Most of us have hopes and plans for the future, and they often require a degree of financial success. Whether your aspiration is relatively small and close to home (say, hosting an amazing 30th birthday party for your sweetie at their favorite restaurant) or considerably grander (owning multiple homes and retiring by age 50), it takes planning and discipline to achieve them.
In a nutshell, smart money habits can start you on the path to achieving financial success and realizing your dreams. Adopting small (and repeated) changes in behavior can be one way to start building good financial habits that can last a lifetime.
Read on to learn six of the most important money habits that can help steer you to financial success and realizing your money goals.
Why Good Money Habits Matter
Good money habits can set you up for financial success. They act like guardrails, keeping you moving towards positives (like an impressive retirement fund) and away from potential challenges (say, too much credit card debt). They are, in fact, similar to other wise habits in your life, whether that means eating well, exercising regularly, not staying up too late watching Netflix, or remembering to call your folks often.
Yes, good habits can require some time and energy to establish, and then you likely need to maintain focus to stay on track. Some will become second nature or no-brainers; others may require more ongoing effort. But by sticking with them, good money habits can guide you to help manage your personal finances well, make smart decisions with your funds, and achieve your future goals.
💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
6 Good Money Habits to Adopt
Here’s a closer look at six key money habits that can help you develop financial success.
1. Set Financial Goals
Formulating your financial goals can be an important step. Goals can guide you as you go about building a financial plan for the years ahead.
One person’s goals might be to pay off their student loans and save for a down payment on a house; another might want to sock away enough cash to start their own business down the road; and yet another might want to achieve a lifestyle where they can pay for their child’s college education and take ski vacations every winter.
Putting pen to paper or opening a document on your laptop can be a helpful way to focus and define specific financial goals to work towards. This can give you clarity and boost your motivation vs. simply saving in the abstract.
Once you have goals in mind, you can begin saving toward them and tracking your progress.
2. Budget Well and Track Your Spending
If you are just winging it in terms of your finances, it’s probably wise to prioritize setting up a budget. The word “budget” can cause a knee-jerk reaction because it smacks of deprivation (as in, no more lattes, ever!) but that’s not what it’s about.
Rather, a budget involves understanding how much money you have coming in and where it’s going (typically towards spending and saving). It can help you be more aware of your finances and balance them, too.
Out of the various techniques, the 50/30/20 budget rule is a popular option. It spells out that 50% of your take-home pay goes towards your needs (housing, food, and healthcare, for instance), 30% towards your wants (dining out, those lattes mentioned above, travel), and 20% towards savings.
There are plenty of other different budgeting methods to try and tools you can use to track your spending, which is an important facet of good budgeting. Your bank may even offer a convenient system for this. By tracking your spending, you can see where you may be spending too much (say, your once-a-week takeout habit has crept up to four times a week), be more mindful with money, and optimize your finances. Perhaps you can put more towards debt payments, for example, than you realized.
It can also be wise to get in the habit of checking in with your money regularly; many people find that a couple of times a week is a good frequency.
💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.
3. Consolidate Debt
As you work on your budget, you may want to cultivate another money habit to develop financial success. That involves dealing with debt.
This might mean paying off credit card balances in full and making all other necessary debt payments on time, such as mortgage installments and student loan payments. Calendar reminders can help ensure that all payments get made on time, as can automating your payments (more on that below). It may even help to arrange to have all payments due on the same day. Some lenders are willing to move a monthly due date.
If you have student loan debt, you might look into refinancing options. You might, say, be able to lower your monthly payment, though that could extend the term of your loan and cost you more in interest over the life of the loan. However, doing so may be the right move for some people. (Also keep in mind that if you refinance federal loans as private student loans you will lose access to federal benefits and protections.)
Facing and managing your debt is an important step, regardless of the specific solution you decide upon. It’s a habit that allows you to take control of your money. And it can keep your debt-to-income ratio low, which can be an important factor when you want to borrow money at as low a rate as possible.
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4. Know When to Consider Balance Transfer vs. Personal Loans
Building on the idea of consolidating debt is the next financial habit. This one involves knowing the warning signs when your debt is getting uncomfortably high and then taking steps to rein it in.
Sometimes, the steps above aren’t enough. If that’s the case, it’s wise to consider your options vs. taking a wait and see approach. Currently, credit card interest rates are over 20% which can be hard for some people to pay off.
So if you see your balance rising to a level you are worried about, consider the following options as you take control of your debt:
• You might try a balance-transfer credit card, which can give you a reprieve from high interest accruing for a period of time (often 18 months), allowing you to pay down your debt.
• You might consider taking out a personal loan and using those funds to pay off your credit card debt. The goal here is to have a lower monthly payment on the personal loan than what your credit card bill amounted to.
• Contact a nonprofit credit counseling service, such as the National Foundation for Credit Counseling, or nfcc.org.
Getting in this habit before debt gets deeper can help you in the long run.
5. Automate Your Finances
It can be a good idea to save money right after getting paid — before the cash sits in checking long enough to spark the urge to spend it. So why not make it simple and save automatically upfront?
A person interested in saving might begin by automating just one kind of transaction. For example, they may opt to have $50 moved from a checking account to a different savings-oriented account each month. If that money remains unspent each month, those monthly automatic savings would total to $600 at the end of the year.
That could be a good way to start an emergency fund without expending much effort. You can also automate payments of, say, your utilities and housing costs or your car loan. Paying bills on time this way can help build your credit.
There are also numerous ways to automate your investments. A workplace plan, like a 401(k), may already be doing this. For someone who’s on their own, mutual funds can make auto-investment really easy. Alternatively, a robo-advisor service can automatically invest contributions on behalf of the investor. (Note: This automation may be challenging for those paid irregularly, such as freelancers and seasonal workers.)
By embracing automation, you can nail an important money habit. You can pay yourself first and stash cash away in savings. And you can avoid such bad money habits as not saving enough, paying bills late, or forgetting to pay them at all.
Recommended: How to Become Financially Independent
6. Investing Early and Often
“I invested too much money for retirement,” said no one, ever. Arguably, there’s no other financial goal that requires more habitual action — spread over decades — than saving and investing for retirement.
It can be tempting to push off planning for retirement until tomorrow. After all, when someone’s in their 20s or 30s, retirement is likely decades and decades away. Psychologically, it’s simple to presume that it’s just not worth thinking about in the now.
But, for many, retirement can be one of life’s biggest and most important expenses. It can secure your comfortable future. Investing early, often, and wisely, can help accomplish that goal.
Adopting this habit ASAP can be a big help; it allows for more time for money to grow via compounding. Compound returns are earnings on both the original amount invested (the principal) and the money earned via investing (the profit). The more months (or years) a person invests, the higher the potential for profits to compound. Note: It is important to note that all investing carries risk as the stock market can fluctuate.
Being consistent about moving money into your portfolio is important, too. Luckily, there are easy and affordable ways to get started investing. First, open an account, like a brokerage or a retirement account. (Investing in a 401(k) also counts as investing.) Then, investors can purchase investments like stocks and funds to achieve their goals. Or investors can use an automated investing service.
The Takeaway
Building good financial habits can be rewarding. There are more technological tools than ever to help with budgeting or expense tracking. From digital apps to automatic investing, building healthy financial habits has never been more accessible.
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