This guide to better money habits includes everything you need to do right away in order for your financial future.
It’s not a lie that many of these ideas can take some time to implement and may not be possible for you immediately. Starting now will help you in the long run.
I am still working on some of these things myself.
With hard work and dedication you can achieve all of the things on this list and they will become automatic.
Are you ready to develop good financial habits? You can start today by following these twelve tips.
What are better money habits?
You can improve your financial and general health by adopting better money habits. This will allow you to live comfortably, build wealth and eliminate financial stress.
Here are some of your best money habits that you should adopt as soon as you can.
- Credit score repair
This is a habit that should be included even if it’s not a “better-money habit”.
Many people don’t know what their credit score or how it affects future plans.
Credit Karma has been my go-to tool for keeping track of finances. It’s free to create an account. You can log in as often as you like and you’ll find a wealth of information that will help you on your journey.
If you’re happy with your score, keep going.
Repay any debts that were sent to collection. This will improve your credit score and remove the debt from your report. You can usually set up a plan of payment if you cannot pay the company upfront.
You must pay all your bills on time.
Credit cards can be used intelligently to increase your score. Many banks will offer you a credit card which acts as a debit card if your score is low enough to be approved. You can use it to build credit and then apply for another credit card when you’ve earned enough.
Your credit score could prevent you from getting a loan for a home, apartment or any other type of loan. How to maintain and improve your credit score.
- Reduce credit card debt
The most obvious item on this list is to reduce credit card debt.
The credit card is useful for several things.
Establishing credit
Improve your credit score as long as you pay on-time
Prepare a buffer for emergencies
Get travel and reward points
Many credit card companies are fond of approving applicants and then hitting them with interest rates up to 20%.
Your credit card debt has a price. According to NerdWallet, the average household that has revolving debt on credit cards pays $904 annually in interest.
But people are also the problem. Charge only what you can afford to pay in cash.
Americans are increasing their credit card debt. Look at this article to see the average credit card balance in each state.
Pretty insane
You can save money by avoiding large purchases on your credit card.
- You can pay extra for your student loans
You probably, like me have student loans you need to pay back. When I first applied for all these loans, it was necessary to estimate how much I could afford a few months later.
It is difficult to plan your career when you don’t know what you will do after you graduate.
Even though the interest rate is not as high as a credit card for example, you should still pay them off as quickly as possible.
It’s not easy to pay off your student loan debt more, but you should do it when you can.
Got a recent raise? Bonus income? Have you started budgeting but still have some money left over? You can use it to pay off your student loans.
Refinancing can help you lower your payments. Credible is a great resource for this. Credible is completely free and can help you find the best rates for refinancing. Compare your rates now for free.
- Keep track of your net worth
This is one of the most crucial aspects in developing good money habits. Yet, many people overlook it.
In fact, I have written an article about this topic not too long ago.
Understanding your net worth will help you to keep track of your spending and where you stand.
Personal Capital is a simple tool that can help you evaluate your net worth. This is a free tool that I have been using a lot.
- Review your expenditures regularly and understand all of them
How can you develop good money habits if you don’t know what you spend your money on?
You can cut your spending by analyzing the whole picture.
It is also important to do this at least once a month.
Your salary may increase, your bills can change and your loans could change. You can review as much or as little information you want, but it’s important to know the importance.
You can easily organize this with a spreadsheet, or a tool like You Need A Budget.
- Create an automated savings plan if needed.
You can now create a savings plan that is unique to you.
To be able to calculate my savings rate, and the amount I can save each month, I needed to know all of my expenses.
Knowing how much I had after paying bills and loaned money helped me to calculate what I can save. I realized that I could have saved a lot more money than I was actually doing to speed up everything.
I prefer to have more control over my life, so I don’t automate everything. But if you need it — automate.
You can spend the money immediately if you don’t feel you will have enough self-control.
