Have you ever found yourself in a situation where you have an urgent financial need and your bank balance is not something to depend on? You have difficulty meeting your basic financial needs because your account balance is showing red. This could affect you psychologically and health-wise. There is nothing as stressful as being in deep financial need.

Financial stress is one of the major problems facing mankind. If you want to enjoy the other areas of your life, you’ve got to reduce your financial worries. This article is geared at helping you the needed financial planning habits to save you from financial stress.

• How do You Develop Good Financial Habit?
• How Can I Make my Financial Decisions Smarter?
• How Can Financial Problems be Prevented?
• How do You Plan a Financial Plan For The Future?
• Negative Money Habits
• Good Money Habits For Students
• Better Money Habits
• Bad Financial Habits Examples
• Good Financial habits
• Financial Habits of Millionaires
• Good Money Habits Examples
• What is The Best Financial Decision?
• How do You Maintain Good Financial Health?
• What Are Financial Goals Examples?
• How Will Developing Effective Spending Habits Affect my Financial Future?

How do You Develop Good Financial Habit?

Whether you want to eventually achieve financial freedom or want to get out of debt, it all starts with forming good money habits (and getting rid of the bad financial habits).

To help you get started, here are 8 solid financial habits to adopt (at any point!) this year. 

1. Regularly review and update your financial plan

Having a plan for your money is arguably one of the best financial decisions you’ll ever have. However, just creating an initial plan isn’t enough. It’s equally important, if not more important, to make sure you’re reviewing and updating your plan regularly.

Read Also: Do You Save Money by Making Your Own?

Your financial plan is there to help you assess, plan, and improve your present and future financial life. It takes a snapshot of your current financial picture along with your goals to help you create an action plan so you can navigate financial decisions with ease.

To make the most of your plan and improve your chances of success, you’ll want to regularly check your plan at least once a month and aim to update any important information at least every three to six months. Importantly, you should be updating your plan whenever significant life events take place—purchasing a new home, getting married, getting a new job or a salary increase, or having a baby, to name a few.

2. Set financial goals that are meaningful

Setting goals is the first and arguably the most important step to financial success. Without goals, you aren’t able to track progress and celebrate milestones. When forming goals, it’s important to make them “S.M.A.R.T” goals: specific, measurable, achievable, relevant and time-bound. 

Here are a few examples of SMART financial goals: 

• Pay off $25,000 of debt in 7 months 
• Make $10,000 from a rental property in one year 
• Increase net worth by $30,000 this year 

You can see how all of these follow our S.M.A.R.T goal guidelines. Each goal is measurable and time-bound, making it easy to keep track and hold you accountable to a deadline. They are also specific and relevant to financial success and not impossible to achieve. These examples are much more powerful than vague goals such as “pay off debt soon” or “make more money.” 

This financial habit is also scalable and can be done at various points throughout your year. For example, you can create a weekly goal of adding at least $10 to an investment account or a goal that states you will invest at least $500 into your retirement savings each month. 

As you can see, financial goals can be big or small — what matters is forming this habit as soon as you can so you can hold yourself accountable towards your success! 

It’s also important to make sure that you are setting both short-term and long-term financial goals. By having both, you’ll stay motivated while focused on working towards your financial future.

3. Create a budget and use it to guide your spending 

According to Debt.com, nearly 70% of Americans try to maintain a family budget. Are you one of them? 

Forming a budget is an important financial habit to make because you should always know how much money is coming in and going out of your accounts each month. Without knowing this vital financial information, you may be spending more than you make — leading to a life of debt and poor credit. 

When forming your budget, keep in mind how much money you bring in every month from your paycheck, how much you typically spend on “needs” such as living expenses and groceries, and how much you allocate for “wants” like eating out, travel and shopping. 

There are a ton of ways you can approach your monthly budget but the most important thing is to pick something that makes sense for you and your lifestyle. If you are able to save 20%, 30% — or even half — of your monthly income for savings or investments, you are setting yourself up for financial success! 

4. Find passive income to improve your income 

If you want to build wealth and pay off debt faster, you have to find ways to make more monthly with passive income. Passive income is essentially money you make residually through endeavors with minimal routine upkeep. A few examples of passive income include rental properties, dividends from stocks, or a side business. 

How does this work? With the examples listed above, you only invest time and money upfront to set everything up. Then you can expect to make a certain return from those investments for the short term or long term. 

To make this a financial habit, get creative. You don’t need to invest a ton of money into something to get a return. You could rent a room out in your home or even rent out your car on the weekends! Figure out ways to “hack” your life and it can add up substantially — helping you build wealth faster than what you may earn from a standard paycheck. 

Even if your passive income stream brings in $50 a month, that can add up — you’d have $600 extra at your disposal to pay off debt or put towards retirement! 

5. Build an emergency fund to protect your assets 

Did you know just 40 percent of Americans are able to cover an unexpected $1,000 expense? What if your refrigerator breaks or your dog needs emergency surgery or your car has a flat tire? 

An emergency fund is a critical safety net to ensure you don’t dip into your other funds designated for your routine expenses. If you don’t have one, your chances of accumulating debt greatly increases because you may have to use money that you planned for credit cards or other bills in order to pay for the emergency expense. 

Experts suggest having an emergency fund that covers three to six months of living expenses. This amount is especially true if you have one source of household income, are paying off debt, or have just started budgeting. 

If you haven’t started working towards this critical financial habit, start setting aside money to save for emergencies — even if it’s only a small amount from each paycheck. Your financial future will thank you!  

6. Pay off credit cards in full 

It’s time to forget the myth that carrying a balance on your credit card is better than paying it off in full each month. To understand why, you have to know what factors impact your credit score. 

According to Experian, payment history is the most important factor in determining your credit score. The second most important factor is your credit utilization. The lower your utilization rate, the better your credit score. That means you should try to keep your utilization ratio (or how much credit you’re using) as low as possible. 

If you can’t pay off your credit card in full each month, aim to keep it under 30% utilization. For example, if you have a $1000 credit limit, you should keep a balance of $300 or less every month. 

