What are your financial habits? I asked my colleagues, who work with credit union members every day, to share some of the best habits they see (and have!) when it comes to managing money. Take a look to see which you’d like to adopt or didn’t even realize you were doing.
1. MAKE A BUDGET.
It’s hard to save and spend appropriately if you don’t know how much you can spend and how much you want to save. There isn’t much to say about budgeting that hasn’t already been said on this blog, but if you don’t already have a budget, here’s how to create one.
2. TRACK YOUR EXPENSES.
Peter Drucker is quoted as saying, “You can’t manage what you can’t measure.” This is an apt expression for managing your personal finances. Whether you use a budgeting app (free or paid), a spreadsheet, your checkbook ledger, or your noggin, it helps to know where your money is going to make sure you’re meeting your financial goals.
3. REVIEW YOUR TRANSACTIONS.
This goes hand in hand with tracking your expenses. Take a look at your accounts and credit card bills regularly—at least once a month—to make sure all the transactions you see are legitimate. It will also help you catch any unexpected fees or an unnecessary subscription service that you meant to cancel.
4. WAIT BEFORE BUYING.
I’m sure you’ve been there, too. Some random item catches your attention—speakers, backpacking gear, concert tickets, you name it—and you just want to add it to your cart and check out. Do you really, though? How will you feel after making the purchase? Is there something else you could use that money for? Step away from the online store and make yourself wait. With a little time, you may realize that you don’t actually want to spend your money on that item.
5. PAY OFF YOUR DEBT.
This is so obvious that I almost didn’t include it. But having debt, for the most part, isn’t a good habit to have. When you make your budget, be sure to calculate and include debt payments! Start with your highest interest debt first (maybe it’s your credit card) and go from there.
6. TAKE ADVANTAGE OF A PAID-OFF LOAN.
You’ve made that final pesky loan payment. Congrats! Now what? As tempting as it is to use that money to splurge, don’t take the bait. You’ve gotten by on that budget and with that payment until now, so what else can you put that amount towards? Maybe you can pay down another debt sooner or put it into savings—using the next couple of habits as inspiration.
7. AUTOMATE YOUR SAVINGS.
Author Tim Ferriss wrote an entire blog post about finding the one decision that removes 100 decisions. Choose to put money in your savings automatically, and you don’t have to make that decision every month. If you have direct deposit, you can split it up to send a certain percentage to different accounts, such as 90% to your checking account (to pay bills and other expenses) and the other 10% into a savings account (to keep it there). Another way is to always put your change into a vacation jar. You might be surprised how much it adds up to after a year!
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8. SET SPECIFIC AND REALISTIC FINANCIAL GOALS.
It can be hard to save money just for the sake of saving. What is it for? Do you have your eye on an electric vehicle? Do you need a down payment for a house? Have you always wanted to visit a Greek island? Do you want to retire before you turn 65? It can be whatever you want, and you can have multiple goals. It may help to have different accounts set up for your different goals. Whatever you decide on, make sure it’s realistic. Elon Musk can set his sights on Twitter, but most of the rest of us probably can’t fly quite that high.
9. START SAVING FOR RETIREMENT EARLY.
You may have seen the eye-opening math of compounding interest. Take this example from our blog on why financial literacy is important: Someone who begins investing $200 per month from age 25 to age 35 and earns 10%, compounded monthly (.83% per month), will have invested $24,000 and $819,491 saved for retirement (and that’s just saving for ten years, then stopping until they retire at age 65). On the other hand, a 40-year-old who invests the same amount each month for 25 years will invest a total of $60,000 and have only $267,578 to retire on at age 65. That’s over half a million dollars’ difference! If you can set aside just a little bit each month to put towards your retirement, it will pay off in the long run. Literally.
10. MAX OUT YOUR 401(K) MATCH.
While we’re on the topic of retirement, does your employer offer a 401(k) match? If you can afford to, contribute at least as much as your employer will match. It’s basically free money, sitting there just for you! Why not double what you’re putting away for retirement?
11. BUILD YOUR EMERGENCY FUND.
Are you prepared for a sudden change in your finances? Maybe you or your partner are laid off, or you have a large and unexpected medical bill that you couldn’t have budgeted for. That’s where your emergency fund comes in. The general rule of thumb is to have six months’ worth of expenses set aside, just in case.
12. USE A REWARDS CARD—AND PAY THE BILL IN FULL.
My philosophy? Use my rewards credit card like a debit card. That way, I’m always living within my means (I can always pay my monthly bill in full) and at the same time earning points I can put towards other purchases. Survey the endless list of rewards cards out there to see which card would give you the greatest benefits based on your lifestyle and spending habits.
13. CHECK YOUR CREDIT SCORE.
Once a year, you can see your credit score for free. Take advantage of it to see where you stand, make sure it’s what you expect (i.e. your identity is still yours and yours alone), and, if need be, slowly fix it.
14. NEGOTIATE YOUR SALARY.
One of my favorite pieces of financial advice comes from Ramit Sethi: don’t ask the $3 question, ask the $30,000 question. Instead of just cutting out lattes, what if you asked for a raise? The best time to get a pay increase is when you’re first offered the job. Once your salary is set, raises can be dictated by company policy or simply rise with the cost of living. As Sethi also says, there’s only so much of your spending you can cut; how much you can earn, on the other hand, doesn’t have a true limit.
15. START A SIDE HUSTLE.
Earn extra income? Not a bad habit at all. What skills do you have that might help you make money outside your nine to five? This blog has some tips for starting your very own side hustle.
16. PAY IT FORWARD.
As you incorporate or solidify some of these habits in your finances, there’s one more habit that benefits more than just you. Teach these sound spending and saving habits to others. This is especially true for the next generation. We want to set them up for financial success, of course. One of the best ways to do this? Instead of just creating a savings account and putting money away on their behalf, involve them in the process and pass on your best financial habits. It’s a gift that keeps on giving!
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