Maybe it’s the start of a month or a new year, or maybe it’s a recent “ah-ha!” moment that’s got you wanting to feel a little more in control of your money situation… Whatever the reason, it’s never too late to develop good financial habits.
Building good financial habits gives you the freedom to not spend every waking moment thinking about money. Having a routine allows you to coast on autopilot, closer and closer to your personal finance goals every single day.
So here are a few financial habits to live by, and at the end we’ll talk about ways to incorporate them into your everyday life.
1. Pay Yourself First
One of the best financial habits to incorporate into your life is the act of paying yourself first. This means putting money into your savings and retirement accounts *before* spending any money on needs or wants.
Many people wait until the end of the month to “save what’s left over.” But in doing this, they usually might find there’s less money waiting there than intended (or sometimes none at all!) Taking that money out of your checking account immediately will help you to be more frugal throughout your month. This one act will help you prioritize your retirement savings, giving you more freedom and flexibility later in life.
I also like to think of it as an act of financial self-love. In paying yourself first, you’re sending a message that prioritizing your goals and dreams is important. And it totally is!
One of the easiest ways to pay yourself first is via your company’s 401(k) plan. If you’re new to saving/investing, check out our Beginners Guide to Investing. It covers all the different account types, where to set them up, and which funds are best for beginners to invest in.
2. Contribute To An Emergency Fund
If you’re looking for more financial stability, creating an emergency fund is one of the best things that you can do. An emergency fund is a reserve of cash, usually enough to cover 3 to 6 months of your baseline expenses. The purpose of an emergency fund is to provide you with peace of mind, knowing that in the event of any kind of unexpected emergency you would be able to continue to afford your housing, utilities, and food without taking on debt.
If socking away 3 to 6 months of expenses sounds intimidating, start with a baseline emergency fund of around $2,467. Economists find but this highly specific number will allow you the proper financial coverage in most emergencies, so it’s a great place to start!
Pro tip: Master all the ways to stop dipping into your savings account for non-emergency situations!
3. Spend Less Than You Make
This one may sound a little bit self-explanatory, but it truly is the key to jumpstarting financial success. You definitely don’t want to be left in the red at the end of each month.
Failing to spend less than you make works against you on two fronts: It propels you further into debt, and you miss out on the opportunity to invest for your future.
You might have a hard time prioritizing your 65-year-old self, but it’s imperative that you start to seriously think about retirement planning now instead of later. One thing that can help is to use one of those aging apps to visualize what an older you will look like. You’re more likely to empathize with future retirement-aged you once you catch a glimpse of what you’ll look like.
When investing for your future, time in the market is the greatest advantage that you could possibly have. Waiting until you’re older to invest means that you will have to contribute significantly more money to make up for the years lost.
For example, if you start at the age of 20 and invest $400 a month, assuming an 8% return, you would have about 2 million dollars in retirement. However, if you only start investing at the age of 40, you would have to contribute about $2,300 each month to retire with a similar amount of money! That’s why it’s so important to get into the habit of spending less than you make. The gap inbetween should be saved and invested!
Related: A step by step guide to building wealth with a small income
4. Budget And Track Your Expenses
So how exactly are you supposed to start spending less than you make? Start budgeting and tracking your spending.
It’s hard to get a hold on your money if you don’t know where it’s going each month, so it’s time to roll up your sleeves and take a look at your credit card statements. The truth is, the culprit is often those small purchases of $5-10 that add up to totally break the bank.
There are tons of different ways to budget, like the 50/30/20 method, or the zero-based budget! The one you pick should be the one you feel like you can stick to, whether you prefer to kick it old school using pen and paper, or prefer to take a more modern approach with apps like YNAB or Credit Karma.
Budgeting is also amazing because it gives you the freedom to spend on the things that you really care about. While many people get the impression that budgeting is restrictive, lots of folks who give it a go find that it eliminates guilt when they choose to spend on the things that make them happy. If getting a six dollar latte at Starbucks is important to you, we want you to have the freedom to make that purchase a few times a month. You shouldn’t feel guilty about that occasional purchase. You can definitely fit it into your budget!
5. Start Practicing Gratitude
This is one of those frugal habits that can benefit pretty much every facet of your life.