You risk accumulating even more debt from interest payments if you don’t pay off your credit card each month. Snowballing interest payments from your credit card company can add up (thanks to compound interest) and eventually put your credit at risk. 

And if your credit gets too bad, getting approved for loans — like a mortgage — is more difficult because people will see you as a financial risk. Repairing your credit can be harder than just paying off your balance each month! 

7. Bring food from home / Cut down on the take out

Are you guilty of buying a coffee and bagel on your way to work or grabbing a sandwich on your lunch break? If so, you could be wasting thousands of dollars each year. 

In fact, I did my own calculations and realized my $5 to $10 food splurges added up to well over $3,000 a year! That was enough for me to start packing food as much as possible. 

I get it: meal prepping can be hard and it’s boring to eat the same thing all week! But you can work up to this goal by only eating out for lunch once or twice a week and pack the rest. You’ll be amazed at how much packing food can help you save for your financial goals.  

In the current climate, considering a good percentage of the workforce remain working from home, focus on keeping to home-cooked meals, and saying no to ordering takeout. Don’t feel bad about spoiling yourself every so often, but ordering takeout on the regular, especially through food apps, can end up being considerably expensive.

8. Talk openly about money with your friends

Have open and honest money conversations with your friends and family is a great way to continue learning new money management approaches and money tips to improve your literacy and overall motivation.

It can also be an extremely great way to get over any existing fears about money or taking those next steps to start working on your financial goals.

The more you talk about money and financial management with friends, or accountability partners, the more confident you will be in the progress you’re making to better your financial future.

How Can I Make my Financial Decisions Smarter?

Have you ever wondered what the best things are that you can do for your money and your financial future? Here is our list of the smartest things that anyone can do for their finances.

1. Create a Spending Plan & Budget

If you are spending more than you earn, you will never get ahead—in fact, it’s a sure sign that your finances are headed for trouble. The best way to make sure that your income is greater than your expenses is to track your expenses for a month or two and then create a budget. It can be a very simple budget, but you should have one.

2. Pay Off Debt and Stay Out of Debt

One of the best things you can do for your finances is to pay off all of your debt. To get started, focus on your most expensive debt—the credit cards and loans that charge you the highest interest. Once you have paid off all of these debts, focus on paying off your mortgage.

For your mortgage, consider splitting your monthly payment in half and paying bi-weekly. Then pay extra as you can afford it. This will shave years off your mortgage and save you tens of thousands of dollars in interest.

3. Prepare for the Future – Set Savings Goals

Saving money for your future is crucial. If you don’t set savings goals and steadily work towards them, you will have to rely on credit when times get tough. You might even need to work through your retirement years to supplement your small government pension. Entering retirement may also be delayed or impossible if you are in debt because you need enough money to make all of your payments.

• Start saving on a regular basis using a Tax Free Savings Account (TFSA) or an RRSP, or both
• Plan for your retirement. Figure out how much money you will need to retire comfortably, and then start saving. This money also makes a great rainy day fund if you lose your job or suffer another unexpected financial setback.
• Make sure you have enough insurance. Accidents happen. 1 in 4 people are hurt on the job. Natural disasters can easily cause thousands of dollars in damage to your home. Make sure you have enough insurance for the place you live and the lifestyle you lead.
• Write a will and decide who will get your assets and/or take care of your children when you die. This lets you decide who benefits from all of your hard work.

4. Start Saving Early – But It’s Never Too Late to Start

Due to the magic of compounded interest, even when the rates are low, someone who starts to save for their retirement early doesn’t have to save as much as someone who starts saving later in life.

If two people decide to save for retirement, but one starts at 21 and the other at 31, the 21 year old can save $100 per month until they are 65 and accumulate $253,000 for their retirement (assuming a 6% annual rate of return). The person who starts at 31 on the other hand, will have to save $190 per month to have the same amount by age 65.

So the second person would have to pay almost twice as much per month to make up for waiting 10 years. It’s never too late to begin saving, but the sooner you start, the better off you will be.

5. Do Your Homework Before Making Major Financial Decisions or Purchases

Many people will do more research before buying a TV than they will before purchasing an investment or buying a home. Make sure that you’re not one of them. Buying a home and saving for retirement are two of the biggest financial decisions most people will ever make. 

6. Sleep On It – Don’t Be Hasty With Big Financial Decisions

There are no major financial decisions or major purchases that need to be made on the spot. In fact, being pressured into making a hasty financial decision is one of the warning signs that the deal might not be as good as it seems. 

All worthwhile opportunities will be there another day if you are patient. It is better to wait and learn a cheap lesson, then hastily rush into something and learn an expensive lesson.

When you take the time to sleep on big decisions you have time to consider alternatives, evaluate whether you really need to do this, and probably get some other opinions or information. These are wise things to do every time you make a big decision—but especially financial decisions.

7. Stay Married

Studies show that married people earn higher incomes, have twice the assets at retirement, and live on 25% less than what comparable single people would need to live the same lifestyle. Statistically speaking, staying married is good for your finances. 

How Can Financial Problems be Prevented?

People have financial problems for all sorts of reasons: overspending, not planning, losing a job, family problems, business failure, and the list goes on. While any one of these issues may seem to be the cause of someone’s financial problems, all too often the root problem is much more basic.

The simple truth is that many people’s finances are completely disorganized. If you can’t find your bills, how are you supposed to pay them on time? If the taxman or a creditor requests financial information from you and you don’t know where it is, you may end up with even bigger problems.

Keeping your finances organized is much easier than most people think. Take a box, a simple banker’s box with a bunch of folders is perfect. As your bills and statements come in, after you look at them, just throw them in the right folder in the box and you are organized. It can be as simple as that.

Then whenever you need a bill or a statement, you know where to look, and you will probably be able to find it within a few minutes.

