Are you struggling to break bad money habits and make good money habits? Or perhaps you’re not sure what are some good money habits to create and are interested in some ideas.
Breaking old habits and making new ones is a process that won’t happen in a heartbeat, however, when you set goals to improve your savings habits, you’ll have taken the first step to get into a better financial place.
In this article, we’ll talk about some habits you may have that you may want to consider changing, as well as good money habits to build for the future.
Let’s jump right in!
5 Bad Money Habits To Break
Bad money habits can prevent you from obtaining your financial goals, which can be troublesome long term. Things like impulse buying, spending more money than you earn, and shopping when you’re down can all cause financial issues that down the road lead to more debt and more struggles as time passes.
Here are some bad habits to quit now for a better financial future.
1. Spending More Than You Earn
When you spend more than you earn, you deplete whatever savings you have. If you don’t have savings, then you’ll start to rack up debt, which may lead to worse things such as bankruptcy. If you feel you’re someone who spends more than you earn, check out this guide on how to live below your means.
2. Going Into Credit Card Debt
Racking up credit card debt is one of the most expensive money habits you can have. If you have to use a credit card, try to pay your full balance every month. If you can’t pay your full balance each month, do your best to pay as much of the balance as you can.
On a $5,000 credit card balance of a typical credit card, paying even an extra $50 per month on the minimum payment can save you six or more years of repayment and cause you to spend over $1,000 less on interest payments. Click here to learn how to pay off debt effectively.
3. Buying on Impulse
Marketers find ways to get into our heads every day and make us want to click that “Buy Now” button. Spending too much money on impulse is a surefire way to have a troubling financial situation down the road. You may end up in tremendous debt or at a loss of much or all of your savings. Check out this guide that talks about how to stop impulse spending.
4. Shopping To Feel Better
Most of us have something we do when we feel down that helps us feel better. However, shopping to make you feel better is an expensive habit that can cost you a lot of money and, long term, generally will not make you feel any better. Buying stuff on the internet is extremely easy, which can make us susceptible to buying things when we’re not at our best. Instead, try some of these fun activities to do at home when you need a pick-me-up.
5. Not Saving For The Future
Financial hardships come up in life, and when you’re not saving money for the future, you’ll be less prepared for when an unexpected event strikes. It’s easy to say, “I’ll start saving money next paycheck,” instead of “I’ll start saving money right now.” To start saving money right now, consider setting up an automatic monthly or bi-weekly payment from your checking account to your savings account. This way, you’ll save on autopilot.
Good Money Habits To Make
To improve your financial life, it makes sense to make good financial habits. When you build good money habits, your overall financial situation will begin to improve, and you’ll find yourself in a better financial place long term.
Let’s go over these money habits now.
1. Follow a Budget and Track Your Spending
An excellent money habit to help you keep your money under control is creating a budget and tracking your spending. With a budget, you’ll be able to keep track of where your money comes from and where your money goes. Budgeting helps you identify where you can save money, and it also helps you to make money goals.
2. Pay Off High Interest Debt First
Having too much high interest debt, such as from a credit card, can greatly cost you over a long time. If you have a $5,000 credit card balance with a 21% APR, it will take 13.5 years to pay off the balance if you only paid the minimum payment, and you would end up paying $4,168 in interest as well. That’s a lot of extra money tacked on for not paying off your balance sooner.
That said, if you were to pay even an extra $50 per month towards your credit card, you would instead only take 4.5 years to pay off your credit card and would only pay $1,994 in interest. When possible, pay off high interest debt as soon as possible.
3. Live Below Your Means
Spending less than you make is the simplest way to live below your means. You’ll also have the added benefit of saving money each month, paying off debt faster, having more money for things in life that you enjoy – such as travel or entertainment – and for those who seek it, the ability to retire at a younger age.
You don’t need to live a cheap lifestyle, but living more frugally by cutting back on your living expenses and paying attention to your spending choices can further help with your savings goals and put more money into your bank account.
4. Create an Emergency Fund
Life can bring unexpected expenses, like a trip to the emergency room or a broken-down car. These expenses can throw off our entire budget and place us into debt if we can’t cover the balance.
That’s why having an emergency fund makes sense. An emergency fund helps to protect you from life events that you’re not expecting. It’s spare money that you can draw upon when you need to cover something.
5. Pay Your Bills Before They’re Due
Paying your bills before they’re due is a great money habit to build as by doing so, you are less likely to be late or miss paying a bill entirely. Late payments can lead to late fees, which costs you more money. If you’re late paying a debt, like a credit card, you could also suffer a credit score dip.
Using things like a bill organizer or a calendar app can help you keep up with everything that comes in each month.
6. Automate Your Finances
Automating your finances can involve things such as automatically transferring money to savings each month and automatically paying certain bills or your credit cards. By setting things on autopilot, you won’t have to think about it as much.