When you take a moment to appreciate what you have, you tend to feel happier! You start to see more of the good in the people around you, you tend to want less, and your self esteem improves. The cherry on top is that it can save you money and help you to live a frugal lifestyle! When you’re content with what you have, you’re less likely to try to keep up with the Joneses or to be swayed by advertisements.
One of my favorite ways to practice gratitude everyday is to write down five things I’m grateful for. I try to shake it up a bit each day and avoid writing the same thing all the time. I write down the silly little things, like my weighted blanket, or even a sunny day! And I will, say- it definitely makes me a happier person. Give it a try, and watch the benefits of gratitude come rushing into your life!
6. Give Your Money Away
You might think that giving away your money sounds like a great way to have less of it. And maybe you’re right from a technical standpoint, but giving away a portion of your income every month helps you to build a healthier relationship with money!
It can be so easy to turn our focus inward, only paying attention to ourselves. But giving back to your community allows you to see the good that your money can do when you let go of it. This is one of those good financial habits that allows you to become a part of something bigger.
If you want to start being generous with your money but don’t quite know where to start, check out this article on How To Give Away Your Money (And Why It’s Awesome).
7. Increase Your Contributions
Have you ever gotten a raise and thought about all the money you were going to save with your cushy new salary… only to find nothing left in your accounts at the end of each month?
Lifestyle inflation is real! As we make more, we tend to spend more. And that’s totally okay, as long as it’s done in a thoughtful way and we ‘re increasing the amount we funnel towards savings at the same time.
One of the best ways to hedge against lifestyle creep is to raise your retirement contributions whenever you start to earn more. This is great for a number of reasons. It prevents you from spending all the extra money you’re making. It means that you will be able to live more comfortably in retirement. Plus, if you have an employer match, that’s more of that free money you get to take advantage of!
8. Practice Mindful Spending
If you want to save more money, you have to get into the habit of thinking critically about each purchase. The best way to do this is to prioritize spending on things that bring you value in life.
Mindful spending is the practice of being intentional with your money. It’s also making sure that your spending habits align with your own personal interests and pursuits.
On technique that can really help is to take your time when considering purchases by instituting a 24 hour rule before checking out. Or, think of each item in terms of how many hours you would have to work to afford that purchase. You’ll be shocked at how often that item you thought you needed doesn’t feel as important anymore!
For more tips for mindful spending, be sure to check out our article on Tips for Mindful Spending!
9. Use What You Have
Let’s be real for a second here. We live in a world where something bigger and better is always being pushed our way. So it takes constant vigilance to ensure we aren’t being swayed to buy something new when something we already have on hand would fit the bill just fine!
We often find ourselves getting a new car just because “old trusty” is getting up there in miles, or upgrading our phones even though the one we have works perfectly fine. But extending the life of that automobile or electronic gadget, holding on to what we have for even a few more years, can make a big difference in our finances.
For example, the average American has a car payment of $700 each month. If you decided to drive your car for an extra year, instead, it would be the difference of $8,400! (Or if you lived without a car completely it would save you $1M over a 30 year period (not kidding!)) That’s a pretty big chunk of change, and just imagine what it could amount to if invested instead.
We recently interviewed Katy Wolk-Stanley from The Non-Consumer Advocate. She’s famous for the phrase “Use it up, wear it out, make it do, or do without!” Katy makes it a point to buy almost nothing brand new. We could all take a page out of her book!
Related: 17+ Frugal Hacks to Try This Year
10. Start Cooking At Home
Now I love a Chipotle burrito bowl as much as the next person… But getting lunch or dinner out every day can completely wreak havoc on your budget! (and your health 😅)
The average American spends about $3,500 annually on eating out! Imagine what else that money could do for you and your financial goals. That cash could fund a family vacation, help you create an emergency fund, or even jump start that new business you’ve been keen to start.
If you’re new to cooking at home, BudgetBytes is a great place to start. Our friend Beth Moncel created the site to help people cook delicious (and easy!) meals at home without spending too much. Struggle Meals is another killer resource.
Plus, there are countless health benefits to cooking at home. Not only is it healthier, but it’s also a great opportunity to deepen your relationships with your friends, family, and loved ones.