There are some other things you can do to keep your finances organized and prevent a lot of problems that people unknowingly walk into:

• Provide your bank and creditors with your new address when you move. Then follow up to make sure that they correctly update your address.
• Keep your creditors up to date if your financial situation changes. They may be able to suggest ways to improve your situation before you end up in a tight spot.
• Check your statements to look for any obvious signs of fraudulent activity. If you are the victim of fraud or identify theft, the sooner you catch it the better.
• Mark due dates for payments on your household calendar where you can’t forget about or ignore them.

Keeping yourself organized isn’t as hard as you might think. All it takes is a simple system that works for you. It doesn’t have to work for anyone else – that’s their system. Getting yourself organized financially can make you feel happier as well…and before you think up another reason not to try it, what have you got to lose?

How do You Plan a Financial Plan For The Future?

Building your own personal financial plan will be crucial in your success in managing your money and investments. It also helps you visualize your path to a brighter financial future.

Yet so many times, we neglect to actually take the steps to build our own financial plan.

You might be afraid to take the next steps because you’ll have to face your financial demons. Or maybe you just have no idea where to start and it intimidates you.

Don’t worry, either is pretty common, but my goal here is to help you not be afraid and start to have a direction for your plan.

Step 1: Assess your current financial situation (assets, liabilities, net worth)

Your first step with anything related to your personal finances is to know your current financial situation. This means your assets (things with value), your liabilities (what you owe or what is costing you money), and seeing where your net worth is and monitoring it.

Step 2: Organize your financial paperwork

Some people love organizing and others will hate this.

But putting your financial paperwork together and getting organized will make a world of difference. Think financial papers like your taxes, insurance, titles, bills, wills, mortgages, investments papers, etc.

Some persons have folders in a fireproof safe with all their financial records. Easy access to what they need and hopefully protected if anything were to happen.

Step 3: Build out your income, expenses, and spending

A crucial step beside laying out my assets and liabilities was including my income and bills in one area as well. It helped me visualize where my money was going.

It also helps you catch patterns in your spending or income that may be negatively impacting your finances. It’s a great time to start canceling memberships you don’t need and negotiating your bills.

If you want to uncover hidden subscriptions and negotiate bills easy, check out Trim.

Step 4: Start setting your goals

Setting up your financial plan, means you need to have specific goals in mind. These goals should be tailored based on your finances and where you’d like it to go.

You’ll also have short-term and long-term goals, just make sure that any goals you set are specific and attainable. Some of your goals could be:

• Getting out of Debt in three years
• Paying off all credit cards and keep a 0 balance
• Increase retirement savings by X% each year
• Saving an extra $500 this month

You get where I’m going there, but think about what you personally want to accomplish this month, this year, etc.

Step 5: Write down the “why” of your goals

Besides setting goals in your financial planning, it makes sense to include the “why” for these goals.

What is the reasoning for this and why is it something you want to achieve?

It puts you in a better place to fully understand your goals or you may even find that one of your goals is not as important as you thought it was.

Step 6: Research like a boss

Since you have your goals written down, your finances, and the “why” you might be aiming for particular goals, it’s time to do some research.

There may be some things you’ll instinctively figure out, but other parts you may need to learn a bit more.

Starting reading some money and investing books, read up on various online publications, and watch videos. Whatever will help you formulate your plan.

Step 7: Start adding actionable steps to your goals

After your research and knowledge gains, you’ll be able to start adding actionable next steps to your goals.

You may not know how to achieve all of them exactly, but you might have an idea of what you need to do. Again, don’t be afraid to ask for help from a financial planner or advisor if you are still unsure.

But, most likely many of your initial goals will be something you can figure out on your own if you are starting small.

Step 8: Review your goals and plan on a particular basis (monthly, quarterly, yearly)

Your financial plan never really reaches an end. It’s a document that you keep working on and improve.

Since your finances and life changes, you’ll need to review your plan on some recurring basis.

Pending your goals, you may want to do this monthly, quarterly, or even yearly.  It’s really up to you.

Negative Money Habits

Just like any other bad habit can bring you down, bad money habits can be a source of great frustration and harm. When it comes to bad habits surrounding money, the effects can be painful: You might, for instance, pay thousands more in interest, leaving you with no cash to cover your emergency expenses.

Worse yet, bad money habits can hurt your credit and finances enough that it blocks the path to realizing dreams like owning a house or retiring.

Here are five bad money habits and the steps you can follow to break them.

1. Not Spending Wisely

Americans spend nearly $18,000 a year on nonessential stuff on average, according to a 2019 survey from life insurance company Ladder. That works out to nearly $50 a day. This amount covers everything from dinner out at a restaurant and happy hour with friends to bottled water and cups of to-go coffee.

Nonessential spending leaves less money to put toward essential items, like making mortgage or rent payments, reducing credit card debit, paying off student loans or setting aside money for retirement. Nonessential spending is not something you have to eliminate entirely to improve your finances.

In fact, it’s part of just about every healthy budget and happy lifestyle. But taking a look at it and cutting back where you can is a great first step.

How to Break the Habit

Here are a few actions you can take to pull back on unnecessary spending:

• Make purchases with cash. Research shows buying with cash causes more psychological pain than paying with plastic. Therefore, people who pay with cash tend to spend less than people who pay with credit or debit cards. Furthermore, leaving your credit and debit cards at home and shopping only with cash can curb impulse spending.
• Fix food at home. Eating dinner at restaurants, ordering takeout or delivery meals and forking over money for lunch instead of brown-bagging it are some of the top categories for wasteful spending, according to the Ladder spending survey. Cooking at home is an effective way to trim the fat from your food spending. Sure, you can treat yourself to a restaurant meal from time to time, but home-cooked meals can help you conserve funds for essentials like rent and utilities—and are usually healthier, to boot.
• Pause before purchasing. Whether you’re looking at buying a new TV or a new pair of shoes, take a second to contemplate and ask yourself these questions: Is this item a need or a want? If it’s a want, can you truly afford it? What is the true cost? Will making this purchase prevent you from depositing money in your savings account? Will it mean you’re going to rack up more credit card debt? If the answer to any of these questions causes you to rethink the purchase, consider holding off for now.
• Resist the discount temptation. While savings are always tempting, don’t buy something simply because it’s on sale. Stick to purchasing items that you actually need. And if that happens to be an item that’s discounted, then go ahead and snag it.
• Review your memberships and subscriptions. Americans on average cough up more than $325 a month for memberships and subscriptions, including those for cable TV service, video streaming services and gym visits, according to the Ladder survey. Eliminating even some of your memberships and subscriptions could free up hundreds or even thousands of dollars a year for more pressing needs.

