The need to cultivate and daily imbibe good money habits cannot be more prevalent than in the times we now live in.
Times are hard generally, and it is even more challenging for some people who are unfortunate to be living below the poverty threshold. That is why it is essential to form a good money habit that will enable you to relate wisely to the money that flows into your personal space.
“By making it a point to incorporate these practices into your daily life, you will see positive change in your finances. It won’t happen overnight, but it will happen if you have the patience and discipline to follow these rules.”
No matter where you are, developing good money habits could be the difference between working until your 70s and affording retirement. Or it could even mean quitting a job you hate to work a job you have a passion for, regardless of the income.
But with so much personal finance advice out there, how do you develop good money habits?
The Habits…
So what are these habits?
- PAY YOURSELF FIRST
What is the biggest thing you can do to improve your finances?
You pay yourself first.
Most people either never save money or say they will save after paying all their bills. But these people end up not saving a dime. The solution is so simple and easy that it is embarrassing.
You save money before you spend anything. Every time you get paid, you need to put money into savings. It doesn’t matter if you can save $5 or $1000; the key is to keep something.
By getting into this mindset, you prioritize saving money, and many times, this evolves into you wanting to save even more money.
A great way to start paying yourself first is with your pension scheme plan at work. Have money taken right out of your paycheck and into a retirement account.
But this isn’t the only way…
You can manually transfer money from your checking or salary account into a savings account when you get paid. So, the next time you get paid, save something.
2. SAVE IN SEPARATE ACCOUNTS
As great as it is to save money, you eventually need to take it one step further. You need to have individual savings accounts for all your savings goals.
For example, you have an emergency fund for unexpected expenses. You have a vacation fund to help you pay for upcoming trips. And you have a new car fund to help you pay for your next car. You also have accounts for irregular expenses.
The idea is to have accounts for each goal so you can be motivated to keep saving for each purpose. An added benefit is it is easier to know how much money you have for each of your money goals when the money is in separate accounts compared to when it is all in a single account. However, you decide what is suitable for you.
3. CREATE FINANCIAL GOALS
One of the most significant bad money habits is not setting goals. Do you have any financial goals you are trying to achieve? For most people, the answer is NO.
But having goals is critical to long-term financial success. Studies show that 80% of wealthy people have dreams, whereas only 12% of poor people have plans.
What does this tell us?
It says that when you have goals, you are more likely to try to achieve them. And when you reach them, you get ahead and are motivated to create and meet new goals.
Even if you fail to reach your goal, you will have a much better financial situation. For example, let’s say you aim to save $10,000 this year. At the end of the year, you have $8,000 saved.
While you did fail to reach your goal, you have $8,000 in savings that you otherwise wouldn’t have if you never set the goal in the first place.
Make it a point to sit down and create goals for yourself. Create short-term goals that you can achieve in one year or less and long-term goals that will take years to meet.
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https://www.morganable.com/the-thing-about-the-smart-money-woman-a-review/
https://bethebudget.com/daily-money-habits/
https://money.cnn.com/2018/04/17/pf/good-personal-finance-habits/index.html
4. FOLLOW A BUDGET
One of the worst bad habits you can have with money is not following a budget. This is a mistake most people make. They see a budget as restricting how they spend their money. Putting off today for a better tomorrow doesn’t interest them, so they never budget.
But your budget doesn’t have to be this way. You can set it up so you not only save for a better tomorrow but you can also enjoy today.
It’s all a matter of perspective.
And the good news is you don’t have to put much effort into your budget. You can make a detailed budget or track a handful of spending categories.
The key is being aware of how you are spending money and trying each month to put something into saving.
5. WORK AT AVOIDING IMPULSE BUYS
We make a lot of purchases at the moment these days. We are often simply tired or stressed and buy without thinking things through.
Other times we fall victim to slick advertising and think we need to have the item in question. It would be best if you worked to limit your spur-of-the-moment impulse spending.
Luckily, you can play a few games to trick yourself into waiting to see if you want the item. There are many other money games you can play with yourself to limit wasteful spending.
The key is finding the one that works for you and using it to stop buying things you will later regret. And if you have a house full of stuff you never use, take the time to sort out the clutters.
Seeing all the money you waste by making impulse buys will send a strong message to yourself.
6. PLAN FOR EXPENSIVE ITEMS
Significant expenses can ruin your finances quickly. To limit their impact, there are two things you can do.
First, as I mentioned earlier, you save ahead for them using multiple savings accounts. The other thing you need to do is research.
Start looking into items ahead of time. First, do window shopping, online or physically, if you have to and you have the time.
Say you need to replace your washer soon, instead of waiting for it to break or randomly going to the home center one Saturday and picking a model for sale, research first.
Find out the new units’ features and then determine what ones, if any, you want to have.
Then read a lot of reviews from other users.
While it is essential not to put too much weight into a single review, pay attention if many reviews cite the same issue, as this could be a design flaw.
Then see how much it costs and figure out how you could pay less for it.
Maybe you wait until the end of the year for clearance sales. Or perhaps you pay attention to an open box or floor model that will be heavily discounted.
The more research and time you put into your significant expenses, the more money you save, and the greater the chance you will buy the right one for your needs and not regret the purchase.
7. CHALLENGE YOURSELF TO REDUCE SPENDING EACH MONTH
In an ideal world, you would use a monthly budget to track your spending and ensure you live within your means. Plus, you would see how much money you spend dining out or whatever your vice is each month.
But the reality is not everyone budgets. While I encourage you to start a budget, here is the next best thing.
Each month, pick a spending category and try to reduce it for the month.
For example, you could try to limit your dining-out expenses this month. Then next month, you can try to reduce your personal care budget.
Doing this makes you think more about the money you spend and forces you to cut back a little bit. It also helps you limit excess or emotional spending, which can quickly destroy your finances.
This works best with variable spending categories and not with fixed expenses like your rent, as it would be near impossible to lower that expense for a month.
Finally, to make this work best, take some of the extra money you save and transfer it over to a savings account. This way, you save money by not leaving it in your checking account to spend on something else.
In conclusion, the sooner you make these a part of your financial life, the sooner you will see a positive impact on your finances.
You will be much farther ahead financially in just a few short years, blowing your mind. But you must consciously try to start; the sooner you start, the better.
Stay financially buoyant, my friends.
Agboola Olayemi.