11. Pay Your Bills On Time
Another good money habit that is paramount to your financial success is learning to pay your bills on time, all the time. Failing to do so will open up a Pandora’s box of problems that can lead you further away from your financial goals.
Missing a single payment on something like your utility bill, credit card bill, or car payment, can bring on a plethora of negative effects, like late fees. Even worse, something like this can smack your credit score silly in a big way! Missed payments stay on your credit report for seven years and significantly lower that all-important credit score. Payment history is the single biggest factor in determining how high or low your score is. It’s crucial to make sure those bills get taken care of in a timely manner.
If you struggle to remember to pay your bills on time, we highly recommend Automating Your Finances. Setting up auto pay for things like credit card bills, utility bills and car payments ensures that you never miss a deadline. Just be sure to still look at those statements every month to make sure your bills are accurate, and to “feel the pain” of that money leaving your account.
Pro tip: Here are all the credit card best practices to stick to!
12. Focus On Value (Not Cost)
I can’t tell you how many times I’ve opted to buy the cheapest version of an item on Amazon, only to have a break as soon as the return window ended. This is a clear indication that in those instances, I was leaning more towards being cheap than frugal.
Being price conscious is a good thing, but it can also backfire if you’re always picking the cheapest option. Before making a purchase, be sure to consider the value this item can bring you. Could spending a little more now actually save you money down the line?
Sometimes it makes more sense to buy a $100 pair of boots that are going to last you a decade than to buy a $50 pair of boots that will only last you one season. Work within your budget to determine what item will ultimately bring you the best value. Doing a little bit of research can go a long way.
Related: 12+ Frugal Habits to Save More Money
13. Continue Learning
You’re never too old to learn something new. Reading a book and learning from the masters is a great way to crush your money goals even faster! For example, do you know about the Rule of 173? This tiny trick alone can help you save thousands of dollars each year.
Life gets busy, and finding the time to curl up with a good book can be difficult! Audiobooks are a great option if you’re constantly on the go and still want to learn a thing or two. Don’t forget that there’s a plethora of free audiobook content available from your local library!
You can listen to amazing audiobooks on your commute, while you’re taking a walk, or at the gym! Plus, reading or listening to books is a great way to disconnect from screens. There are plenty of wonderful educational money podcasts out there as well if books aren’t your style!
14. Practice Stealth Wealth
If you build up a good nest egg, one of the best things you can do is not flaunt it- at least in the traditional sense. Ask yourself if you would rather have a thousand dollar designer bag, or thousand dollars in your pocket!
These items might display “wealth” but they don’t tell the whole story. People go into debt for items like this to try and keep up with the Joneses, but this can totally have the opposite effect! It can cause more financial stress in your life and make your poorer, not wealthier.
Building wealth doesn’t have to look like a brand new Ferrari in your driveway, in fact, it often looks like the exact opposite. Real wealth is the money you keep, not what you spend! It’s having enough money in your 401k so you can retire at a reasonable age. (or even retire early!)
Wealth goes beyond just dollars and cents too. It can look like having the time freedom to go take a hike in the middle of the week! Time flexibility is one of my favorite measurements of wealth.
Related: How to become a millionaire (and what real millionaires look like!)
How To Develop Good Financial Habits
Hopefully we’ve convinced you that it’s time to implement some good financial habits into your weekly routine! But how exactly do you start a new habit? How do you take a new behavior and make it something that is so ingrained into your routine that you don’t even think about it? Here are a few tips for getting these new habits to stick.
1. Adapt New Behaviors To Your Lifestyle
If your goal is to be healthier and you’re the kind of person who hates running, it’s probably not the best idea to try and run 5 miles every single morning before you’ve even had your coffee.
You may have heard someone say “the best exercise is the one you’ll actually do,” and this totally applies to your financial wellbeing also. If you hate running, but love biking, try biking to work every day, or walking to the grocery store instead of driving. If you hate budgeting in an Excel spreadsheet but you’re really into new technology, take YNAB for a trial run!
And if you need a little extra motivation to do whatever financial task you’ve been putting off, try adding in some elements to make it enjoyable.