2. Not Setting Aside Money for Emergencies

Emergency expenses have a way of popping up when you least expect them. Whether it’s a broken leg, two flat tires or a sick cat, an emergency can easily set you back thousands of dollars. If you haven’t built up much of an emergency fund, those costs could affect your budget for years to come.

The lack of an emergency fund can put you in a difficult financial situation. It might, for instance, require you to pay a hospital tab with a high-interest credit card or put you behind on your rent. Ultimately, it can force you to decide which bills to pay and which bills to skip, which is never a good position to be in. But don’t beat yourself up if you lack an emergency fund. It’s estimated that 25% of Americans don’t have a single penny in emergency savings.

How to Break the Habit

This one has a pretty simple answer: Stockpile money for emergencies by creating an emergency fund. Typically, you’ll want your emergency savings stored separate from your other accounts so you’re not able to dip into it for day-to-day spending.

The amount of money you should sock away in an emergency fund likely differs from the amount your sibling or best friend should sock away. A standard sum for an emergency fund is three to six months’ worth of living expenses. Based on that formula, if your monthly living expenses like rent and car payments total $2,500, your emergency fund should contain $7,500 to $15,000.

Now, the not-so-simple part of an emergency fund is building it up in the first place. Don’t worry about filling it up in a hurry; begin with what you can reasonably afford and make sure you’re consistently making deposits. This should become a habit, after all. That might mean earmarking $25 a week for your emergency fund at first, and then raising that amount to, say, $75 a week or more when you can make it work with your budget.

3. Not Getting a Handle on Credit Card Spending

As of May 2020, Americans on average had about $5,300 in credit card debt, according to Experian data. While some may have no trouble tackling that amount of debt, others may find it difficult. Out-of-control credit card spending can lead to some major problems.

Among other things, charging too much on your credit cards can:

• Run up high-interest credit card debt.
• Give you a false sense of how much money you’ve got available to spend.
• Steer cash away from your emergency fund.
• Siphon money away from your retirement savings.
• Damage your credit score.
• Lead to a bankruptcy filing.

Don’t feel bad if you’ve gone overboard with credit card spending, though. You’ve got many options before you when it comes to turning it around.

How to Break the Habit

Although credit card debt can cause financial headaches, you can take matters into your own hands to escape it. Here are five ways to do it:

1. Create a household budget. A budget can help keep your income and expenses in balance. Monitoring the money that’s coming in and going out offers a big-picture look at your finances. (More on this later.)
2. Make more than the minimum payment. While it can seem appealing to pay just your minimum payment on your credit card bills each month, doing so can result in a heap of interest charges. So, how do you dodge interest charges? Pay your balances in full every month whenever possible. Paying more than the monthly minimum can help you save money on interest and wipe out your debt faster.
3. Put yourself on a credit diet. To rein in spending, consider establishing a strict limit on how much you’re allowed to charge on your credit cards every month.
4. Take credit cards out of your wallet. It might sound extreme, but leaving your credit cards at home, or locking them away somewhere that’s not easily accessible, is a surefire way to stop yourself from using them. Taking that a step further, you might opt to “freeze” a credit card so that you can’t make any charges on it.
5. Erase your credit card information. If you have a spending habit, the convenience of online shopping could be a big contributor. One thing you can do to address this is to remove your payment information from retailer websites or your browser’s autofill feature. Doing this will force you to manually punch in your credit card data and billing address every time you buy something online. This will eliminate the ability to make one-click purchases, potentially decreasing your impulsive spending.

4. Not Saving for the Future

At some point, you might want to buy a house. Or maybe you hope to put your kids through college. And, chances are, you’d like to someday retire. These goals typically require years of planning, and decades of saving.

However, many Americans aren’t prepared for the future. When it comes to retirement, for instance, 22% of Americans 25 and older have less than $5,000 saved for retirement and 15% have no retirement savings at all, according to a 2019 survey by Northwestern Mutual. If you find yourself in this boat, know that you’re definitely not the only passenger.

Possible consequences of not saving for the future include:

• Not being able to afford a house.
• The inability to contribute much to your kids’ college education.
• A delayed retirement.

How to Break the Habit

It’s never too late to save for the future. You can start right now by doing the following:

• Automate your savings. Depending on the feature your bank offers, you might be able to automatically transfer a percentage of your paycheck to a savings account that earns interest. Because everything will be taken care of whenever your paycheck hits your checking account, it becomes much easier to stick with.
• Look for ways to trim expenses. You can allocate more money for savings by searching for places to cut costs. For instance, you might cancel unused subscriptions, shop around for cheaper home and car insurance, refinance your home or car loan or consolidate your debt.
• Find a side gig. To supplement your regular income and carve out more money for savings, seek a side gig. Don’t know what to do? Try earning money from a hobby like baking, photography, painting or graphic design.
• Build a budget. A budget enables you to track your spending and savings, and to achieve your financial goals.
• Focus on your retirement funds. If you feel like you’re behind on saving for retirement, it’s not a lost cause. What can you do? If your employer offers a 401(k), make sure you’re taking full advantage of it (especially if your contributions will be matched). If a 401(k) isn’t an option, look into opening your own Individual Retirement Account (IRA), and placing money into it regularly. Both these options are long-term saving solutions that will grow your contributions by investing them (possibly on a pre-tax basis). Once you retire, these accounts will be ready for you to draw from.

5. Not Sticking to a Budget—or Not Even Creating One

Not setting up a budget—or not sticking to one that you already have—removes a key to controlling your finances and ensuring your short-term and long-term financial needs are met. A budget drives your financial decisions and serves as a map that points you in the right direction.

