Building Good Money Habits

March 25, 2023

Building good money habits begins with the desire to live a life of financial freedom. It means keeping life simple, and also that individuals must learn to own their money rather than allow their money to own them. It’s really a simple concept, except so many find it difficult to get started. The hard part is knowing where to start, how to create good money habits, and how to find a plan that works. Once this happens, it’s easy for everyone to make the changes they need to secure their financial future. It all starts with money knowledge.

Short-Term Saving Money Habits

Short-term saving money habits are the easiest to come up with. What is a short-term savings goal? It’s anything an individual is saving money for that will come to pass in the near future. For example, it’s not retirement when an individual is only twenty-five years old. However, saving a down payment for a home is often considered a short-term money goal, as are saving for a vacation and a down payment on a new car.

Many individuals feel they can put money into a savings account and call it a day, but it’s far easier when someone chooses a short-term savings account that makes the deposited money make money. Certificates of deposit (CDs), for example, are a great short-term savings account for those who want to stash their savings for something specific and watch it make money. A regular savings account works, a money market savings account works, and CDs always work for short-term goals. For example, a family who wants to save for a down payment on a house can open a CD and put their current savings in it for a year so it can grow while they continue to save money by opening additional short-term CDs every month with the rest of their savings.

Continue reading to learn about safety net money habits to practice.

Safety Net Money Habits

Safety net money habits are imperative in any household, as these involve the money individuals should save to keep them safe if something happens. For example, one might consider their emergency fund a safety net. It’s there for them in case something happens and they cannot afford to make a payment to deal with the situation (e.g., repairing significant car damage). Once a person has an emergency fund with at least one thousand dollars in it, they need to continue adding to it until they have at least one year of income in the safety net.

One way to create a safety net is to open a savings account and have income automatically transferred into the account when paid. Anyone can do this by creating the transfer with their bank or even with their employer. It’s best to add as much to it as possible as often as possible to make it simpler and more effective. Start with as much as possible and continue to add more when raises are offered and when unexpected money comes in.

Continue reading to reveal the details of the paying yourself first money habit.

Pay Yourself First Habit

The pay yourself first habit is also commonly referred to as the reverse savings plan. It’s a simple concept and one every household should employ. It entails nothing more than making savings accounts the number one expense. Rather than doing the old-fashioned thing and saving the money left over when everything else is spent, it’s the art of saving money and spending what remains. It looks like this: savings first, monthly expenses such as mortgage and utilities second, necessities such as gas and groceries third, and then entertainment last. Savings should always come first because everyone is their own biggest investment. Starting with ten percent savings and making it higher as often as possible is the best strategy to start with.

Keep going to reveal information about the looking ahead savings habits.

Looking Ahead Saving Habits

Looking ahead savings habits are the habits individuals create when planning for their future. If someone wants to have kids, for example, they will want to save money so their children have a head start on their education. If someone wants to retire early and travel the world, they must have a portfolio and retirement account that allows this to happen. If someone wants to pay off their house in ten years rather than the traditional thirty, they must look ahead to find out how to create better savings habits. Looking ahead offers a different view for everyone who does it, but it’s where everyone should start creating a habit like this. It means contributing to 401(k) retirement accounts, IRAs, other investments, and looking to employer contributions to help. Always maxing out retirement accounts to make the most money, makes looking ahead that much simpler.

Get the details on automating habits next.

Automate Finances

Building good money habits is easier when you automate finances. Automating accounts allows each one to communicate with the others to simplify your financial life. The easiest way to do this is to contact your employer and ask them to direct deposit your paychecks, and then contact your bank and ask them to link your checking, savings, and other accounts together. Some financial institutions allow customers to link accounts themselves by visiting their website and providing the appropriate information, though other banks need customers to call and ask them to help.

Once your accounts are linked, you want to begin using automatic bill pay and transfers. When money is automatically transferred to the correct accounts to pay the correct expenses, you have less to handle yourself, making it less likely to forget a payment or pay late. By transferring savings to your savings account automatically, you also never see that money in your checking account. Now you live by the adage you don’t miss what you never had.

Continue reading to learn how twenty percent is a great money habit.

