Healthy Financial Habits You Need to Start Today
Everyone’s journey to success is different. However, one thing that all successful people have in common is healthy financial habits. Whether you want to achieve financial freedom or want to get out of debt, it all starts with developing good money management habits and getting rid of bad habits.
Developing good habits isn’t always easy, and it can be frustrating at times. To help you get started, here are six financial habits to adopt today.
Financial Habit #1: Set SMART Goals
Setting financial goals is the first thing and arguably the most significant step to monetary success. To achieve your long-term financial goals, you must identify what these goals are and how much money you will be needing to reach them. The best way to do this is by making your goals S.M.A.R.T: specific, measurable, attainable, realistic, and time-bound.
Here are a few examples of SMART financial goals:
- Pay off $20,000 of debt in the next five months
- Save up $10,000 by the end of 2020
Each of these goals follow the SMART guidelines as they are specific, measurable, and time-bound. This makes them simple to follow, and they hold you accountable with a deadline. They are also attainable and realistic, which means they are not impossible to attain if you follow them correctly. These types of goals are far more valuable than vague goals like “save up money” or “pay off debt soon.”
Financial goals can be big or small, that is up to you to determine. The important thing is that you form a habit as soon as possible so you can hold yourself accountable, and succeed!
Financial Habit #2: Set a Budget
The second most important financial habit you can develop is setting up a monthly budget for yourself. Budgeting is a fundamental to financial stability as it is important to know how much money is coming in and out of your account each month. Without keeping track of this vital information, you might spend more money than you are earning, which can lead to a life of financial debt.
When forming a budget, you must keep track of four points:
- How much money you are earning each month
- How much money you are spending on vital needs like groceries and living expenses
- How much money you are allocating for “extra expenses” like traveling, shopping, etc.
- How much money are you saving per month, if any.
There are different ways you can approach your monthly budget, but the most important thing is you create this budget based on what makes sense to you and your lifestyle.
Financial Habit #3: Pay Yourself First
Saving up money is crucial when it comes to financial stability. However, we often forget this should be one of the first things we do after getting paid. You might be surprised at how much money you’ll be able to save if you transfer a set amount into your savings after every payday. Most people have the best intentions of saving whatever is left after expenses, but life happens, and you might end up spending that money instead of saving it. The best way to avoid this by paying yourself first!
Remember, if you can save up at least 20% of your monthly paycheck for savings, you are one step closer to achieving financial freedom!
Financial Habit #4: Switch from Credit to Debit
One of the best habits you can adopt if you are prone to overspending is to forget about your credit cards and switch to debit. Credit cards are a great thing to have, especially when you want to build up your credit. However, you should limit the number of times you use it as you might spend more money than you can pay off. Debit cards allow you to know how much money you have to spend, and it limits you to spend on things you don’t need. If you already have credit card debt, a debit card can help you focus on paying off that debt instead of racking up more. It’s real money you will be using now, so you might want to make wise decisions around spending it!
Financial Habit #5: Pay More Than the Minimum on Your Credit Cards
If you want to become financially stable and be one step closer to achieving financial success, you MUST pay off your credit cards! However, this doesn’t mean paying the minimum. It is crucial that you pay off your credit cards every month or at least pay 50% of what you owe. You might overspend sometimes, making it impossible to pay everything you owe at once, but you must try to get rid of the balance you have as soon as possible. By paying 50% of what you owe each month, you will speed up the payoff of your credit card, and you won’t have to pay a hefty sum of money at once. It may be a good idea to make sure you have the money set aside to pay of your credit card, before making a purchase on it. This ensures you won’t go into debt, and will be building your credit as well.
Remember, credit scores are everything when it comes to making big life purchases like cars and a house. Don’t let credit card debt deter your future!
One other thing that might help you pay off your credit card is to aim to keep your utilization under 30%. For example, if you have a credit limit of $2,000, you should keep a balance of $600 or less every month. This will reduce the risk of accumulating even more debt from interest payments if you do not pay off your credit card each month.
Financial Habit #6: Review Your Finances Regularly
When it comes to developing better financial habits, the most effective way to control your money is to review your financial situation daily. It is up to you to decide how you want to keep track of your finances! You could download your bank’s app to your phone to log in to it daily, or you could find a tool like personal capital that merges all your bank accounts into it.
Checking into your expenses daily can help you keep track of all the purchases you’ve made and make sure that all the transactions are valid, and you are not being charged for something you did not purchase. It also gives you’re a full picture of your spending habits, which can help you determine if there is an area you can reduce spending, or even eliminate.
Keep in Mind
There are many healthy financial habits you can start adopting today. Some can be simple, like setting SMART goals or creating a budget, and some might need more discipline like switching from credit to debit or aiming to use 30% of your credit.
Remember, no matter what financial habit you decide to start working on, you will be one step closer to achieving financial success. All that matters is that you start!