When it comes to saving money, automating your savings allows you to save without you worrying about forgetting. You’ll simply save each month.
When it comes to paying bills, automating your bill payments will save you from being late or missing a payment inadvertently.
7. Invest Regularly
Investing regularly helps you build wealth, which in turn, will lead you to a financially fuller life. When you invest regularly, you set yourself up for retirement. The wealth you build can also be used to help your family.
You don’t need loads of money to get started with investing. In fact, even investing $50 per week can go a long way over a long period of time.
8. Create Financial Goals
Creating financial goals will help you set some direction in your money life. If you want to one day buy your dream house, you could set a goal to save a certain amount of money with each paycheck for the next three years, for example.
If you wanted to pay off one of your credit cards by the end of the year, you could set a specific amount of extra money to pay towards the balance each month so that you reach your goal.
9. Pay Yourself First
Treat yourself as an expense. Before you spend any money each month, pay yourself something, even if it’s just $20. Place that money into a separate bank account or invest it. By paying yourself as an expense, you make yourself save money each month.
If you get a raise at work, consider paying yourself a little bit more so that you further reap the benefits of having a higher income.
10. Make Money On The Side
A great way to reach financial goals faster is to make more money. For some, that may be attempting to get a raise at work, but that’s not always possible. Instead, picking up a side hustle may be the best to earn more money. If you make $4,000 per month and you can find a side hustle where you earn an additional $400 per month, that’s like giving yourself a 10% raise at your job for just a little bit more work.
11. Pay More Than Just The Minimum Payments On Your Credit Cards
Credit card interest rates are generally some of the highest interest rates you’ll find, and being in credit card debt can harm your general financial situation greatly over time. Paying even $20 more than the minimum payment per month to your credit card can save you years of repayment time and slash the total interest you pay.
12. Check Your Credit Report Annually
You can get your credit reports from Experian, Equifax, and Transunion each year for free by checking out this site. Checking your credit reports each year is helpful so that you can find any discrepancies in them and get those discrepancies resolved. It’s important to have an accurate credit report so that your credit scores are accurate. This will help you get the best rates on loans and can also help you get better rates with insurance companies.
13. Work On Your Credit Score
Improving your credit score will help you get better rates on loans and sometimes insurance policies. Here are some things you can do to improve your credit score:
- Use less of your total available credit. 10% or lower is best.
- Don’t close your oldest credit account. Having a long credit age helps your score.
- Always pay your bills on time.
- Raise your total credit limits – note, only do this as a way to help your credit score and not as a way to go into more debt.
- Try not to apply for credit too often. Hard inquiries against your credit report lower your score.
14. Read Personal Finance Books (and Blogs)
One of the best ways to increase your financial literacy is to read personal finance books and blogs. Millennial Money by Grant Sabatier is an eye-opening look on how, when you change how you view money, your entire life can change. I Will Teach You To Be Rich, by Ramit Sethi, is an amazing book that helps you learn how to manage your money better so that you’ll have more of it to enjoy the better things in life.
15. Cancel Subscriptions You Don’t Need
We often subscribe to things, such as beauty boxes, online games, news sites, gyms, and such, that we end up not using very much or we forget about entirely. This can drain our wallets over time, and we may not even realize it.
The app, Trim, is useful for identifying subscriptions that you may not be using anymore, and it can often cancel them for you. Trim also helps you pay less money for things like your cable and internet by negotiating your rate for you.
16. Plan Your Meals
Planning your meals is a good money habit to make as you’ll save money on groceries by only buying what you need. Planning your meals has the added benefit of reducing the stress around mealtime as you’ll always know what to make.
17. Avoid Lifestyle Creep
Lifestyle creep is when you start spending more money when you start making more money. So, for example, if you get a raise and start earning $200 more per month, lifestyle creep would be when you start spending up to another $200 per month.
One tactic is to pretend like you didn’t get a raise and instead instantly save that money each month. So, in the example where you got a $200 per month raise, you would immediately transfer that $200 to a savings account, an investment account, or straight to paying off some of your debt.
18. Stay With Your Current Car As Long As You Can
It’s very tempting to buy a new car every few years, especially with many car dealers offering to roll in your current loan with a new loan. But this doesn’t make financial sense long term. A good car can last you ten years or longer if you take good care of it.
Every month that you don’t have an auto loan is a month you’re saving potentially hundreds of dollars. Those hundreds of dollars each month can be used to save up for things like a down payment on a house, college for your kids, a dream vacation, or it can be used to help you get out of debt faster, as some examples.
19. Cut Your Living Expenses
Lowering your monthly living expenses gives you more money overall. You can do this several different ways, and here’s an entire guide to drastically cutting your living expenses. Adopting a frugal lifestyle by keeping your expenses low is beneficial in that you’ll get out of debt faster and save more money for your future.
Wrapping It Up
Breaking bad money habits and making good money habits is key to having a financially healthy life.
What are some good financial habits you employ?