5 Good Spending Habits, and 3 bad ones (Financial Literacy Series)

Most people’s spending habits suck! Why do they suck? Well, because spending is an emotional venture. Choosing to buy or not buy is reflective of what you want others to think of you. Frugal people justify saving, frivolous people justify spending, but it’s always based on personal beliefs about money. Financial literacy about understanding financial concepts, but also understanding your beliefs about money.

How did my family get good about spending? Three words, out of necessity. When we were younger, we didn’t have enough money to be bad at spending. At 22, I was enlisted in the Navy and my wife was a stay-at-home mom. The Navy pays enough to live, but not enough to get rich. After my honorable discharge, my wife worked two jobs and I worked full time and went to school full time. Our annual combined salaries were around $40K. That’s right, three total jobs and we made around $40K. So, what did we do? We built extremely good spending habits and prayed no major events happened.  

Here are five spending habits that helped us, and a few bad ones we learned from. 

Habit #1 Creating a strong budget 

The first step to establishing good spending habits is a strong budget. A budget makes you think about what you’re spending. Budgets are your notes on how you spent. 

A strong budget identifies gaps in how you spent and provides you with knowledge to fix them. If you don’t have a budget currently; check out our videos on how to create your budget and how to create a Google sheets budget. There is also a free budget template available on our website. Budgeting is a foundational piece to good personal finance. It will be a recurring theme in our videos. 

Habit #2 Define needs vs wants 

This step is very difficult when you are a young adult, or at least it was for me. Younger adults tend to classify more items as needs when they are truly needs. What are needs? Needs are: housing, utilities, groceries, transportation, insurance, and communications. Wants are anything not essential. Spending on wants should be prioritized only after you have needs covered and a savings portion covered. Many people get this wrong, and forget to prioritize savings. Savings become your safety net to cover needs in the event of lost income. 

Everyone has wants, and in order to not feel constrained, you have to occasionally splurge. Depending on personality type; you may spend on small wants here and there, or you may build to a larger want. Personally, I build large purchases. It feels more rewarding to spend $500 on a bigger item than it does buying 10 $50 items. My wife prefers the opposite. It’s all relative to who you are. The important part is defining wants and needs. 

Habit #3 Review current expenses 

Reviewing current expenses is related to Habit 1, since it requires knowing what you’re spending. Annually reviewing insurance premiums, loan interest rates, and employer benefits leads to savings. 

Insurance is a competitive business and shopping for premiums leads many to saving large sums. Quotes can be created online, but I will caution that the savings come at a cost. The cost is annoying emails and calls from companies you contacted but didn’t choose. 

Interest rates on loans aren’t thought of as often when reviewing expenses, but they change often. A loan can be easily refinanced, and interest rates lowered by 1-2% will reduce monthly costs by up to hundreds of dollars. 

Employer benefits have open enrollment at life changes and annually in November. Review your contributions and change accordingly. One note here, my personal policy is to only change contributions to 401K if I am going to increase them. Lowering contributions will impact your retirement plan. 

Habit #4 Plan major purchases

There are a few ways to plan major purchases; save cash today for the future item, use interest free credit, or use a loan with interest. All three are viable but number two and three on this list should be mapped out ensuring proper income coverage of the expense. The selected option also has to take into consideration the purchase. Interest free credit lines won’t be available for a house or college, and paying with cash for your house is unlikely for most of us. I’ll admit, this habit is difficult for me. I do well with saving, but for some reason when I map it to a specific purchase, I struggle. 

Planning to pay for your major purchases with cash takes discipline. Saving today for a goal in the future is tough. If you master this habit though, it unlocks financial freedom. Paying for large items with cash is a major flex. Saving a smaller amount $1-200 a week knowing what the end goal is invigorating. It’s also abstract. You have to envision the future item and feel the stress today. 

Using interest free credit is simpler. Quite a few stores offer interest free programs that allow financing over 12-24 months. The trick with this financing is understanding your budget and available income to cover the monthly payments. Remember that if you use this credit tool and cannot cover the amount, interest is backdated to the beginning of the term. 

A loan with interest is the best option for mortgages and vehicles. Outside of these, I’d refrain from use unless completely unavoidable. 

Habit #5 Save, save, save 

Saving is listed as habit five here, but it could have been one. Savings are a buffer to keep people out of poverty. Everyone has unexpected expenses. Many get laid off. Money held back as safety reserves will provide coverage in desperate times. I’ve lived several years as an adult without savings and it was always stressful. 

I hear and read most personal finance experts recommending 40% savings but that isn’t realistic for most. Save what you can, and keep upping it as your pay increases. Once you have a few thousand saved, invest it into a safe tool that will provide a return. A major trick to increasing wealth is having your money passively work for you. 

Three Spending Habits To Avoid 

Here are three spending habits to avoid. I’m going to stick to three that we implemented to correct our spending. There are several more, but spending habits will continue to be addressed as the channel moves forward. 

Bad Habit #1 Convenience Store Trips 

Daily trips to stores and gas stations will lead to inefficient spending. In the past, my wife would go into gas stations when on the go to make quick purchases. The problem with this is that the price of anything purchased is elevated. You’re also likely to commit impulse purchases. This might sound a bit dramatic, but I multiplied her average cost per trip by the number of weeks in a year to demonstrate that she was spending about $1,000 a year at the gas station. She had been a waitress for the first few years of our marriage and didn’t think about the cash used from her tips when she stopped. 

Bad Habit #2 In-store Grocery shopping  

Shop online for most purchases, but especially groceries. Groceries are a main component of your monthly bills. Buying your groceries online gives you a chance to strictly adhere to what you need. If you enjoy going into the stores, never shop on an empty stomach.  

Bad Habit #3 Spending More Than You Make!  

Saving the most important spending habit to avoid for last; never spend more than you make! Again, never spend more than you make! Spending more than you make is the easiest way fall into debt. It’s an easy trap, but be extremely careful to live within your means. 


Following these five spending habits will build your personal finances. Good spending habits will change your financial life. Many people with six-figure incomes are broke, and many people without six-figure incomes are able to become wealthy. Increased income helps cover bad spending habits, but it won’t fully compensate for them. 

Work toward building these five spending habits and comment below as you proceed on your journey. As we proceed through the financial literacy series, we will be covering investing tools, retirement, mortgages, and various financial tools for your personal finance freedom. 

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