Personal finance habits are the type of habits you rarely hear about. If you stop to think a bit, you’ll realize that we weren’t actually born with any of our habits, rather we learned them somewhere and at some point in our lives.
And, as we all know, there are good habits as well as bad habits (ahem, I’ll stop biting my fingernails now).
Thomas C. Corley once said that “habits are the cause of wealth, poverty, happiness, sadness, stress, good relationships, bad relationships, good health, or bad health.”
That’s a pretty standard generalization.
To narrow it down, let’s dive back into a type we should all become better at and more familiar with: personal finance habits.
These habits are a great way to start putting you on autopilot for tasks such as budgeting and savings so that eventually all this begins working to your advantage.
In addition, they can make you more efficient, help you have better control of your finances, build more wealth, and get — as well as stay — out of debt.
In general, these good habits can create a trajectory for greater wealth and a more stable financial future for you.
That being said, here are some helpful personal finance habits you should be following if you aren’t already:
1. Track Your Spending
Do you track your spending? I don’t mean taking a quick glance at your bank statement at the end of the month. I mean “track” in the real sense of the word.
Tracking your spending is the only way to find out how much you’re actually spending on all things, and helps put those expenses into perspective. This should be done frequently if possible.
Think about “tracking” like counting calories, something most of us do daily. Take note of all the cash that is coming in as well as going out. And, remember that tracking your spending is just one piece of the overall puzzle. What you do with that information and the decisions you take are what matters most. Take what you have learned from your tracking and apply it to exercise good financial habits.
2. Create a Savings Plan
Create a savings plan. This will help you stay motivated, stay informed, and have a foundation to work with.
Start off by asking yourself: why do I want or need to save money? Is it because you want to have enough for retirement? Because you want to buy a house? Or, perhaps because you want to set aside an emergency fund to cover any unforeseen expenses?
Regardless of the reason, it’s highly important that you have a clear goal in mind as well as a timeframe for the money you plan on saving.
Going forward, figure out how much money you have left after paying all your bills and expenses each month. That amount you can put into your savings to help reach your goal.
Once you get the gist, it might not be a bad idea to set up an automatic savings plan. That way you make this process automatic and you don’t have to manage that manually.
3. Live Within Your Means and Learn to Say “No”
Living beyond your means can happen without giving it much thought, especially if you can justify this lifestyle by expensing it on your credit card and worrying about it later.
But, if that means that the new top-of-the-line, 65-inch plasma tv screen will put you back a few thousand dollars, it might not really be worth it.
To “live within your means” simply implies that you spend less than you make. Your “means” is your income or incomes, and all too often, people take that to an unhealthy level by exceeding their earnings and getting into debt.
It’s nothing new that a big percentage of Americans are terrible at saving. In fact, sources show that only 39% of Americans have enough savings to cover a $1,000 emergency at least temporarily.
With all that being said, remember that it’s ok to tell yourself “no” whenever you feel the temptation to purchase something you know you shouldn’t.
Decisions are typically emotional and not logical. This ties in with the previous idea of living within your means. If you can’t really afford an expense — such as unnecessary luxury item, you may be giving yourself a temporary feel-good gift, but you’ll be giving yourself an expensive headache in the long run.
Think about it this way: If the debt you take on doesn’t really help you grow or make money, is it really worth incurring?
Make sure this doesn’t happen to you by exercising self-control with your finances by being more practical and making better common-sense decisions with your money.
4. Pay Your Bills Ahead of Time
Yup, if you pay your bills late it’s pretty likely that you’ll incur a late fee. And most late fees, if not handled correctly and removed shortly after, will inflict interest on your savings. This, in turn, will further compound what you already owe. This is the recurring nightmare you want to surely avoid.
Late fees, as annoying as they are, are one of the many ways banks make money and although we have to accept that, we should try to avoid them at all costs.
Paying your bills on time is an important aspect of adequately managing your financial situation. Knowing exactly when your bills are due and paying them on time can save you money, improve your credit score, and help you to get credit in the future at a lower rate.
There are 3 Credit Bureaus: Experian, TransUnion, and Equifax, all of which collect info on you and report your status to businesses in the form of a credit report. If you consistently pay your bills on time and avoid late fees and other penalties, the higher your credit score is likely to be.
5. Pay More Than the Minimum on Your Credit Cards
Besides paying your bills ahead of time, you should strive to pay more than the minimum amount indicated.
The reason is that credit card balances can be a luring nightmare that chase you month after month.
Studies show that the average credit card debt in the United States stands at $5,700. If you can, try paying your balance in full every month.
If you can’t manage that, then try paying more than the minimum required on your credit card or cards.
Paying more than the minimum is better than just paying the minimum. But “better” isn’t necessarily “best”. If you don’t pay the full amount, it will be difficult for you to dig yourself out of debt because a good portion of that money will be applied to just paying the interest and fees.
Another option to consider, if you have a lot of credit cards with debt, is to consolidate them under a 0% balance transfer card where you’ll typically pay no finance charge for six months or more. This might be beneficial as it can consolidate your credit card debt and will allow you to have fewer credit card payments to make each month.
6. Invest in Yourself
Investing in yourself might be the most profitable investment you can ever make.
When you invest in yourself make sure you aren’t solely investing money but also time for yourself.
Often times, people try to do too many things to improve themselves at once and actually end up failing in the process. A better alternative would be to create a “primary goal”. Know what you want to improve and let that be the driving force for what you want to achieve.
If improving your personal finances skills and being better at managing your money are goals you want to achieve in the short-term, there are a lot of great and free online courses to get you started in the right direction. Here is a great list you can consult: https://moneystrands.com/15-personal-finance-courses-you-can-take-online-for-free/
Your habits and actions have a huge impact on your overall happiness and well-being. These go for all the habits you have acquired throughout your life, including personal finance habits that you probably didn’t realize you practiced.
By recognizing bad or unnecessary spending habits, you can start to implement the necessary changes to bring improvements and help you strive towards your long-term goals.
Changing your financial life can be challenging, but don’t let the big picture weigh you down. Remember to be cautious with your money, and think of the future whenever you feel like spending more than you can realistically afford.
Following some or all of these personal finance habits and tips can get you started on the road to better your financial situation. Let the journey begin.