How to Break the Habit

Breaking this habit is not complicated: Create a budget and commit to following it. There are, however, many different ways to budget (zero-based budgeting, for instance). It’s important to find the budgeting method that works for you, since you’ll be more likely to stick to it that way. At a minimum, your budgeting process should include the following three steps:

1. Do the math. Comb through your bank records, credit card statements and other financial documents to calculate your income and expenses. Add up the previous month’s paychecks if you’re paid on a set schedule; if your income is more irregular, average the past three to six months.
2. Set short- and long-term financial goals. An important part of budgeting involves figuring out what you want to do with your money. Are you eager to get out of debt? Are you eyeing a home purchase? Are you trying to build up your retirement savings? Think with these goals in mind when setting your budget.
3. Monitor your spending. This is critical to both creating your budget and sticking to it. You’ll want to begin by picking a method to track your spending. This might be a spreadsheet or a budgeting app. Regardless, it’s crucial to collect all of your income and expense information in a central place so that it’s easier to keep an eye on your goals. Also, be sure to schedule time, perhaps once a week, to go over your budget.

Good Money Habits For Students

Once you set foot on your college campus, people are quick to let you know how important it is to develop healthy eating habits and solid study habits. But, what about great financial habits? When it comes to learning to manage your money, we firmly believe “the earlier, the better.”

Set yourself up for success while still in college and you’ll be on the right track by the time you graduate. Here are some tips to help you.

1. Save first, spend later.

Lots of people (and we mean LOTS) struggle with this, so it’s important to start developing this habit early. It’s tempting to spend your money first and then save whatever is left over, but you’ll end up limiting how much you save this way. Instead, pay your bills first, contribute to your savings, and then use a little on yourself.

In the words of Warren Buffet, “Do not save what is left over after spending, but spend what is left over after saving.”

2. Understand that just because you can afford it, doesn’t mean you should buy it.

Funnel your money toward occasional, planned, or necessary purchases. For example, if your laptop moves slower than a tortoise and you have the money for a new one, this might be a wise purchase to make. Try to avoid splurging on something new and unnecessary every week just because you feel the urge.

3. Track your spending.

The easiest way to stay on top of your finances? Track where you money is going. Regularly take a look at what you’ve been spending your money on and see where you can make cuts or spend more effectively. You might not realize how much your small, daily purchases add up to.

4. Pay your bills on time, every time.

This sounds obvious, but it’s so important. Why pay late fees or additional interest charges when they can be avoided…just by paying a bill on time? You never know when an unexpected expense may arise, so make sure everything else is taken care of when it’s supposed to be.

5. Save for retirement.

We know, we know – “Retirement?! But I’m only 20 years old!”

The thing is, the earlier you start storing away funds for your future, the better. Plus, the sooner you develop the habit, the easier it is to stick to it.

6. Understand that money doesn’t equal happiness.

This might be the single most significant habit to develop. Yes, it’s important to stay on top of your finances and be responsible with your money. However, don’t tie your happiness or well-being to being rich or spending large amounts.

Success doesn’t happen overnight, so keep working on these habits every day.

Better Money Habits

While you may have ambitious money goals, the key to reaching them is building a collection of smaller everyday habits. By taking baby steps that become second nature over time, you’ll hopefully be able to improve your financial situation. Here are some small habits you can develop today that may help your money grow.

1. Auto-Transfer Money Into Savings.

Setting up automatic transfers is one of the easiest ways to save. To make headway on your goals, auto-transfer a few dollars into your savings account each week. For instance, if you’re trying to save $1,000 in six months for a new computer or a trip, automatically transfer $42 a week into your savings account.

2. Plan Your Purchases.

Instead of making a quick run to the drugstore to buy a few items here and there, plan out your shopping trips. Make a list of exactly what you want to buy, and how much you’re going to spend. By having a list and sticking to it, you’ll be better at avoiding impulse buys or picking up items you don’t really need.

The same goes for things you buy online. Figure out what you really need, how much you can afford to spend, and wait at least a few days before making the purchase. If it’s not an essential item, try to wait 30 days before adding it to your cart.

3. Save Money With Substitutions.

Zero in on what’s most important to you and spend the most in those areas. In categories that aren’t as important to you, consider economizing or finding less-expensive alternatives. If you love gourmet cheese, don’t deprive yourself of your favorite Roquefort. But if you couldn’t care less what kind of peanut butter is in your sandwich, get the generic brand.

4. Pay Yourself First.

If you want to make sure you’re not overspending, create a budget. But if you want to grow your savings, pay yourself first. That means putting your money toward savings first thing when you get your paycheck, then living off the rest.

If you only pay yourself after your bills and expenses are taken care of, you run into the risk of not saving enough to hit your big-picture goals. You can do this by auto-transferring dollars into a savings account or saving a percentage of your take-home pay each month.

5. Send Your Savings Into a Savings Account.

If you’re making a concerted effort to save in different areas of your life, make sure the money you save goes toward your savings. Otherwise, it’s easy to spend the savings, leaving you back where you started.

For instance, if you’ve been brown bagging it to work each day this week, netting you $50 in savings on lunch, directly transfer that $50 into your savings account. Saved $20 on groceries by buying things on sale and scouring for deals on the store app? Put that $20 in an account so it will be there when you need it.

6. Save Your Bonus Cash.

If you get a raise, had a fantastic month freelancing, take on a side gig, or net a work bonus, commit to putting away some of it. While you may want to enjoy some of the extra money—which is perfectly okay—allocate a percentage of this “bonus money” toward your saving goals.

7. Have a Plan For Spare Change.

That change jangling at the bottom of your pocket? Dump it in a jar and earmark it for a specific saving goal. If you empty your jar a couple of times a year, you’ll be surprised at how quickly those coins have added up.

8. Go Lean in One Spending Category.

Trying to generate significant savings in every aspect of your life can make you feel spread thin and deprived. Instead, commit to spending less in a specific area. For starters, go for the easy wins.

