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Breaking Bad Financial Habits

2020 was a mixed bag from a personal finance view for Main Street Americans. 

On the upside, Americans in pandemic-related lockdowns did a good job of paying down debt and building personal reserve funds with the money saved.

On the downside, millions of Americans who weren’t so financially fortunate (especially people who lost their jobs) had to dig deep to keep food on the table and the lights on – even borrowing from college and/or retirement funds to pay the bills.

The latter scenario fueled some bad financial habits that need to be remedied in 2021, or down-on-their luck financial consumers will only dig a deeper hole, money management-wise.

RELATED: How to Cut Your Debt by 50% in 6 Months 

“During the pandemic, Americans have developed unique financial habits which have in large part been driven by how the pandemic personally impacted them,” said Connor Brown, founder at After School Finance, a financial literacy company for younger Americans. For those who have retained their jobs, many have found it possible to increase their savings rates. Why? Because they’re spending less money on commuting, eating out, and more. Additionally, many with stable financial positions have paid down debt.”

“However, for those who have been negatively impacted by the pandemic, poor financial habits have been adopted, mainly to cover coronavirus costs,” he added. 

The Major Bad Financial Habits That Need Repair

What are the worst financial habits triggered by the pandemic? These damaging money moves are first in line.

Triggering new debt. The worst financial habit that must be broken is taking on new debt. 

“Many Americans have existing debt, but that isn’t an excuse to take on more of a financial burden,” Brown said. “Debt can keep you from feeling secure, and by eliminating debt payments over time, you can free up cash flow to further improve your finances.”

To fight back, financial consumers should track their spending. “When you track your spending, you gain a better sense of where you spend your money and can create a defined path for saving,” Brown noted. “Get a mobile app like You Need a Budget to get on the right track.”


Not having a financial plan. If you have a household financial plan, update it. If you don’t have a financial plan, reach out to a wealth advisor and create one.

“A financial plan will help tell you where you are financially, and spell out where you want to be down the road on key issues like retirement, making a large purchase, and having a second home, for example), and spell out how you are reach financial stability,” said Aviva Pinto, managing director at Wealthspire Advisors, in New York, N.Y. “That will help you assess your current financial situation and update your financial plans, taking into account your liquidity needs, risk tolerance, time horizon, and goals.”

If you don’t have an advisor, this is a good time to select one, seeking a person who will be balanced and objective concerning your financial circumstance.

“Your advisor can do a lifestyle analysis to help determine how much you need and how long your assets will last,” Pinto said. “Your advisor can also itemize and assess your investments and align your portfolio to match your needs, including generating income, now and in the future.”


Not having enough – or any – life insurance. If there’s one lesson learned during the pandemic, it’s to have good insurance protect you and your loved ones. That goes double for life insurance.

“If you haven’t purchased life insurance, it’s easy and affordable to accomplish these days,” said Andrea Woroch, owner and money management expert at 

Woroch recommends digital life insurance companies like Bestow that eliminate medical exam requirements by using artificial intelligence and data to shorten underwriting from months to minutes. “According to the company’s web site, a healthy 35-year-old woman can purchase a 20-year, $500,000 term life insurance policy entirely online for as little as $23 per month.”

Not having a will can also cause major financial problems if the head of household passes on. “Sites like offer step by step instructions and a quick quiz on their home page to help you determine whether a will or trust is right for you,” Woroch said. “Setting up a will can be done in 10 minutes for $89 and comes with important documents like power of attorney, health directives and guardianship.”

Too much credit card usage. With limited income coming in, millions of Americans who lost their jobs have leaned on credit cards to get by every month, making minimum payments or deferring payments. “Once you get back to a financially stable spot though, it’s imperative to pay down plastic debt and rebuild your savings,” Woroch said.

Lack of focus on credit score health. Increased household debt has also led to lower credit scores. 

“Focusing on rebuilding your credit score should be another financial priority since you need a good to excellent score to qualify for loans at the best terms and lowest interest rates,” Woroch noted.

To refocus on credit health, get a credit builder loan through apps like Self, which allow you to rebuild credit while you save for another financial goal. 

“Instead of getting money upfront, you make payments toward your credit building loan for one-to-two years,” Woroch advised. “Self reports your payments to all three credit agencies and then it unlocks your payments in the form of savings (less some fees) while helping boost your score. What’s more, review your credit report and fix any errors or flag fraud which could be lowering your score.”


Review Your Action Plan

If your financial rehab plan isn’t working, don’t panic – but do take action steps.

“Make sure to review your goal,” Woroch advised. “Perhaps it’s too lofty of a goal and you need to make it more realistic. For instance, if you’re goal is to pay off your credit card debt in the next s months, figure out what’s getting in your way.

“Reassessing your progress and tweaking it along the way is part of the process, so don’t let setbacks discourage you,” she added.

RELATED: Using a Personal Loan to Pay Off a Credit Card

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Brian O'Connell
Brian O’Connell

Brian O'Connell has been a finance writer at TheStreet, TheBalance, LendingTree, CBS, CNBC, WSJ, US News and others, where he shares his expertise in personal finance, credit and debt. A published author and former trader, his byline has appeared in dozens of top-tier national publications.

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2021-02-04T20:07:26-08:00February 4th, 2021|Money Management|
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