How to Build Good Money Habits
Dealing with personal finances can be daunting. They could be a new venture for you or your current way of dealing with them is less than ideal. Here are some tips that can aid you in developing good personal finance habits.
- Use technology. Whether developing a budget, savings plan, etc. the use of technology can make life easier. App such as Mint.com or spreadsheet software like Excel can assist you in getting organized and making clutter more organized.
For example, an app like Mint consolidates all your finances, accounts, and can give you a snapshot of what you’re spending, saving, and your net worth with the click of a button.
- Don’t make it complicated. It’s not rocket surgery. Chances are your finances are not as complicated as you think. They’re just unfamiliar, as is the process of working with them. But I assure you, you can do it.
Make a list of needs and wants. Start prioritizing what you must have versus what you want. Be tough. Do you need to pay rent or your mortgage? Yes. Do you really need the TV subscription? No. It’s easy. What comes in versus what comes out. The rest is yours to keep. And now you’re building wealth.
- Pretend you make less. Take your annual or monthly salary, and reduce it by at least 15%, more if you’re willing. Then imagine what’s left over is what you must live off of. What cuts would you make? What expenses (retirement, college?) would you prioritize over others?
After a short time, you’ll be used to living off the reduced income. You can use the difference (surplus) to fund other goals such as debt reduction, emergency funding, retirement, etc. Use it to pay yourself first; and that’s easily done with the next step.
- Make it automatic. Whenever possible, automate your finances. Paying bills can be easy by signing up for auto-pay – a monthly deduction from your bank account to pay utilities, mortgage, etc. Contribute to retirement accounts by having the deductions take right from your paycheck (401k, etc.) and do automatic withdrawals from your bank account to your IRA.
Automating doesn’t mean ignoring. You’ll still want to check in here and there to make sure what’s being deducted is accurate. But automating will make life easier.
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