Do you find yourself living from paycheck to paycheck and spending more money than you make? It’s time to ditch those bad spending habits and start working toward better money habits.
Did you know that people spend at least $18000 a year on non-essential purchases? Imagine if you could manage your money better and invest that money elsewhere – you can buy that house you always wanted or take your family on a much-needed vacation.
Building good financial habits can increase your wealth and set you up for future financial success. It will help you learn to budget, save money for the future like holidays and the like, and work toward giving you financial freedom.
The key to building better money habits is to start by changing some of your daily routines. Taking simple steps can help you improve your financial situation. Here’s a guide that can help you develop better money habits.
Create a budget.
Creating a budget and sticking to it is essential when creating good money habits. A detailed budget is vital because it operates as the control center for all your financial decisions. It works as your plan, your success meter, and it goes a step further when you’re trying to track your expenses. It will help you think critically about spending your money and finding ways to reduce your spending.
Instead of making quick trips to the grocery store when you need something, you can set up a plan for your shopping trips. Make a list of exactly what you want to purchase and how much you need to spend. By writing down a list and sticking to it, you’ll be better off avoiding impulse buying or picking items you don’t need.
The same applies to things you buy online. Figure out what you need, how much you can afford to spend, and wait a few days before purchasing the product.
Track your expenses.
Tracking your expenses can be challenging because you need to be honest with yourself every day about spending your money. However, this is among the essential money habits you should adopt to succeed and achieve your goals.
Record everything you and your family have bought that day. Ensure that you keep all your receipts and credit card statements, so that you can track every expenditure.
After creating the list, write down a description of the purchase, why you purchased it, and how much money you spent. Did you stop to buy a snack on your way home when you could have waited a few minutes to get home and eat? This habit is essential, and you should do it regularly because it’s easy to forget small purchases you may make throughout the day.
After creating the list, you can use a spreadsheet program or notebook and see what you can cut off and make improvements in your spending. There are also free apps online you can download that can help you track your expenses.
Auto-transfer money into your savings.
Setting up automatic transfers is among the easiest ways to save and establish good money habits. It’s a way for you to save money without having to put effort or thought into it. The money is taken out of your checking account every month and put into a savings account where it accrues interest. This leaves no room for any excuses about why you need to keep your cash for something else.
When money is automatically withdrawn from your account, you hardly notice, and you can adjust your spending habits accordingly. The interest you’ll be paying on your debts is likely to be higher than anything you’ll gain from a savings account. Once you’re through paying your debt, set smart financial goals for each category of your life. It could be your retirement, investments, or college savings, then schedule automatic transfers from your bank account to match these outcomes.
Ensure you time your transfers, so that money is withdrawn as soon as your paycheck is deposited. This will stop you from feeling like you had some money and it’s missing. Ensure that you go through your bank statement every month to see where you can make changes to how much you’re saving and reach your goals faster. Alternatively, if you find out that you’re running out of money each month, you can lower the amount that’s being withdrawn until you can get back on track.
Set up an emergency fund.
Do you know anything can happen at any time? Like when the pandemic hit, no one was prepared for it, so many businesses had to shut down, and many companies sent their employees home. Many people lost their sources of income, and no one was sure when they would get back to work.
That’s why a surprise emergency expense is vital when you’re saving up for your future and when it happens; the last thing you’ll want to worry about is how to pay for it. There may be options like fast cash loans, which you can apply and get in a day or so, but you still need to have an emergency fund set aside to cushion you and your family.
If you want to succeed and improve your financial situation, you need an emergency fund big enough to pay at least three months of expenses or even six months. You never know what may come up like medical expenses, car breakdown, job loss due to the Covid-19 pandemic, or any other family emergencies. In most cases, there’s nothing you can do to prevent these unforeseen circumstances. However, you can still prepare for them financially.
Getting in the habit of saving and setting financial goals is an essential thing you can do in personal finance. It’s one of the good money habits of the wealthy. Change your spending habits today, and you’ll see an improvement in your financial situation.