Developing good financial habits can be a challenge. This is especially true for people who never attempted to accomplish the task in the past or are clueless about how and where they can start with the task.
Many people aren’t taught much about money management growing up, and it is easy to fall into the trappings of debt, living paycheck-to-paycheck, and lifestyle inflation. A lot of people can still live with this kind of lifestyle but, often, living this way can also mean experiencing chronic financial stress, and depriving yourself of a happy life. Do you think you’ll be happy if the only thing you’ll think about is how you can pay off your debts? How can you reward yourself for doing well at work if your money is only spent on paying debts?
Achieving financial success isn’t a walk in the park, but, if you focus, you can improve. As long as you’re willing to change your ways and remain patient with your efforts, you’ll eventually see improvement in your financial life.
1. Spend Less Than You Earn
The first step for financial success is to spend less than you earn. This includes all purchases, including credit cards, as spending more than you can repay immediately is the pathway to debt.
Additionally, unless you spend less than you earn, savings will be practically impossible. You won’t be able to secure your retirement, purchase a home, or pay for a child’s college if you don’t have money left over to save and invest.
2. Track Your Income and Spending
If you don’t monitor your financial health, getting ahead will be incredibly challenging. Not only do you need to track how much you earn, but also what you spend and where. This gives you the ability to audit your choices, spot financial leaks, and make decisions based on data instead of an assumption about your fiscal well-being.
For you to track your income and spending, simply list down the amount of money you earn every month and compare it to your expenses. Ideally, your expenses should be lesser than the amount of money you earn so you can still have money for savings and emergencies.
If you found out that your monthly spending is greater than your earnings, make the necessary changes. For instance, If you’re allocating $500 every month for eating out with friends, consider reducing the amount or inviting friends over and cook meals for them.
Tick off any expenses that aren’t necessary and focus more on your savings. This can be tough at first but if you truly want to achieve financial success, you should be ready to make lifestyle changes.
3. Automate Your Bills and Savings
When it comes to maintaining your financial health, automation is your friend. Set up automatic payments on as many bills as possible as well as deposits into savings, retirement, and investment accounts.
This creates a “set it and forget it” scenario, eliminating the chance that you’ll miss a payment or deposit because you forgot. However, that doesn’t mean you can stop monitoring your accounts, as it is wise to make sure that payments and deposits are going through properly.
If you want to make the most out of technology, you can also use apps, such as CFO on call, to help you automate your cash flow. This is especially important if you have your own business or about to start one. These platforms can manage all of your financial responsibilities so you won’t have any problems earning profits.
A lot of people decide to start a business so they can attain financial stability. But a business that’s poorly managed can have the opposite effect on the owner. Fortunately, you can prevent this from happening by maximizing automation.
4. Limit Your Ability to Spend
If you regularly make impulse purchases, then limiting your ability to spend spontaneously is wise. For example, don’t carry every credit or debit card with you all the time, particularly when you are heading to a place where overspending is common. Alternatively, you can opt only to carry cash, bringing just the right amount to handle a planned purchase with you when you shop.
By limiting what you have in your wallet or purse (or saved in your phone), you can gain control over impulse purchases.
5. Read Your Way to Financial Success
Staying informed is critical to your financial well-being. Before you sign up for a new credit product, read every detail to identify any hidden costs you didn’t notice previously. That way, you can make sure you know exactly what you are getting into before you proceed.
Similarly, read every credit card, loan, and bank statement carefully when it arrives. This gives you a chance to spot errors during the time window where corrections are possible. If you don’t notice an error quickly, you might not be able to intervene if the period during which correcting the discrepancy is allowed expires.
6. Never Rely on “Future” Money
Making financial decisions based on a possible windfall is typically trouble. For instance, counting on a raise before it happens or planning on an inheritance from a relative who is still alive can set you up for failure if it doesn’t come through. It leads you to spend based on cash you don’t genuinely have, and that can result in burdensome debt if your “future” money never arrives.
Instead, don’t allow yourself to believe that you have the money until you actually see it in your hand (or account). Otherwise, don’t count it as part of your financial picture, because it really isn’t until it arrives.
7. Set Financial Goals
While maintaining good habits is always beneficial, having specific goals can help you stay motivated. Plan for big purchases, retirement options, or similar financial events in advance and make them goals. Additionally, break down how much you need and use those goals to craft a viable plan to make them a reality.
By setting goals, you give yourself a target. Plus, as you make progress, you can use those objectives to remain focused, possibly making it easier to resist temptations and impulse purchases.
8. Resist Lifestyle Inflation
When you get a raise, you may want to adjust your lifestyle according to your new income. However, if you spend every extra dime, you aren’t working toward financial success. Instead, you are missing out on an opportunity.
If you are living comfortably and end up with a raise, resist the urge to spend and focus on saving instead. Boost your retirement contributions, build your emergency fund, or start investing. This allows your money to grow and provide you with protection, leaving you better prepared for the future and the unexpected.
9. Check Your Credit Reports
Every year, you can access your credit report from each of the three major bureaus for free. By checking your reports, you can get errors corrected and spot signs of fraud or identity theft, protecting your financial situation with due diligence.
Consider pulling one report every four months. That way, you have a rotating supply that increases the odds that you’ll spot problems quickly and empowers you to make smart choices going forward.
10. Avoid Minimum Payments
If you do have debt, minimum payments mean you will pay the most in interest. Instead of sticking to the minimums on high-interest debts, make paying them off a priority and throw every spare dime that direction. Additionally, resist the urge to add to the balances as you pay them down, as high-interest credit card debt is one of the most cumbersome financial situations you can encounter.
By following these tips, you can develop habits that lead to financial success.
Do you have a habit that will help you reach financial success? Share it in the comments below.
Read More
- 10 Habits Keeping You Poor
- 21 Days to Positive Money Habits
- Financial Reasons to Quit Your Daily Soda Habit
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