5 Smart Financial Habits To Adopt
Habits can be good or bad, whether it comes to our health, our routine, and certainly, our money. And our money habits, good or bad, can significantly impact every other area of our lives. So when it comes to financial habits, we want to get it right! These are 5 smart financial habits to adopt.
Pay yourself first
Frequently, we have good intentions with our money. We're going to save, invest, and pay down debt. But when the end of the month comes, all of our money is gone, leaving none for our financial goals.
That's why it's essential to get in the habit of paying yourself first, PYF because your financial goals are just as important as any necessary expense. PYF means budgeting money each month towards whatever financial goal or goals you're working towards.
Ideally, at least 20% of your net (after-tax) income would be set aside for this. We understand that isn't always possible. But you must set aside some amount each month. The best way to do this is by automating your savings. Set up an auto-debit to your savings account, retirement account, child's college fund, etc. Every month, on the same day, a certain percentage of your income is automatically contributed.
What you can't see, you can't spend. You don't spend your rent money or your mortgage payment because those payments automatically come out of your checking account each month. PYF works just the same; it's a form of "forced" savings.
2. Don't constantly upgrade
You got a new job? Great! Time for a bigger place. You got a raise? Great! Time for a new car. You got your year-end bonus? Great! Time for a brand-new iPhone. Many rules of personal finance aren't always easy, but they are often simple. One of those rules is spending less money than you make.
But if every time you start to get ahead, a better paying job, a raise, a bonus, a tax refund, any additional money, you use it to upgrade aspects of your life rather than using it, at least some of it, to help reach your financial goals you're breaking the spend less than you make rule.
Sometimes, things genuinely need to be upgraded; you have a family and need more space, or you're spending money on constant repairs to your car. Fair enough, but often, we just want something new, bigger, better, but what we already have is just fine.
And we're not saying you shouldn't take some of the money you work hard for and celebrate things like a new job or a big raise. You earned it, and you deserve it! But remember, PYF.
3. Learn
When you're new to the U.S. or just starting out, personal finance can seem like a huge, intimidating topic, especially if you didn't receive much education about money from your family or at school.
And while personal finance is a big topic, you'll do well if you have a basic understanding of just the five pillars:
Earn
Save and invest
Protect
Spend
Borrow
In the coming weeks, we will deep dive into each of these topics.
4. Make your goals SMART
Your financial goals (or any goals) should be SMART goals. Let's say our goal is to pay off credit card debt.
Specific: How much credit card debt do you have? A lot of people have no idea. Get the specific number associated with your goal.
Measurable: Decide how you'll measure and track your debt payoff progress.
Actionable: What steps must you take to pay off your debt? Cutting back spending, taking on a part-time job, selling things you don't use or need that have some value, etc.
Realistic: If you have $20,000 in credit card debt and earn $35,000 a year, it's unlikely you can pay it off in six months. Can we often do more? Yes, but sometimes we really are doing all we can, and things take time.
Timed: The above said, create a time frame to meet your goal. This way, you can track your progress along the way and make adjustments if things are progressing.
5. Implement the 48-hour rule
The average person in the U.S. spends $314 per month on impulse purchases. That's $3,768 per year! That could go a long way toward helping you reach your financial goals.
An impulse buy is anything you didn't deliberately set out to buy. Things not on your written grocery list, that new pair of shoes you saw in a shop window and had to have, those decorative pumpkins at Target you couldn't resist.
An impulse purchase can cost a little, or it can cost a lot. Either way, it's typically something we don't really need and often don't really want. We've probably all bought something, and once we got it home thought, "Why on earth did I buy this?"
An easy way to help curb impulse buys is to give yourself a 48-hour cooling-off period. Before you buy it, wait 48 hours. The odds are that you won't really want it, certainly not enough to return to the store and buy it.
Good habits pay off
If you adopt these five smart financial habits, you will avoid many of the financial mistakes people make that get them into real trouble, like credit card debt or nearing retirement without enough savings. Personal finance; it isn't always easy, but it's usually pretty simple.
How Upwardli can help
Upwardli was created to help those new to credit, including immigrants new to the country and the U.S. financial system, build credit quickly and easily. You'll be instantly pre-approved with no credit check or deposit. Each Upwardli account includes an unsecured line of credit to help build your credit quickly, and we report your progress to the credit bureaus.