Start Saving Twenty Percent Of Income

Saving twenty percent of your income is one of the most important financial decisions you’ll make. This money is meant to go into your retirement accounts, savings accounts, and emergency fund. If you feel you cannot save this much, the best thing you can do is go over your finances. What can you pay off, stop buying, and minimize? Start by making a budget, minimizing any bills possible by asking for a lower interest rate or lowering the limits on your plan.

If you find you don’t have twenty percent of your income to save, start by saving as much as possible while you work on either earning more or paying off more debts. The first account you should fund with savings is your emergency fund. This fund pays for unexpected situations in life without worrying you don’t have the funds. The second account is your retirement. Allow at least ten to fifteen percent of savings to go to your retirement accounts. The remaining percentage should go into a general savings account for whatever you’re looking to save for. A house, car, vacation, or even enough to take a year off after you have a baby are just a few of the common items individuals save for.

Continue reading to learn about tracking progress.

Tracking Financial Progress Regularly

Tracking financial progress is not an option if you’re looking to gain control of your financial life. What works for you might not work for someone else tracking their progress, which is why you must decide how you manage money best. Are you someone who prefers to check their checkbook every day to ensure it’s properly balanced and cared for? Or do you prefer to spend an hour every week going over finances and checking the progress of your financial situation with your spouse?

Whatever works for you is fine, but consider some helpful tools, such as financial tracking apps. Find an app or a spreadsheet that helps you make goals, track your progress, and check off goals as you go. This not only keeps you motivated, but it also allows you to stay on track even when there is a hiccup here and there. Failing to track your progress can cause you to take a few steps back in your financial life, which is not what you want to do.

Continue reading to learn about how credit scores should be treated.

The Importance Of Checking Credit Score Regularly

Checking your credit score and credit accounts regularly is always recommended if you want to maintain a stellar financial standing. Each of the major credit bureaus is legally obligated to provide you a free copy of your credit score each year. Make good use of these by spreading them out every three or four months throughout the year to obtain free copies on a schedule. Look for mistakes, misprints, and incorrect accounts and information.

By checking your score regularly, you’re able to dispute issues, see if someone is using your identity, and it helps you keep your score on track. Check your score and monitor your account easily by signing up for your credit card’s credit score monitor. Most major credit cards offer this, and it’s free and easy to sign up to keep track of your credit score and report. This is the most important number in your life, which is why you must be on top of it at all times.

Continue reading to learn about an excellent money habit to have in relation to retirement.

Maximize Contributions To Retirement

It’s time to get to know the deadlines, the contribution limits, and any free money you’re entitled to in any of your retirement accounts. A good example of this is the 401(k) employers provide. You should be maxing out your contribution to this account each paycheck and should start this from the beginning of your employment. Even if your employer doesn’t offer a match to your contribution, it’s money you’re not being taxed on. It’s also money that goes toward your future. If your employer does offer a contribution match, it’s even more important to max out your contributions.

For example, if your employer offers to contribute twenty percent of anything you put into your retirement account, it doesn’t make financial sense to miss out on free money by not opting to maximize contributions. If you are permitted to contribute one thousand dollars per month, you’re earning two hundred dollars per month in free money from your employer. If you only contribute one hundred to the account every month, you’re only earning twenty dollars in free money every month. Over the course of your life, you’re potentially earning tens of thousands of dollars or more in free money because you chose to contribute. Know your retirement account, their limits, and how to max them out each year for the biggest benefits.

Continue reading to learn about reducing bad money habits.

Reduce Bad Habits

Reducing bad financial habits is as easy as forgoing fast food meals and eating out instead of cooking at home. It’s more cost-effective to meal plan, shop, and prepare healthier and more affordable meals at home. Once individuals learn to recognize their bad habits, they’re more capable of reducing them. All it takes is making a list of every bad money habit. For example, someone might make purchases and spend money they don’t have by charging it to their credit card. A bad money habit is forgetting to save money, using savings as a secondary checking account when money is tight, buying coffee every morning instead of making it at home or picking up lunch and dinner rather than cooking.

Bad money habits are everywhere, and they come in every form. If someone wants to stop making bad money habits, they must first recognize what they are to become more cognizant of when they are happening. Now people can change their habits by creating better ones to take the place of their old bad habits. It makes saving, paying off debt, and living financially free much simpler.

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