15 Smart Money Habits – If financial independence matters to you, there are practices and habits you need to develop that will make your journey easier.
In this article, I will share some useful smart money habits.
1. Create a budget and stick to it
Creating a budget is an important financial step that can help you get your finances in order and track how much money comes in and out of your bank account every month. While it may seem like a lot of work to create a budget, numerous online resources and apps can help you. Plus, once you have one, the majority of the work is done, and you can tweak it as your spending habits or income change.
After you create a budget, it’s important to stick to it. Regularly check in with your budgeting goals so you don’t spend more than you can afford to repay. And if you share expenses with someone else, make sure you both have access to the budget and hold each other accountable.
2. Build a good credit score
Establishing a good credit score is key to qualifying for the best financial products, like credit cards and loans. Plus, the higher your credit score, the better terms you’ll receive, which can save you thousands of dollars in interest in the long run (we always recommend you pay your balance on time and in full each month).
One of the catches of building credit is you need to have some credit history to qualify for a credit card, but it’s hard to qualify for a card without any credit history. One option is to become an authorized user on a family member or friend’s credit card. You could also consider applying for a secured card, which works the same as a regular credit card, but you’re required to put down a deposit.
3. Keep a money diary
If you have bad money habits and want to improve them, this can be a clever way to make smarter financial choices, according to Alex Caswell, a wealth planner at RHS Financial, a financial planning firm in San Francisco.
“To get good habits that developed over a lifetime, it is important to take the emotional aspect out of one’s financial decisions,” Caswell says.
Aside from brushing up on personal finance basics, he recommends starting a “money diary, to help one reflect on what decision they made and why.” By taking this simple step, you can start to make more rational financial choices.
4. Pay yourself first
You’ve likely heard this sage advice before, but it’s an important habit to put into practice. Before you are paid, you should determine a way to put your money into a separate savings account that you don’t touch, advises Rocky Lalvani, a financial coach in Harrisburg, Pennsylvania.
5. Automate your expenses
“Automate as much as possible,” Rixse says. “Bill payments, savings goals, etc.
The more you can automate, the more consistent you’ll be, and the less stress you’ll have managing it or making payments on time.” With that said, while setting up automatic transfers to your savings account is simple, you need to be conscientious of the financial needs of your lifestyle. For instance, if you’re often living paycheck to paycheck, an automated bill coming through your bank account when no money is there could trigger costly bank fees
6. Set up an emergency fund
Establish an emergency fund to cover any unexpected expenses that may arise, such as medical bills or car repairs. The money in your emergency fund can help you avoid taking out a loan or carrying a balance on a credit card, which can save you money on interest charges.
When you set up an emergency fund, consider keeping the money in a high-yield savings account,
These online accounts only allow you to withdraw money up to six times a month without penalty, which might help reduce the temptation to withdraw money for non-emergencies.
Experts generally recommend putting three to six months of expenses into an emergency fund, but amid the coronavirus pandemic and high unemployment rates, some financial experts are offering more realistic advice about how much people should try to save. Instead, you should focus on saving as much as you can afford, after covering necessary bills.
7. Start saving for retirement
It’s never too soon to start saving for retirement, and the earlier you start putting money toward your future, the more it can grow. When you get your first full-time job, your employer may offer a retirement account, that you can open and deposit a percentage of every paycheck into each pay period.
While employer-sponsored retirement accounts are helpful, you don’t have to wait until you have a full-time job to start saving for retirement. You can set up recurring transfers from every paycheck so you never have a chance to miss the money.
8. Pay off debt
If you have loan or credit card debt, you should make paying it off a priority. Owing money to a lender has the potential to hurt your credit by increasing your utilization rate (the percentage of credit you use), which can result in a lower credit score. Lenders may also consider you a high-risk borrower if you have a large amount of debt, which may reduce your chances of qualifying for other financial products. And beyond affecting your credit score and qualification chances, you’ll wind up paying a lot of money in interest charges the longer you carry debt.
Take the time to make a clear debt repayment plan and stick to it. After you create a budget, consider how much money you can put toward your debt every month. Some experts recommend that 20% of your take-home pay should be earmarked for debt repayment and savings. If you want to pay your debt down faster, you might divert more of your income toward that goal.
You can also consider debt consolidation if you have balances spread across numerous cards. Debt consolidation can help you minimize the number of accounts you need to pay each month and sometimes offer lower interest charges than a credit card.
9. Avoid lifestyle creep
When you get a bonus or a raise, don’t give in to the temptation to use up all of the money on products and services that give you a more affluent lifestyle. “As your income grows, don’t raise your spending to match your income. Raise your savings first,” Rixse says.
Experts suggest taking half of that raise and putting it into your savings and spending the other half on discretionary purchases like a vacation
10. Pad your savings by adopting the right habits
If you often wish for money in your bank account, you may need to reassess your financial decisions and spending patterns. After all, often the reasons that we don’t have enough money set aside come down to the purchasing choices we make and lacking a set personal budget. So if you want to boost your savings account and get your finances in tiptop shape, map out a concrete personal budgeting plan and focus on adopting these smart money habits. To get smart money habits your finances in tiptop shape, here are smart habits to cultivate to help boost your savings account.
11. Save more
Committing to set aside a portion of your take-home pay each month is essential to building your wealth. Try saving 1% of your income, suggests Brent Weiss, certified financial planner and co-founder of Facet Wealth, a financial planning firm in Baltimore. “Start by saving 1% of your income. From there, increase this percentage by at least 1% every six or 12 months,” Weiss says. The ultimate goal, he says, should be to save at least 10% to 15% of your income. “That may not be feasible for everyone,” Weiss says, adding, “But the goal is to start saving at least some of your income. The 1% pledge can jump-start someone’s savings.”
12. Track your net worth
Knowing your net worth, or the amount of money you have once you subtract all of your debts is an important step toward reaching your long-term financial goals. “This is the one number that best illustrates your whole financial situation. You can easily do it in a spreadsheet, with any number of apps or through a financial planner,” says Zach Ashburn, president of Reach Strategic Wealth, a financial planning firm in Winston-Salem, North Carolina. If you monitor your net worth, you’ll start to identify month-over-month and year-over-year trends to evaluate if it’s going up or down.
13. Think like an investor
Ask yourself, How can I make my money work and grow for me?
If you’re putting savings aside, why earn a measly .01% interest rate at a brick-and-mortar bank when you can earn 1% on your money in a high-interest savings account online?
For longer-term goals, you might want to invest in the market for more substantial returns (depending on your risk personality). While starting to invest can sound daunting, it’s more important to get started than to be perfect. Put aside a small amount of money in a brokerage firm such as Vanguard or Schwab and practice buying and selling shares of various index funds.
14. Ask for what you want
You’d be surprised by how much in life is negotiable. You can negotiate your rent, gym membership, cable, even your dry cleaning bill. And remember, you won’t get it if you don’t ask.
If negotiating for your income or expenses sounds intimidating, start small. Everything gets easier with practice. What are some things you’ve wanted to ask for but have been putting off? Commit to asking for them this week.
15. Talk about money
If you’re like most people, you’d probably rather talk about the intimate details of your gynaecologist appointment than money talk. Since it’s such a tricky subject to broach, we sometimes avoid it altogether. But that’s not going to help you reach your goals.
If your best friend knew you were trying to save money, she might stop inviting you to those sample sales. If your partner knew you wanted to build an emergency fund, he or she may help you come up with ways to save more and spend less together.
Start confiding in your closest family and friends about your money goals. It will introduce accountability into the equation and you’ll have a support system to help you keep up the good habits.