% of your income.

Now, realize that mortgage lenders can stretch these ratios, depending on the type of mortgage and your personal financial situation. But I would like to warn you that these are only numbers. Only you can determine if that new payment is comfortable for you.

If you buy at the top of those ratios, you are more likely to stretch your financial limits. So, I would recommend that you perhaps pay less for a home or car than what your lender tells you that you can afford. That way, you are building in a bit of a cushion.

Purchasing Everyday Items with Credit. See above.

Lack of Emergency Savings. See above.

Borrowing Money to Pay Bills. See above.

No Household Budget. Honestly, I know few people who actually like to do a budget. But once you have it set up, it should take no more than an hour or two each week to update your income and expenses.

You can do this simply, just by using a spreadsheet like Microsoft Excel or Google Sheets.

Or you can buy software (I suggest using the online versions or an app). Here are the Top 5 Apps, as rated by The Wall Street Journal:

Best Budgeting App Overall: Monarch Money
Cost: $14.99 a month or $99.99 a year.

Best for zero-based budgeting: YNAB
Cost: $14.99 a month or $99 for the year.

Best for first-time budgeters: PocketGuard
Cost: Free for basic version; $7.99 a month, $34.99 a year or $79.99 lifetime cost for Premium, which includes unlimited budgets and savings plans, customizable categories and bill negotiation.

Best for budgeting app for couples: Honeydue
Cost: Free.

Best free budgeting app: NerdWallet Money Tracker
Cost: Free

But before you try out an app, first sit down and make a list of all your assets, liabilities, income sources and all the money you pay out—daily, monthly, yearly, etc. That way, you’ll just be filling in the blanks—easy!

And once you’ve completed that important exercise, you will have a true picture of your financial situation. Believe me, it’s better to know!

Relying on Cash Advances or Payday Loans. This is a huge warning sign that your finances are out of control! Using your credit card to get cash advances to pay bills is an expensive proposition. Not only will you pay some 5% of the advance amount to the credit card company, you will immediately begin accruing interest—at a high rate.

And a payday loan is even worse. These companies will charge you $15 per $100 to initiate the loan, which actually adds up to an annual percentage rate of almost 400% for a two-week loan.

Just know, if you are using either of these practices, you need to seek financial counseling immediately.

Lying About Your Financial Situation. If you are hiding what you spend or how dire your financial situation is from your loved ones, you are courting trouble. I understand that it’s embarrassing, but the more you lie about it, the more stress you are causing.

If you just can’t bring yourself to share the details with a family member, reach out to a debt counselor who can help put you on the road to financial recovery. Above all, do not ignore the bill collector calls; that will only create more dire circumstances.

Dealing with Stress and Anxiety. A recent study by found that 56% of adults in the U.S. say that money has a “major negative impact on their mental health.” And 29% of the respondents said they worry about money every day.

If you see yourself in these numbers, it may be time to take control of your finances and find out what exactly is causing you to lose sleep.

You may need a complete money reset—changing how you think about money, how you spend it, and how you accumulate it.

But you don’t have to do it alone. There are many debt management programs that can help you find a way out of debt problems and also counsel you to help you stop any negative habits.

Here are the top-rated debt management companies according to Forbes:

National Debt Relief

American Consumer Credit Counseling

Money Management International

If that won’t work for you, you’ll need to find a good attorney to help you wade through any potential insolvency issues. Check your state or local bar association for referrals.

Know that bad things do happen to good people, and millions of folks may be going through similar circumstances. But it is up to you to right the ship, and there’s no time like the present!

I wish you good luck and a brighter financial future.