Before you can even spend that money on bills or other unnecessary expenses, it has already been automatically transferred into your savings, brokerage or retirement account. Boom!
- Ignore the Joneses
The phrase “keeping up with the Joneses” is one that we are all familiar with. It means to compare yourself to your neighbors and to what they have, in order to try to outdo or match them.
We as a society are so eager to compete or match on a social-economic level, that we can easily lead ourselves into financial ruin.
By focusing on your own assets, you can avoid frivolous purchases and save money.
Social media can make it difficult to save money, as people are focused on material goods. But once you stop focusing on others, saving money becomes easier.
- Dedicate one hour per week to your finances
You need to spend time every week on your finances if you want to truly understand them. Practice is the key to success in anything.
It might not always be exciting to read and talk about money, but you must spend some time on this if you wish to improve your financial habits.
You can do this by looking at your recent budget, upcoming bills and savings, or reading about topics that are related.
You’ll be amazed at what you can learn if you spend just an hour a week.
- Money blogs and books are available.
This section should be a separate one, even though it is a part of the previous section. Reading personal finance blogs and money-related books can help you develop good money habits.
The media and experts make it appear that learning about finance is difficult.
It was a mistake I made a few decades ago. I learned to manage my own finances. Once you start reading, it’s much easier than you might think.
There are many great books and online resources that will help you understand more about money.
Here are some I’ve enjoyed and still read to this day.
Rich Dad poor dad: what the rich teach their kids about money that the middle class and the poor do not!
The Millionaire Next door: The Surprising secrets of America’s Wealthy
The Bogleheads’ guide to investing
The Only Investment Guide you’ll Ever Need
Your Money or your Life: 9 steps to achieving financial independence and transforming your relationship with money
The 4-Hour Week: Live anywhere, escape 9-5 and join the new rich
Money Master the Game – 7 simple steps to financial freedom
Unshakeable: Your Financial Freedom Playbook
If you’re interested, here are some of my book and website recommendations.
- Pay raises can increase your savings rate.
Do you receive annual raises in pay? Have you had one recently? First, congrats! Second, what will you do with the extra money?
You should always be smart about how you spend your extra income, no matter how big or small it is. Most people start to buy new things, upgrade their car, home, etc. Here is where lifestyle creep takes over.
However, I recommend paying off any extra debt. If you can manage that, use the money to increase your saving rate.
You can also do this if you receive a refund of taxes. Use the extra money to pay off a debt, or to save for retirement or add it to your savings.
Our society is often too eager to spend money on material things that only bring temporary happiness.
- 401ks are a great way to save money. You don’t have a 401k? Create an IRA
You will most likely not have any social security at retirement, or it will be insufficient to support you during your golden years if you are a young millennial.
To improve your money habits, you must prepare for the future. You should take advantage of a 401k plan that offers a match from your employer.
Blooom’s free, 401k analyzer is a great tool to use to make sure your plan is working at its best. You’ll receive recommendations, learn more about hidden fees and much more.
You can set up your own 401k if you are self-employed.
Vanguard is the company I use and recommend. Vanguard offers some of the lowest fees and a great selection of index funds. It is also a fairly easy platform to operate, with a helpful team of experts.
If your company doesn’t offer a 401k and you do not own your business, you may still be able to open a Roth IRA or a traditional IRA. You have no excuse not to prepare for the future.
- You must own up to your financial errors
You must admit to your financial mistakes if you want to improve your money habits. You must admit your mistakes, no matter how serious.
You will only set yourself up for failure if you ignore or deny the mistakes that you make.
Money mistakes are easy to make. You are the only one who can decide if you have a debt, made bad investments or if there is a lack in knowledge.
Respect it. Respect it. Correct it and move on.
In the digital age, learning and mastering new knowledge are easier than ever. You are responsible for making changes.
Create positive money habits
This is just a beginning to developing positive money habits. However, it will put you ahead of the majority. Will you be the one to take action and do it no matter what happens?
