Controlling your financial habits may be hard, but it is of utmost importance if you want to strengthen your position. So you think developing new habits is difficult? Not really, as long as you remain determined. Concentrate on optimizing your spending, stay away from debt, maintain a good credit profile, and your financial position will become a lot stronger that it is right now.
What habits should you adopt that guarantee financial security? Let’s take a look at the topmost of these.
1. Live within means
The single most important financial habit to adopt that will lay the foundation for success. Start living within your means and things will become so much easier for you. Set financial goals and then make sure that you stick to them. And don’t forget to save 10% of your earnings every month. When your savings grow, your situation will improve automatically.
2. Track your spending
How much do you spend every day, week and month? It’s absolutely vital for you to track your spending and know exactly where and how much of your money is going every week.
This way you can identify areas where you may be spending more than necessary, and can then work to reduce your expenses. For instance, if 50% of your meals were eaten out, you should definitely reduce it to 25% or even less. By the way, there are plenty of mobile apps available which you can download for keeping a close tab on your expenses. Many of these apps can also prepare quick reports so using them is really beneficial.
3. Buy value
Buying value doesn’t mean you start buying the cheapest goods and services or the most costly ones. It means that you ensure you’re getting the best value for whatever amount you spend, whether it $100 or $10,000. Sometimes buying something more expensive upfront can help you save more down the road, compensating costs in the long run. Similarly, purchasing the priciest item may not always be the best bet because there may be better or similar products available at lower rates. Point is it is always good to do a quick research if you’re planning to make any major purchases.
4. Pay bills in advance
When do you pay your bills? If you do this later, you’re unknowingly stretching your budget, and only increase stress as the due date gets nearer and nearer. Since you have to pay your bills under any circumstances, why not do it sooner than later? This gives you more control and makes it easier for you to adopt good financial habits.
Just like contributions to your savings and retirements accounts, you can also automate bills if you know the amount that goes towards utilities every month.
5. So you think you can’t save? Automate savings then
Is saving too difficult for you? Do you have the habit of spending all your pay as soon as you receive it? Automate your savings then. So for instance, if you have set up a 401k account, you can set a fixed percentage or amount every month which will automatically be transferred into your account. You can also automate contributions to your other savings accounts.
Automation allows the money to be transferred as soon as you get your salary, and thus, you’re prevented from spending it unnecessarily.
6. And then increase the savings amount
Great, so you’ve been successfully saving a couple of dollars every month. And it has been almost a year or two since then. As time passes, inflation rises and things generally, become more expensive. And so your savings should grow as well. Increase it by only a small amount, but don’t worry, even a percentage increase will build up with time. Just be sure to do it every 12 to 24 months.
Once again, let us assume a 401 (k) account to which you contribute 6% of your income every month. Next year, increase the contribution to around 7%. Do this every year, until you reach the maximum amount that you can contribute. In case there isn’t any cap on payments, continue to increase for as long as you contribute.
That being said, bear in mind that if you want to a lead a financially secure retried life, you should be saving around 20% of your income. And if you don’t do that, you should either retire at a later age or ensure that you avail multiple income streams later on.
7. Drive your car for a longer time period
Do you take a five year loan for your car and then when you pay it off, take another loan so as to buy a different car? As enticing as it may be, it is actually quite expensive. Your auto expenses will decrease when your drive your car even after paying off the loan.
Assume that you pay $500 for your auto loan. Now when you drive the same car for the next 5 years after you’ve paid off the loan, it means you add $500 x 60 months = $30,000 in your account along with interest savings.
8. Increase your emergency fund… and review it yearly
Your living expenses increase with time, and so should your emergency fund so that it continues to be adequate. How much money have you already set aside? See if you can increase the amounts in some way.
For instance, if you’ve managed to pay off one of your debts, you can utilize the freed up money for your emergency fund. Or if you have been able to reduce an amount on your bills, you can save the amount for future use.
Also review your emergency fund every year and ensure that the amount is enough to meet your living expenses for 6 months.
9. Avoiding using credit cards
So that your remaining balance doesn’t rise and your debt doesn’t increase. If you don’t use your cards at all, you tend to spend much less, which helps you save considerably. Stop using all your credit cards, even if that product on the shelf appeals you to no end.
