Humans are very much creatures of habit, so it stands to reason that we have some good ones and some not-so-good ones. One area of our lives where bad habits can be problematic is with our finances. Many people tend to impulse spend, and this is what has driven consumer debt to alarming levels. Kickstart your finances by building on some better financial habits today. You can avoid plunging yourself into monetary problems and even create a buffer for difficult times.
The Science Behind Habits
The human brain is an amazing piece of machinery, and it generally tries to conserve its energy whenever it can. This is why habits form so easily. By turning a routine into practice, it allows our minds to take it easy more often. The key to succeeding is replacing bad habits with good ones, and there is a science to this. Many experts refer to this as the 21/90 rule. It takes 21 days to form a habit and 90 days to turn it into a lasting lifestyle change.
Nine Financial Habits You Must Try to Build on
1. Pay Off Your Debts
The only way to get out of debt is to pay off any outstanding ones as soon as possible. While having a mortgage is an investment in your future, credit card debt is a drain on your finances, and the interest rates are usually quite high. Make a habit of paying down your debts every month but make sure it’s an amount that includes more than just interest.
2. Create a Realistic Budget and Stick to It
A good budget is all about simple mathematics. List your combined household income as well as all your essential expenses. These should include your mortgage payments or rent, utilities, insurance, medical and grocery expenses. With the money left every month, you should pay down some of your debt and try to save at least a little bit every month.
3. Track Your Spending
It’s impossible to create a lasting budget or cut back on non-essential spending unless you know where your money is being spent. This is why you need to track your spending. Make a habit of recording every single purchase you make daily. Once you see where your money is going, you’ll be better equipped to cut back on the things you don’t need.
4. Live Below Your Means
Just because you can afford to eat out or buy the latest digital device doesn’t mean you should. Learn to live as though you are earning less than you do and put the difference into a savings account.
5. Pay Bills on Time
Get into the habit of paying your bills and other commitments on time. Paying late just once can send your finances into a tailspin, and it could be months before you can pay on time again. Paying your bills on time also means avoiding late penalties.
6. Get Insurance
Life insurance is not something many people want to think about, but it can protect your family from financial ruin. Other insurance policies such as car, home and contents insurance can save you money if expensive items are lost, stolen or damaged.
7. Review Bank Statements Regularly
Take control of your finances by reviewing your bank statements regularly. You may track your spending, but you may not have allowed for bank and other fees.
8. Create a Savings Pot
If you haven’t already done so, open a separate bank account purely to serve as a savings account. Put funds into this account every month, and it won’t be long before you have a decent savings pot.
9. Invest Your Surplus
A nice sum of money in a savings account is a good thing, but why not make your money work for you by investing it? Buy shares in a company or try your hand at investing in the stock markets. Just remember to do your research before parting with your hard-earned money.
The key to creating better financial habits is to take it slowly. Keep repeating each task until it becomes a firm part of your routine, and you will not only have a healthier bank account, you’ll also break the nasty habits that can lead to financial difficulties.