Forming and maintaining good money habits is sometimes easier said than done. But it’s essential to your financial stability and ultimate success. Let’s look at two scenarios.
Consider this – The latest iPhone has just been launched. You don’t need it but you really want it. Besides, you have some spare cash and can afford it. Whipping out your credit card and giving in to the temptation is so easy. But resisting the impulse requires a certain amount of self-discipline, which can be considerably more difficult.
Now consider this – You buy the iPhone and you’re thrilled but that excitement will be short-lived. You’re out several hundred dollars – that’s money you could have put toward your student loan repayments. It’s these things that keep you in an endless cycle of debt. However, if you had resisted the impulse and put the money toward your loan repayment instead, you’d be debt-free faster. The earlier you’re free of your debts, the earlier you can stop worrying about how you’re going to pay back those stressful loans.
This is where good money habits come in. It’s the small things done consistently that will put you in total control of your finances.
10 Good Money Habits That Are Worth Building
1. Set a monthly budget
Setting a monthly budget is one of the first good money habits that everyone should develop. A budget helps you manage your money successfully by keeping track of your income and expenses. When you set a budget, you prioritize paying recurring expenses such as utility bills, credit card bills, loan repayments, and rent or mortgage payments. You can then plan your other expenses such as groceries and other incidentals according to the money left over.
Setting a budget ensures that your bills are paid on time so you’re not paying extra in fines and interest. Pick a budgeting tool or a budgeting method that works for you and stick to it.
2. Pay off debts as early as possible
Debt is the one thing that prevents so many people from attaining true financial freedom. As long as you have debt to pay off, you’re not free to spend your income on whatever you earn. Worse, the interest that accrues on your outstanding debt makes it so much more expensive. That’s not all. Missing even one loan or credit card payment and the late fees and interest can undo everything. The sooner you can pay off your debts the better. Whether you have student loans, a mortgage, or a vehicle loan, look for ways to clear that debt as soon as you can afford to.
First of all, the sheer sense of freedom you’ll feel from being debt-free is unparalleled. Secondly, once you’re free of debt you can finally start building your savings and secure your financial future.
3. Automate your bill payments
Keeping track of multiple bill payments each with different due dates and payment amounts is not easy. You already have several other professional and personal commitments to keep track of. Automating your bill payments may help simplify your life while also ensuring that your bills get paid on time. No more worrying about late fees getting tacked on to your already overwhelming debt.
It’s easy to set up automatic payments through your bank account. You will have to review your finances regularly to check the balance but that’s a minor task.
4. Cut out unnecessary expenses
Are you regularly falling short of money towards the end of every month? It may be time to start living below your means. No, you don’t have to adopt a zero-spend lifestyle but it won’t hurt to cut back on unnecessary expenses either. How many different types of subscriptions have you signed up for? Do you really need them all? Cancel all except those that truly enrich your life. See where and how you can reduce your utility, grocery, and dining-out bills.
Small expenses add up to a lot at the end of the month. Cutting out those mindless expenses and mastering a more frugal lifestyle can boost your savings steadily. Do this consistently and you’ll be surprised at how quickly you’ll be able to afford that family vacation you’ve been dreaming of.
5. Track your expenses
We discussed cutting back unnecessary expenses in the earlier tip but to cut back you need to first track what you’re spending on. You may have budgeted for recurring expenses but this expense tracking focuses on those small expenses that most people overlook. That Starbucks coffee that you grab on the way to work. The afternoon snack you pick up from the deli next door to the office. The weekend takeout dinners that have become a family ritual. All of these are unnecessary expenses that most people don’t take into account when tracking their finances.
When you start keeping track of these seemingly small purchases, you’ll be surprised at how much they add up at the end of the month. Do it for at least a couple of months to truly track your spending.
6. Open a savings account
A savings account offers several benefits. It acts as a safe place to keep your spare cash. You earn interest on your balance every month so your money keeps growing steadily. If you’re looking to build your credit score but don’t qualify for a regular credit card, you can get a secured credit card against the balance in your savings account.
Last but not least, it acts as an emergency fund. You can access the money in your account 24/7 using your debit card at any ATM. This can be a lifesaver if you need money urgently for a medical emergency or home or vehicle repairs, or in case of a job layoff.
7. Review your bank statements
The unfortunate reality is that identity theft leading to bank account scams are becoming increasingly more common. Make it a habit to review your bank statements regularly. This will help you spot any fraudulent entry in your account early so you can report it and take corrective measures.
8. Pay off credit card bills in full and on time
Getting and using a credit card is the fastest and easiest way to build credit but only if you pay all bills in full and on time every month. The minimum payment amount option may save you the late fee but you’ll still pay interest on the outstanding. Credit cards have the highest interest rates of all types of debt. The interest on one late payment can push you further into debt. It will also damage your credit score, creating long-term issues for you.
9. Review your credit report annually
You’re entitled to receive one free credit report from all credit bureaus every year. Make sure to request yours from AnnualCreditReport.com and review it every year. Look for wrong, incomplete, or missed entries or signs of identity theft. If you find any inaccuracies in the report, file a dispute with the credit bureau. They are obligated to look into it and correct the errors. You shouldn’t have to pay the price for inaccurate entries.
10. Increase your deductions
If you’ve enrolled in a 401K plan, it’s a smart idea to increase your deductions. Increase it to as much as you can afford to. Increasing your deductions will help lower your taxable income while also building your retirement savings much faster. If you can increase your deductions to the full amount your employer will match, do it! It’s the easiest way to get free money in your pocket legally.
Forming good money habits may be a little challenging when you get started but you’ll feel motivated enough when you start to see the difference it makes. Once you start to make real progress, you’ll be on your way to experience true financial freedom.
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