For example, cut back in an area where there’s redundant spending. If you recently joined a sports league, you can probably nix the gym membership. Or if you go to the gym just to use their pool, consider getting a pool pass at a nearby recreation center to save money.

You can also start in spending areas where you’ll have an easier time saving. Let’s say you’re a weekend warrior who lives for Sunday brunch with pals. But you aren’t terribly picky when it comes to what’s stocked in your fridge. In that case, start by saving on groceries that month, and don’t worry about cutting back on eating out for the time being.

9. Track Your Financial Progress.

Set aside some time each month to see how much progress you’ve made on your money goals. How much debt have you paid off, and how much headway are you making on saving for a down payment on a home, or for that dream trip next year? Seeing results will help you stay on track. Plus, it’ll give you a boost in motivation, and could help you ramp up on saving.

Bad Financial Habits Examples

Even when you have the best intentions, you can still find yourself getting into financial trouble if you have bad spending or money management habits. Learn more about these money habits and how you can turn things around.

Impulse Buying

An impulse purchase is an unplanned purchase of some product or service. Impulse purchases are all about emotion. Marketers and retailers know this, and that is why you will see those small items like candy and magazines at the checkout aisle. These marketers know that as you wait, you will shop and buy.

Impulse shoppers see a sale and don’t want to miss out. They may see an item that they want to have immediately. You jump to buy it before you think rationally about whether you need it or can afford it.

To curb impulse spending, first, recognize when you do the action. If you reach for that magazine or candy at the checkout or the clearance item, force yourself to wait. Before pulling the trigger on a purchase, consider if you have the extra money to spend on that item and if you need the product. It will give you time to think about your decision, and chances are you’ll realize you don’t need it after all.

Not Budgeting

You may struggle to stay afloat financially—never mind getting ahead—if you don’t have a budget in place and know how to stick to it.

A budget allows you to see how much money you’re bringing in and where it’s all going. It enables you to make changes that help you save more money and avoid going into the red each month.

Budgeting doesn’t have to be a big chore. It can start with only carrying a small amount of cash with you each day. Use a system like envelope budgeting to put money aside for paying bills systematically.

Consider signing up with a program like Mint that automatically tracks your spending for you. All you have to do is check your dashboard each day to ensure you’re staying on track and making adjustments as needed.

Relying on Credit Cards

Unless you’re able to pay off the balance in full each month, using credit cards is one of the worst things that you can do for your finances, especially if you’re using them to live above your means.

If you don’t pay the card in full each month, every dollar you put on a card will cost you many times more in interest charges. You could spend years of your life and thousands of dollars paying down purchases you don’t even remember making.

If you have credit card debt, considering using the debt snowball or debt avalanche method to pay it down. With the debt snowball, you pay more on the debt with the lowest balance each month while paying the minimum on the rest of your debt. Once that’s paid off, you apply what you were paying on that card to the debt with the next lowest balance.

For example, if you were paying $100 per month on the card with the lowest balance and the $50 minimum payment on the next lowest balance, once the lowest balance was paid off, you’ll start paying $150 on the next lowest (the $50 minimum plus the $100 from the previous card). You keep doing that until all your debt is paid off.

The debt avalanche is similar, but you pay off your debt starting with the highest interest rate debt.

Convenience Purchases

Every once in a while, a convenience purchase can be a nice treat. It can also be a necessary exception if you’re in a great hurry. Convenience purchases are those that are routine and take little thought. But if you find yourself regularly making convenience purchases, the convenience will cost you.

For example, to stop getting fast food every day, you could learn to make a few basic meals in bulk that you can enjoy throughout the week. You could make a regular weekend event of preparing a dish that can be separated into freezer containers for future lunches. This preparation will even help on those evenings when you don’t want to cook and order delivery meals instead.

Similarly, you could stop buying a pricey latte on the way into work every morning and get up 5 minutes earlier to brew a cup at home a few days per week. A little extra work on your part could wind up saving you significantly.

Good Financial habits

Here are five healthy financial habits you can start implementing immediately to help you spend more wisely, save for unexpected expenses, and invest for your future.

1. Reduce emotional spending

Especially during stressful times, it can be tempting to find joy in buying new things or spending on fun experiences. Too much of this emotional spending can derail your budget and create a larger spending problem.

The good news is there are a few habits you can implement to reduce emotional spending:

• Set a discretionary spending allowance. If your budget allows, set an amount to spend either weekly or monthly on items and experiences you don’t necessarily need but would enjoy. Setting a specific limit helps prevent going overboard.
• Shop with a list. Wandering aimlessly through isles of a store can lead to buying items you don’t really need. Avoid this by bringing a list of things you need and stick to buying only those items – unless additional items are being counted towards your discretionary spending allowance.
• Institute a “cool-off” spending period. If you find yourself exceeding your discretionary spending allowance during a period of time – during a vacation, the holidays, or while moving, for example – institute a “cool-off” period during which you cut all discretionary spending and focus instead on saving.

2. Regularly review transactions and eliminate unnecessary expenses

Remember that “free trial” you signed up for months ago and forgot about? Charges for the service are probably showing up on your monthly bank statements. And you’re not alone. On average, Americans spend $350 a year on subscriptions they do not use.

Take some time each month to review your transactions, which will help you identify subscriptions you don’t use or need, as well as other expenses that could have been avoided, such as overdraft and late fees.

3. Sell belongings you no longer need

We’re all guilty of accumulating belongings we no longer use, whether it be toys and clothing children have outgrown, tools used for an old renovation, or sporting goods from old hobbies. Like canceling unused subscriptions, selling belongings you no longer need can free up more space in your budget, and you won’t even miss having them! And with online marketplaces, consumer-to-consumer sales are easier than ever. Or you can go old school and have a yard sale.

4. Pay yourself first using automated savings

An easy way to save a portion of your income for specific goals, such as buying a car or paying for a child’s college tuition, is to automate a monthly transfer from your checking account. You can set this transfer to occur right around or after the time you expect your paycheck to settle on your account; that way, before you spend it on anything else, you’ve set aside a portion for savings – effectively paying yourself first!

