There are a lot of reasons to develop smart financial habits sooner rather than later. People who are successful with money will achieve their goals and dreams more easily. Successful people set goals for themselves and develop action plans to ensure they achieve those goals, including developing good financial plans. Bad financial habits lead to bad financial decisions that can hurt you, but good financial habits can help you achieve your financial goals by helping you live within, and preferably below, your means.
Benefits of Smart Financial Habits
Smart financial habits can provide you so many benefits, including:
- Less stress & piece of mind
- Wealth accumulation – watch your savings grow and your debt decline.
- Feel more powerful to own your life and future
- Ability to give more (money, time, or both)
- Opens your career options – do what you love and find your freedom and happiness
- Ability to increase your income
- Financial independence and ability to retire early (if you want)
What Are Good Financial Habits
I started some good habits way back when I was in high school (I’m 41 now). Although I made some mistakes along the way, good financial habits soon became routine for me.
A few of my favorite financial habits include: start saving early by taking advantage of ‘free’ money – like an employer’s 401k match, track your expenses consistently to understand where your money goes, and my ultimate favorite habit – live below your means.
Start Saving Early
The earlier you start saving, the earlier you can achieve your financial goals. Creating a budget where you pay yourself first provides a great way to ensure that a portion of your paycheck always goes to savings. For those lucky enough to work for a company where you can contribute to a 401k plan, start as soon as you can, and ensure you take advantage of the company match. (The “company match” is where the company will also contribute a percentage to the plan on your behalf. For example a lot of companies will match $0.50 for every $1 contributed up to 6%. So if you make $50,000 annually and contribute 6% to your 401k, or $3,000, the company will contribute an additional $1,500. That’s like an immediate 50% return on your investment!)
Track Your Expenses
One of the biggest eye openers for most people is the first time they start tracking their expenses. We often spend money on various things throughout the week or month without realizing how much it can quickly add up to. For example, say you eat out for lunch 3 days a week at about $10 each. Annually, that eating out habit will cost you about $1,500 – and that’s just for lunch! There are a lot of other ways you could be wasting your money every month without realizing it. You can start small by paying attention to where your money goes everyday.
Live Below Your Means
There is no better financial advice than to live below your means. That is the only way to save money on a consistent basis. If your take home pay is $2,000 a month, your expenses need to be lower than that. Even if you are contributing to a retirement plan, saving extra money is critical to ensure you don’t hit any bumps on the path to your goals. Emergencies can strike at any moment unexpectedly, like medical emergencies or your car breaking down. If you don’t have a plan in place for those financial emergencies, you can easily find yourself in trouble.
New financial habits may be difficult to develop and sustain in the beginning, but with discipline and practice, they can become routine. Start smart financial habits small and slowly incorporate them into your life; they will end up sticking with you over time and become second nature. You will soon become fearless, rather than anxious about your money. Although there is no one-size-fits-all financial discipline, as I continue to teach you new ways to save more, earn more, invest wisely, and be more frugal will help you start smart financial habits you can stick with over time.