2. Make Money Tasks Fun!
Have you ever thought of having a money date, by yourself or with a friend or partner?
Make those tasks you’ve been procrastinating on something you actually look forward to by getting a little creative. Maybe you can open up a bottle of your favorite beverage and reward yourself with some Netflix while you’re working on your budget! Or, you could go to your favorite coffee shop. Whatever gets you excited, find a way to put some of that magic into your money management.
Another way to make things fun is “money gamification.” Turn those mundane tasks into fun little money challenges, with rewards and levels, etc.
3. Start Slow and Steady
If you’re trying to learn a new instrument, you don’t go from not playing at all to practicing “25 hours a day” like you’re John Coltrane. If you want a new habit to stick to, you have to make it easy for yourself. The goal is to stick with it over the long haul.
Sticking with our instrument analogy, instead of starting with an intense, rigid practice routine, start with just ten minutes a day! Then, slowly ramp it up over time until you reach your goals. You an do the same thing with your finances.
If you’re trying to cut back on your spending, start by just focusing on one area of your budget. For example, try saving money on groceries or cutting back on those Uber Eats orders. Once you consistently get that spending under control, that’s when you can start looking for other ways to cut back.
4. Identify Your Spending Weaknesses
It’s pretty hard to break bad financial habits if you aren’t aware of them in the first place! We often overspend or blow our budget because we’re reacting to cues that trigger our behavior. For example, if you typically plan your meals every week, but go on an Olive Garden breadstick bender the minute you get stressed, you need to make a plan ahead of time for those days when you need some extra comfort!
Another example is if you find that you overspend on things like clothes, furniture, or knick knacks after scrolling through social media. Something about what you see on there could be triggering you to feel like you don’t have enough. If that’s the case, a work around could be to unfollow accounts that leave you feeling spendy, and follow some accounts that reflect the frugal values you hope to live by! And now a plug for the ever-inspiring How To Money Instagram account.
5. Replace Those Bad Habits
Let’s talk for a second about breaking those bad habits. It’s really difficult to go cold turkey with a behavior that is so deeply ingrained in the way that you operate. One of the best ways to effectively eliminate a negative behavior is by replacing it with a better one.
If you realize that you tend to shop online during stressful times, commit to calling a friend before you spend any money. Or go for a walk the minute you feel like logging onto your favorite retailer’s website. If you have a Starbucks habit, try replacing your daily coffee order with a cheaper version of that drink. It could make a big difference in your bottom line!
6. Change Your Money Mindset!
If you want to make some serious changes in your finances, one thing that could be stopping you is your negative money beliefs. If you believe that you will never have enough money, or that you will always be struggling, you will have a hard time holding onto your money and growing it into a glorious nest egg for the future!
This is because our identity is closely linked to our habits. One reinforces the other, which causes them to become stronger and more entwined. For example, if you believe that you’re an athlete, you’re more likely to go out and exercise. Then, when you go out and run a mile, it reinforces that belief!
The same goes for money. If you believe that you are capable of handling your money well, you are more likely to stick to your budget and contribute to your retirement accounts. And the coolest part is that in doing so, you’ll be reinforcing that idea that you are the kind of person who has stellar financial habits!
7. Hang Out With Different People
Don’t worry, we’re not telling you to ditch any of your friends that have bad money habits. But, it can definitely be helpful to start hanging out with new people that have good financial habits. Introducing healthy money conversations into your friendships and life will make some of those good financial habits rub off on you.
We have a How To Money Facebook Group that is a great start. All types of wealth builders from all over the world connect here and chat about money stuff. There are also likely a handful of local meet-up groups in your area, you just need to find them!
All in all, expanding your friend groups will introduce you to new perspectives and expand your money knowledge.
The Bottom Line:
Although building new habits can take a lot of effort, it is totally worth it in the end! You’d be surprised at how far good financial habits can carry you, even if you don’t have a specific end goal.
Good financial habits act as a safeguard against days where you don’t feel like thinking about your money. And they help us save our mental energy for those big picture decisions. What’s better than that!? 😄
If you want to learn more about how building strong financial habits can lead to a brighter future, be sure to check out Essential Habits For Financial Success!
**Feature pic by Nubelson Fernandes on Unsplash