5. Start investing

Just like paying yourself first, you need to make sure you’ve taken care of your future self by investing for retirement and other future needs. One way to start investing is to begin contributing to your employer-sponsored retirement plan if one is available. If you’re already investing in a retirement plan, you can go a step further by opening a brokerage account, or investing in real estate properties, mutual funds, or real estate investment trusts (REITs).

No matter where you are in your financial journey, there’s almost always room for improvement. While you’re in the works of improving your finances, don’t forget to occasionally review your financial goals, which could include paying off debt, saving enough for a down payment, buying a new car, or paying for college tuition. Reviewing your progress on your goals can motivate you to continue implementing healthy financial habits.

Financial Habits of Millionaires

Let’s be real—living in an $850,000 home is a pipe dream for most of us. But if you think about a house like that being home to the third richest man in the world, it’s kind of amazing, right?

Warren Buffett could buy any house in the world (with cash!), but he chooses to live in a modest, relatively small home in Omaha! Why is that?

And what other surprising things can you learn from millionaires (and even billionaires like Buffett) who don’t live the average millionaire life?

1. They’re avid readers.

President Harry Truman once said, “Not all readers are leaders, but all leaders are readers.” One of the reasons millionaires become millionaires is because of their constant desire to learn. To them, leadership books and biographies are much more important than the latest reality show or who got kicked off the island. When they have free time, they use it wisely—by reading.

2. They understand delayed gratification.

Millionaires spend most of their lives sacrificing temporary pleasures for long-term success. They have no problem buying an older used car, living in a modest neighborhood and wearing inexpensive clothes. They don’t care about keeping up with the Joneses.

These decisions allow them to do things like save for retirement and college, and build up a large down payment for their dream home. They realize that instant gratification is fun—but delayed gratification is so much better. Today’s sacrifices set them up for tomorrow’s success.

3. They stay away from debt.

One of the biggest myths out there is that average millionaires see “debt as a tool.” Not true. If they want something they can’t afford, they save and pay cash for it later.

Car payments, student loans, same-as-cash financing plans—these just aren’t part of their vocabulary. That’s why they win with money. They don’t owe anything to the bank, so every dollar they earn stays with them to spend, save and give!

Debt is the biggest obstacle to building wealth. We tell that to everyone. You need to avoid it like the plague. Your dreams are too important!

4. They budget.

Your budget is your plan. And you can’t build a million-dollar net worth without a plan, people. Success isn’t an accident. You are in charge of your own wealth-building.

Just like you build a house by starting with the foundation, you build wealth by starting with the budgeting basics. And then you keep following them. When you’re making a lot of money, you don’t stop managing it, right?

Average millionaires have made a habit of budgeting every month. They know what’s coming in and what’s leaving their bank accounts. If you only remember one thing, it should be this: Budgeting is the key to winning with money. It’s telling each dollar where to go at the beginning of the month instead of wondering where it all went.

5. They give.

Sure, some rich people can be selfish jerks—just like anyone else. But the millionaires who live down the street, the ones you don’t even realize are wealthy, are some of the most giving people you’ll ever meet. We know because we’ve met a lot of them. They work hard, save and respect the ability of others to do the same.

Whether it’s tithing at church, donating to a charity or just giving to friends and family, these people have generous spirits. They realize that the most important thing you can do with wealth is help others.

That’s actually why they continue building their wealth. They realize they can’t take it with them when they die. Instead of spending it all on the latest toys, they choose to leave a legacy for the people who mean the most to them.

Good Money Habits Examples

Let’s move onto some good spending habits – take these examples, and adopt the ones you think will help you most!

• I pace my spending so that I have enough cash to spend on what I need, and on what I (reasonably) want, throughout the month.
• My spending system – from the wallet I use and the checking account I have to the credit card – is organized and works seamlessly.
• I get rewarded in some way for what I spend (whether that’s through credit card reward points and you pay it off each cycle, loyalty reward cards, grocery store receipt apps, etc.).
• I comparison shop big-ticket items, and give myself enough time ahead of the purchase occasion to do so.
• I never spend more on my credit cards than what I can pay off within the grace period to avoid interest.
• I come up with an amount I’m comfortable spending for the holidays, and I basically stick with that.

What is The Best Financial Decision?

What are some of the best financial decisions you can make?

1. Making your finances a priority early in life

It goes without saying that making money a priority early in life will put you on a great track for financial success, but not everyone starts early. A 2020 Money Guy Wealth Survey found that 37% of our clients made personal finance a priority between the ages of 18 and 24, 40% between 25 and 34, and 23% waited until they were 35 or older to make personal finance a priority. Even if you are late to the game, there’s still time to make your finances a greater priority in your life.

2. Saving and investing

You may think that the most common path to wealth is inheriting a large sum of money; you aren’t alone. 74% of millennials believe most millionaires inherit their wealth, and 52% of Baby Boomers believe the same, according to Everyday Millionaires by Chris Hogan.

We found in a Money Guy Wealth Survey, though, that only 11% of millionaires inherited over $100,000, and 77% inherited nothing at all. Time and time again, studies have found that most millionaires build their wealth instead of inherit it.

So how do they do it? You may be thinking that most millionaires are high-level business executives, entrepreneurs, or uber-talented individuals like Justin Timberlake. That’s not the case, either: our wealth survey found that 65% of millionaires build their wealth by saving and investing.

14% of the clients surveyed took the entrepreneur path, 14% were senior executives, and 7% consider themselves virtuosos. This is very exciting! It’s not easy to start your own business, and you can’t choose to be as talented as Justin Timberlake, but you can choose to save and invest every month. Building wealth happens through disciplined, consistent saving and investing, not by luck or by chance.

3. Having emergencies covered

Having your deductibles covered, and having an emergency fund, are often overlooked keys to financial success. Emergency funds aren’t exciting like investing and watching your money grow is, but they can be just as important to your financial success.