10. Pay more than the minimum amounts
Since we are talking about credit cards, how much money do you pay every month? Is it always the minimum amount? Wrong approach! If you want to become debt free and be financially stable sooner, you should pay more than the minimum amounts.
Start with the smallest debt and clear it; then go on to the next smaller debt and pay that off until you’ve paid of all your debts one by one. This financial strategy is referred to as the snowball method. You can also transfer your credit card balances and consolidate all your debts under a single payment card with an APR of 0%.
What’s the advantage of doing so? For starters, you reduce all your monthly payments into a single amount. Secondly, you don’t have to pay any inertest for a specific time period depending on your card provider; you can use this time to eliminate all the debt.
11. Get rid of debt
Debt can burden and stress you. If you want to strengthen your finances, one of the first things to do is to pay off all your debts. They may be in thousands of dollars, but you can still pay them off sooner than you think. Read our blog for some helpful advice, and remember that paying off all loans quickly means that you’re saving in interest.
12. And stop borrowing when you become debt free
No point in trying to eliminate your debt, if you will continue to borrow.
The first tip that we presented was to live within means, and only spend as much as you can afford comfortably. When you borrow money, it means you can’t afford. Because if you could, you wouldn’t need to borrow in the first place, right?
Borrowing does ease up your finances and gives you more room to spend, but only reserve it for major purchases like a car or a house because you can’t buy either without financing if you are an average American. But for all your other purchases, make sure you don’t take on any unnecessary loans and increase your debt. And that all includes credit cards as we explain in our next points.
13. Balance checkbooks
Online banking has led people to often ignore their checkbooks because you can actually check your account balance whenever you want. But that doesn’t reflect outstanding checks or upcoming charges. You must be aware of these as well if you want an accurate number. Balance your checkbooks regularly so that you know the actual amount of cash which you have.
14. Plan for the long term
You will retire one day, whether you choose to dot at 55 or 60. We all will. But it is right now that you should start preparing for that distance future. During your retired life, most of you wouldn’t work or may only indulge in part time jobs. It is only when you plan now that you can ensure a stable income at that time.
You might already be enrolled in a retirement plan through your employer, but is it enough for leading a comfortable life? Assess the plan, and then evaluate other options. You can either increase your contributions or sign up for another plan such as a traditional IRA or Roth IRA. Both of these offer tax advantages, important for a healthy income stream during your retired life. What if you don’t have enough money? We’d still suggest that you set up a plan, and start contributing whatever you have because small amounts are better than no amounts.
15. Buy term insurance
We all need life insurance, but it is an expensive option for many of us. So rather than buying a typical life insurance policy, you can just buy a term life insurance for a fraction of the money that you’d spend otherwise. Not only does this let you save money on the premium amounts, but you can also purchase greater coverage if required. As for the money that you do save, invest it elsewhere.
16. Reduce the time you spend on watching TV
Yes, TV doesn’t directly add to your expenses, but it significantly influences how you spend, which is why you shouldn’t watch it so much. Television is one of the biggest advertising mediums and when you watch all those shows and commercials, you are enticed to buy your products. Most of them may actually be expensive, but since the ads are crafted so well, it’s only natural that you would be enticed to spend. Since TV drives impulse spending, you would be much better off by watching fewer shows and ads.
17. Start a new venture
Because establishing your own project or business, big or small is one of the most rewarding things to do. So if you have a great idea, do try it out and set up a small business. Don’t worry, it’s not all that costly. You only have to invest a small amount if you start on a small scale, and once you begin earning, you can easily expand your business. And by the way, this so doesn’t mean you quit your job and it doesn’t have to be anything too complicated. You can easily do this as side job and devote only a couple hours every week. And it can be as simple as posting content on a blog.
18. Read a book! Financed related of course
Because reading in itself in such a good habit and if you read something about finance, you can actually use and implement the knowledge or strategies that are shared. After all, seeking advice from financial masters is always a wise thing to do. Some of our favorite books include Total Money Makeover by Dave Ramsey, The Automatic Millionaire by David Bach and I Will Teach You to be Rich by Ramit Sethi. Start with these and then read other great finance books as well.