As people progress through their lives they are faced with many new challenges. The first major one occurs in the majority of people in financial management. As you find yourself making more money, you must learn how to keep it properly. This process starts with the building of good financial habits that you will carry for the rest of your life. Developing good financial habits as a youngster will lay the basis for an easy transition as you grow older and start on your own.
An example of a good financial habit is that of regular savings. Saving money on a consistent basis has many benefits, one of which is peace of mind knowing that if an emergency arises, you have money stashed away to cover it. Another benefit of saving is that when you start making more money, the incremental addition from each paycheck will be much smaller for a large sum, rather than a small one. This means saving over time has the potential to add up very quickly.
How do you improve your finances?
Is it by not going out to dinner as much, or is it something more complicated?
It’s the latter. If the habits listed below were easy for people to follow, there wouldn’t be so many people living on credit cards and struggling with debt.
However, if you’re able to develop even some of these habits, you’re already on the right path to improving your financial situation.
1) Create a budget that works for you.
2) Write down all of your expenses at least once per month and track where every dollar goes. If you’re spending $100/month on take-out food, stop! There are ways to cook at home that are just as tasty and a whole lot cheaper.
3) Automate your finances: Have money automatically withdrawn from your paycheck or your savings account for bills, rent/mortgage, groceries, etc. This leaves less room for you to spend the money because you don’t see how much is available in those accounts.
4) Cut up your credit cards except one or two. Leave the debit card for emergencies only and use cash, checks and online bill pay for all expenses you can afford to pay in full each month.
5) Sign up for a 401(k) and commit to having 10% of every paycheck deducted from your paycheck automatically. If you’re starting from scratch, aim to save at least 10% of your income every month until you have at least six months worth of expenses saved.
6) Pay attention to the number of purchases before you spend. Think about how much that item means to you and ask yourself if it’s really worth spending an entire day’s wage on a single purchase!
7) Set small goals for yourself based on your financial situation. For example, if you have a lot of credit card debt, make it your goal to pay off the highest interest rate card first and continue down the list until they are all paid off.
8) Withdraw or transfer excess cash at the end of every month into a savings account so it will not be available to spend.
9) Check your credit report at least once per year for errors or fraudulent activity. This is incredibly important because it influences what you can get in terms of loans, insurance rates, etc. Get a free copy of your report every 12 months from each of the three major credit reporting agencies: TransUnion, Equifax, and Experian.
10) Start a savings account with an automatic transfer of $5, 10, or 25 every week. It won’t seem like much at first, but it’s important to get in the habit of setting aside money for yourself and your future.
If you know that you will be tempted to spend if you have access to a credit card, leave it at home and only bring out the cash you know you’re willing to spend!
Do not make any purchases before going through your budget for the month. If you know that there is simply no way that purchase will fit into your budget without sacrificing something else equally important, wait until you can afford it!
Do not take out more than 10% of your income in rent/mortgage, car payments, or any other installment plan. If you already have this amount set aside, stop spending money on unnecessary luxury items and put the extra towards your debt instead.
Only pay full price for what you need (clothes, food, home decor). If you can wait and get it for a good price, do so. There will always be sales and coupons!
Remember: You’ll never get out of debt if you keep spending more than you earn and continue to rack up debt on credit cards. It’s tough at first but finding creative ways to cut down your expenses is the key to finding financial freedom.