For many of those who get ahead financially, it doesn’t happen by accident or chance. Instead, they develop amazing financial habits, allowing them to make progress toward their goals and secure their futures. Luckily, regardless of where you are today, anyone can embrace their routines. With a bit of effort and diligence, you, too, can create better money habits. If you don’t know where to begin, here are five tips to get you started on the road to a more secure financial future.
1. Always Pay Yourself First
The principle behind paying yourself first is simple; if you transfer money into your savings account before you do anything else, you’ll always do it. You’ll never end up in a situation where there isn’t enough to make it happen, as bolstering your savings will universally be your first move each and every payday.
For many, this is the best approach. It’s easy to have good intentions, vowing to save whatever is left over when the pay period comes to a close. However, when you go that route, the chances that you’ll choose to spend that money instead rise dramatically.
By moving your cash into savings right away, you avoid temptation. Plus, you make saving (and, subsequently, your future) a priority, and that can make a big difference.
2. Practice Mindful Spending
Many people spend money on a whim. They see something intriguing and decide to toss it in their cart, all without giving it much of a second thought.
While the occasional splurge isn’t a bad thing, it is problematic if you’re doing it without any consideration. Complacency can come back to haunt you, especially on the financial front.
Instead of making a purchase reflexively, strive to be mindful of your spending. Before you get anything that isn’t a genuine need, reflect on the item or service. Consider whether buying it moves you toward your larger goals or aligns with your priorities. If the answer is “yes,” then it could be alright to proceed. But, if the answer is “no,” you may want to skip the purchase.
3. Tracking Is a Must
Trying to live without a basic budget or insight into your spending patterns usually leads to trouble. A lack of understanding about where your money needs to go as well as where it’s going can be detrimental, especially if you are falling short of your financial targets, frequently miss payments, and aren’t moving toward your goals.
When you don’t have a budget or track your spending, you may not realize what is happening to your income. Often, once people take a look, they are startled by how much they are spending in certain categories.
By tracking your obligations and spending, you are creating opportunities for positive change. You’ll know where your money should be going and where it’s actually ending up. If something isn’t aligning with your objectives, then you can choose to handle the situation differently.
4. Automate What You Can
Automating your finances is usually a smart move. If you set up an automatic transfer from your checking account to your savings that aligns with every paycheck, paying yourself first becomes easy. You won’t have to worry about remembering, which removes a significant burden.
Then, if you set up automatic bill payments, you can ensure that you don’t forget to pay a critical bill. Not only can this give you peace of mind, but it also preserves your credit. A single missed payment can reduce your credit score dramatically, potentially by 110 points initially. Plus, that stays on your report for seven years. To make matters worse, you may also owe the lender a late fee, adding insult to injury.
Automating means you don’t have to worry about whether your bills are being paid. As long as you have enough in the bank to cover the cost, your payments will handle themselves.
5. Send More to Your Debts
Paying even a little bit extra to your debts can make a massive difference over time. If you have any cash to spare, send it to your highest-interest debt. That way, you can chip down the balance faster, allowing you to pay less in interest over time.
Once you get that debt handled, redirect that payment (including the extra amount) to your next highest interest debt. Then, repeat that process until you are debt-free. That process is called the debt avalanche, and it’s an incredibly popular method for handling debt while paying the least amount in interest along the way.
If you need a quick win, then the debt snowball method is a viable alternative. You’ll pay a bit more in interest along the way, but you’ll conquer your first debt faster. As a result, you might have an easier time maintaining momentum, and that can matter both in the short- and long-term.
By overcoming your debt, you are improving your financial life. When you have fewer obligations, you need less money to live. Then, you can send more to savings, get a house faster, or even retire earlier. Achieving your financial goals will be easier, making it worth the effort it takes to pull it off.
Do you have any other tips that can help someone develop better money habits? Share your thoughts in the comments below.
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