5 Habits to Improve Your Finances

5 Habits to Improve Your Finances

January 25, 2022
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The people who’ve been able to accelerate their saving and manage their debts don’t possess any special knowledge. What they do know is that a couple of habits, started as soon as possible, can make a big difference. You can do it too.

1. Live Within (or below) Your Means.

Small changes do make a big impact over time, and that includes creating a budget and managing your expenses so you’re always spending less than you earn. Changes that might help:

  • Instead of brand new, drive used, certified pre-owned (CPO) vehicles.
  • Own a modest home.
  • Stay out of the mall. Ignore those email sales advertisements.
  • Travel, but travel less. Take some day trips.
  • Cook at home, dine out less.
  • DIY when possible.

It’s about making smart financial choices, but not sacrificing your quality of life.

2. Manage Your Debt.

Debt management is a way to get your debt under control through financial planning and budgeting. The goal of a debt management plan is to use these strategies to help you lower your current debt and move toward eliminating it completely

Saving up to purchase big ticket items such as a car or a home can be difficult. A lot of people need to borrow: About 44% of consumers require a loan to purchase a vehicle.

Say you have debt—a car loan or student loan. You’re making room for it in your budget, but you also want to pay it off sooner, if you can. One tip is to always pay off credit card purchases so you don’t carry that debt. Then choose one of two debt-payoff options to get through those payments quickly:

  1. Avalanche: Pay off the highest-interest balance first, then the next highest, and so on. 
  2. Snowball: Pay off the smallest balance first, then the next smallest, and so on.

3. Plan for Retirement.

Many people who’ve accelerated retirement savings put away about 15% of their income. Sounds like a lot, right? But they started as early as they could—their mid-20s—even if it was just a little.

These four strategies may help you gradually get to that goal.

  1. Get the (free) money. Save enough to receive the maximum employer match in your retirement plan if offered.
  2. Increase your retirement savings, at least by 1%, each year or when you receive a raise.
  3. Work your way up to 10%–15%. It might take you a few years. That’s OK.
  4. Check your progress at least yearly. Rebalance your funds if needed or consolidate if you have previous savings that you can roll into one account.

One way to look at it is to treat saving for your future like another bill you pay each month. Have automatic withdrawals taken from your paycheck and deposited into your retirement account. Invest in you and allow you to pay your future self, first.

4. Save for Emergencies.

Would a $500 expense throw off your budget in a big way? If the answer is yes, it’s a good idea to set up an emergency fund. That way, a short-term, unexpected event, doesn’t derail your long-term plans.

6-12 months of income is generally the advice for an emergency fund, but, just starting with something, even $100 a month, helps create that savings habit. Add to it gradually as you’re able, including lump sums, to build toward your savings for unexpected events.

5. Keep Educating Yourself About Money.

These early, easy habits can help you lean into learning about how to achieve bigger, long-term financial goals. Do you want to own a home, for example? Take big yearly family trips? Retire early? There are lots of ways for you to build on your skills. 

Education builds confidence, and confidence drives action. Even investing a small amount of time learning more about personal finance may provide a huge boost to your self-confidence in financial decision making.

If you have any questions, or would like to schedule a free consultation, click on the link below: