Financial self-sabotage is unfortunately a very common behavior. A few years ago, I offered a workshop on a Saturday morning in March called “What to Do With Your Tax Refund.”
I had more than 30 people sign up. They left comments like, “I could really use this!” and “This is exactly what I need!” But when the day of the workshop arrived, a grand total of zero people showed up.
That’s right, zero. Where were the people who thought they needed it so much?
Short-Term vs. Long-Term Goals
The truth is, most people don’t like to be told what to do with their money, even if they genuinely don’t know how they should use it.
And the feeling of suddenly having a large sum of money all at once — like a generous tax refund — may make us feel powerful. In that moment, we can do things for ourselves and our family that we normally wouldn’t be able to do.
For example, a single mother may work a full-time job and typically make just enough to get by. But when she files her taxes and receives a refund — in this case, let’s say more than $2,000 — she can treat herself and her kids to things that she normally can’t.
She can take them out to dinner, buy expensive clothes, or get her hair or nails done. She may even be able to put a down payment on a car. This may seem nice, but the truth is that this is self-sabotage.
“We live in a society that insists more is better, and we are constantly shown media marketing messages that remind you that you aren’t enough until you buy their product,” says chartered financial consultant Jenifer Sapel, CEO of financial planning firm Utor Wealth. “It’s a true recipe for financial disaster,”
“When we find ourselves uncomfortable for extended periods of time, like [being in] a financially insecure household, splurging on purchases provides some temporary comfort we desperately need — so the cycle continues,” Sapel adds.
Temptations to splurge seem to be around every corner. But when people are making these purchases, they’re neglecting to get ahead on bills or paying off debt.
In those moments of temporary “riches,” individuals are not inclined to take the frugal and responsible path.
You might end up spending because the funds are sitting in your account, and you feel like you deserve a small reward with your hard-earned cash. At that moment, you don’t think of the possibility that you’ll be right back where you were the month prior to receiving your tax refund.
So there I was offering a dynamic class in hopes of pointing some interested and seemingly motivated people toward success, and nobody decided to show up. Why? Because they had already decided what to do with their money. They didn’t want me to condemn them for it or try to talk them out of it.
I get it: All those sleepless nights worrying about money and how you’re going to make it to Friday. All those days wondering what you and your family will eat or where to find the money for your kids’ field trips or soccer cleats.
It all falls by the wayside in favor of instant gratification: You want it now, so you are buying it now. That's how self-sabotage works.
All that previous caution goes to the wind when it comes to setting yourself up for a better future. But what if I told you that you can get out of whatever financial slump you’re in and learn how to stop living paycheck to paycheck? Yes, it will delay that big purchase that you wanted to make. But it will bring you to a place of financial balance.
The Right Track
First, hold off on whatever you were going to buy with your tax refund. Unless it’s a car or car repairs that you need so that you can get to and from your job, delay all nonessential purchases. Instead, put off any risk of self-sabotage by setting aside the total amount of your monthly expenses. Let’s say your monthly expenses add up to $2,000.
Set that much aside from your refund, and use the rest to catch up on bills. Take that earlier $2,000 and pay all of your bills at the first of the month. Don’t use money from your paycheck, just the money you set aside.
From now on, save the money you’re being paid over the next month. Then, on the first, use that money to pay your bills again.
Now you have built a small emergency fund, and you’re no longer living paycheck to paycheck!
This delayed gratification is the first but essential step to living a life of financial wellness.
More Tips and Tricks to Make Smart Money Choices
About two-thirds of Americans admitted they have been living paycheck to paycheck since the pandemic hit, in a survey from consumer research firm Highland Solutions. But many of them can still secure a comfortable financial future if they can prevent self-sabotage.
If you always feel like you’re one step behind on paying off bills, consider these tips on how to get your ducks in a row and your dollars in a stack:
1. Run Down Your Expenses
Review all of your fixed expenses and see if there’s anything you can eliminate. Talk to your landlord about qualifying for rental assistance, or reach out to your bank to see if paying a mortgage will reduce your expenses. It can’t hurt to ask or even offer to barter services if applicable.
2. Pay Yourself First
Don't self-sabotage by hampering your savings. If your job can automatically deposit money into your 401(k), set aside at least as much as the company matches. You’d be amazed how you think you will miss $150 per paycheck, but you don’t notice it when you don’t have it to spend.
If you have to do it yourself, see if you can redirect those dollars into a savings account by setting up automatic transfers from your checking account on paydays.
3. Cut Variable Expenses
Do you really need a manicure every month? What about recurring memberships or subscriptions? Take a look at your bank statement and your credit card bill and see if there are items you can remove.
Another smart move is to take yourself off the email lists for your favorite food, restaurants, clothes, or experiences. Remove the temptation.
4. Credit? Forget It
If you carry credit card debt from month to month, stop using those cards now. Relying on them at all is one of the top ways to self-sabotage financially.
Credit cards typically have high interest rates. As a result, if you spend $1,000 with your credit card but pay only the minimum balance due (let’s say, $50 per month), you are accruing high-interest debt on the remaining $950. If that percentage rate is 20 percent, you will end up adding $190 dollars of interest payment the first month.
“Financially vulnerable people should especially stay away from credit cards,” says New York–based certified public accountant Michael Potorti.
“Credit cards will most likely get you into a lot of trouble — you don't realize what the true cost of something is (when you figure in interest charges and fees) when you pay for the item over time” Potorti explains.
Bottom line: Sooner or later you end up paying more in interest than on the item you wanted to buy. This is why credit should only be used either when you can pay the balance off every month, or in case of serious emergency and you have no other options.
5. Keep Your Eyes on the Prize
Write down your top three financial goals. After looking at your budget, decide what you need to do to achieve them. For example, if you want to save $1,000 this year to invest in the stock market, what costs can you cut or what additional work can you do to earn more money?
Maybe you want to pay off your debt more quickly, or set aside money for your child’s higher education. Your goals may shift with time, but setting them may help you stay motivated and focused on bettering your financial future.
6. Think Outside the Bank
“A reasonable monthly payment into an Index Universal Life (IUL) policy is a great way for your money to compound over time at excellent rates and lower fees,” Potorti explains.
“IULs also add protection for their principal, allow you to borrow money for life events (like college), create tax-free income at retirement and your beneficiaries can receive a tax-free payout,” adds Potorti.
In addition to removing the temptation to spend, consider how extra funds can be used to propel you into a more fulfilling financial future.
“I love the beginners apps, like Robinhood, and Acorns. They take all of the hard work (and unnecessary fees) out of investing, while slowly teaching you the basics. You can buy fractions of stocks and start small,” advises Crystal Nickson, a certified financial social worker.
The range of options is wide. Whether it’s looking at life insurance policies or something as simple as downloading an app, it’s critical that you start somewhere.
Take a moment to think about the big picture before making a purchase that will provide you only with instant gratification. Trust me when I say your future self will you thank you for the stability and solace that comes from avoiding self-sabotage.
Additional reporting by Connor Beckett McInerney.