If you don’t have your emergencies covered, you may have to go into high-interest credit card debt to pay for an unexpected car repair or doctor’s bill. Having your deductibles properly covered, and eventually an adequate emergency fund, can help keep your financial life out of the ditch.

Our Money Guy Wealth Survey found that 81% of those surveyed had an emergency fund of at least 3 months. Make sure your finances don’t get unexpectedly derailed by properly saving for unexpected events.

4. Driving cars until the wheels fall off

Despite what you may think, millionaires prefer reliable transportation to flashy new cars. Wealthy Americans get their money’s worth out of their vehicles; our wealth survey found that 44% drove their cars for 6-10 years, and 48%, almost half, drove their cars for 10 years or longer! Only 8% said they kept cars for about 3-5 years, and no one said they kept their cars for less than 3 years.

Just because you can afford something doesn’t mean you should buy it. Cars last for a long time, and it may not make financial sense to buy a new car every few years. Our data shows that millionaires normally drive their cars for a long time, many 10 years or more.

5. Using credit responsibly

Credit is a powerful tool, and it can be either helpful or harmful. Almost all of those who participated in our wealth survey, 97%, use credit cards. Some have carried a balance in the past: 42%. Credit cards are often obtained at a young age, maybe in college or right after high school, when you may be more susceptible to making impulse purchases or not paying them off every month.

Not everyone is perfect, and you may have made the mistake of letting a credit card accumulate interest in the past. It is in your best interest to do what you can to stay out of credit card debt. Interest rates are punitive, and once you’re in debt it can be difficult to claw your way back out.

While credit cards probably have the highest interest rates out of the debt you’ll encounter on a regular basis, all forms of debt can be harmful if used incorrectly. Auto loans may seem safe because interest rates are typically low, but cars are quickly depreciating assets, so you will want to follow the 20/3/8 rule: put 20% down, pay off the loan within 3 years (1 for a luxury vehicle), and keep your monthly payment to 8% of your gross income or less.

Student loan debt seems great since it’s an investment in yourself, but student loans can potentially set back your financial future by decades. If you do have to take out student loans to graduate college, keep your loans below the amount of your expected first year’s salary.

Mortgage debt is different from other types of debt because houses typically appreciate over the long-term, but even housing debt can cause turmoil in your financial life. Aim to keep your total monthly housing expenses at or below 25% of your monthly gross income.

6. Maintaining an optimistic outlook on life

Most millionaires are pretty optimistic. Our wealth survey found that 81% consider themselves to be optimists and only 19% consider themselves to be pessimists. This makes sense; we know that the most common path to wealth is through saving and investing, and if you have an extremely pessimistic view of the future it may be difficult to invest.

Long-term investing is based on the belief that over the long-term, technology and innovation will continue to increase, and therefore economic growth will continue. 

How do You Maintain Good Financial Health?

Here are some financial tips that will help individuals to keep financial health safe and secure at all times:

1. Maintain an emergency corpus

According to Gaurav Chopra Founder & CEO of IndiaLends, an emergency corpus can act as a cushion during unexpected events such as medical requirements, job loss, etc. Although individuals can opt for a personal loan in such situations, they need to be prepared in case of extreme circumstances.

2. Differentiate between needs and wants

To maintain financial health, it is important to be mindful of the difference between needs and wants so individuals can make better spending choices.

“Needs are things people should have in order to survive: food, shelter, healthcare, a reasonable amount of clothing, etc.

On the other hand, wants are things they would like to have but don’t really require. The needs should be a top priority while taking any financial decisions. Only after the needs are met, they should use the money for wants,” Chopra suggests.

3. Check credit report on a regular basis

Keeping a tab on the credit reports should be a regular practice at all times in order to be vigilant about all activities happening around finances.

As per Chopra, people should monitor credit reports for any unwanted or fraudulent activity so that they can deal with such issues at the earliest before it can cause damage to credit score.

4. Opt for a pocket-friendly personal loan, if at all needed

Everybody turns to a personal loan in times of need. However, it is extremely important to check all the details before opting for a loan.

Chopra suggests that people should make sure to compare and carry out adequate research and choose an option based on the repayment capacity. It is also advisable to compare the interest rates and repayment tenures offered by all the different lenders to save from paying additional interest charges.

5. Keep a tab on the debt-to-income ratio

The debt-to-income ratio is a personal finance measure that compares the debt borrowed against income.

According to Chopra, a DTI ratio of 40 percent or lower is considered to be a healthy ratio. Thus, it is essential that individuals maintain a healthy DTI ratio at all times so as to be able to apply for a loan when required since a lot of financial institutions now check the debt-to-income ratio while analyzing the application along with credit score.

What Are Financial Goals Examples?

Financial goals are the personal, big-picture objectives you set for how you’ll save and spend money. They can be things you hope to achieve in the short term or further down the road. Either way, it’s often easier to reach your goals if you identify them in advance.

Read Also: How You Can Plan Against Financial Shocks Choosing The Right Lifestyle

Think about what’s important to you as you begin to set goals. It’s completely normal to have several goals, and for them to change over time.

Examples of financial goals include:

• Paying off debt.
• Saving for retirement.
• Building an emergency fund.
• Buying a home.
• Saving for a vacation.
• Starting a business.
• Feeling financially secure.

Think about what’s important to you as you begin to set goals. It’s completely normal to have several goals, and for them to change over time.

How Will Developing Effective Spending Habits Affect my Financial Future?

It’s vital to stop bad money habits as soon as possible. Bad money habits can prevent you from reaching your financial goals and set you up for failure. Not budgeting your money, having bad spending habits, and not saving money can leave you vulnerable for unexpected emergencies and leave you living paycheck to paycheck—not to mention no money for retirement. As you can see, bad financial habits can wreck your financial future.

Building good money habits can increase wealth and set you up for financial success. It will help you learn how to budget, save money, and work towards your financial goals. Of course, breaking bad habits and starting new ones doesn’t happen overnight. However, with persistence and know-how, you can start transitioning to better money habits.