Just like any goal, getting your finances stable and becoming financially successful requires the development of good financial habits – the habits of people who are never broke.
I’ve been researching this topic extensively in the last few years in my quest to eliminate debt, increase my savings and increase financial security for my family.
Here they are, in no particular order:
Make savings automagical.
This should be your top priority, especially if you don’t have a solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount automatically transferred from your checking account to your savings (try an online savings account).
Don’t even think about this transaction — just make sure it happens, each and every payday.
Action Items
- Research different options for high-interest savings accounts. I don’t want to give any recommendations here, because this depends heavily on the place you live, your financial situation, your job etc.
- Set up at least one savings account. If you have multiple financial goals – e.g. buying a house, starting a business – set up one savings account for each of them.
- Set up automatic savings. Whenever you get paid, make a small amount directly deposit into one of your savings accounts. You should add to each savings account each month – even if it’s just a few dollars.
Control your impulse spending.
Impulse spending is the biggest problem for many of us. Impulse spending, on eating out and shopping and online purchases, is a big drain on our finances, the biggest budget breaker for many, and a sure way to be in dire financial straits.
A great way to control impulse spending is to set up a wishlist. Whenever you want to buy something, put it on the wishlist and add the date. Revisit your wishlist once a week. Let one month pass. If you still really want it after one month, and you think you can afford it, go get it.
Action Steps
- Set up a wishlist. You can do this in a journal, on your phone on your laptop – whatever you’ll stick with.
- Write down all the things, you’d like to buy. Put the current date next to it.
- Once a week, revisit your wishlist. Add things, you’d like to have and examine all the items, that are older than one month.
- If you don’t like it anymore, delete it from the list. If you kinda still like it, but don’t need it immediately, let it sit. Maybe someone can get it as a birthday gift for you. If you really want to have something, think it will help you reach your goals or make your life better and it doesn’t break the bank – get it already.
Hack: If you’re anything like me, you always see stuff, you want, but when the time comes to make a wishlist for christmas or your birthday, you have no idea, what to put on it. Keeping a running wishlist will solve this probleme immediately.
You might think, that revisiting your wishlist every single week and thinking of stuff, you want to have, will trigger you even more to buy stuff, you don’t really need. However, I think, that the best way to live below your means is to increase your (passive) income. Keeping a list of all the things you want will boost your motivation to get to work.
Evaluate your expenses, and live frugally.
If you’ve never tracked your expenses, try it for at least 30 days. Then evaluate how you’re spending your money, and see what you can cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary.
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Invest in your future.
If you’re young, you probably don’t think about retirement much. But it’s important. Even if you think you can always plan for retirement later, do it now.
The growth of your investments over time will be amazing if you start in your 20s. Start by increasing your 401(k) to the maximum of your company’s match, if that’s available to you. After that, the best bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
Keep your family secure.
The first step is to save for an emergency fund, so that if anything happens, you’ve got the money.
If you have a spouse and/or dependents, you should definitely get life insurance and make a will — as soon as possible! Also research other insurance, such as homeowner’s or renter’s insurance.
Action Steps
- Research different options for emergency funds – I don’t want to give any recommendations here, because this depends heavily on the place you live, your financial situation, your job etc.
- Start an Emergency Fund.
- Set up automatic monthly savings to your emergency fund.
- Get a disability insurance.
- Get a life insurance.
- Set up a will.
Eliminate and avoid debt.
If you’ve got credit cards, personal loans, or other such debt, you need to start a debt elimination plan. Here’s how to do it:
Set Up Your Debt Elimination Plan in 4 Simple Steps
- List out your debts and arrange them in order from smallest balance at the top to largest at the bottom.
- Then focus on the debt at the top, putting as much as you can into it, even if it’s just $40-50 extra (more would be better).
- When that amount is paid off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the $50 extra for a total of $120) and add that to the minimum payment of the next largest debt.
- Continue this process, with your extra amount snowballing as you go along, until you pay off all your debts.
This could take several years, but it’s a very rewarding process, and very necessary.
Use the envelope system.
This is a simple system to keep track of how much money you have for spending.
Let’s say you set aside three amounts in your budget each payday — one for gas, one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three separate envelopes. That way, you can easily track how much you have left for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in these categories. If you regularly run out too fast, you may need to rethink your budget.
Action Items:
- Look the YouTube Video to understand the Envelope System for Budgeting
- If you haven’t already, fill out the budget spreadsheet.
- For each amount, you budget each month, take an envelope and put the category on it.
- At the beginning of each month, deposit all the money, you have budgeted and divide it into the envelopes.
- Whenever you buy something, take the money from the corresponding envelope. Once it’s empty, you can’t spend more money in this category.
Hack: If you don’t like to carry a lot of cash, set up the envelopes and put fake money into it. Whenever you buy something from the category, but pay with your card, take out the fake money.
Pay bills immediately, or automagically.
One good habit is to pay bills as soon as they come in. Also, as much as possible, try to get your bills to be paid through automatic deduction. For those that can’t, use your bank’s online check system to make regular automatic payments. This way, all of your regular expenses in your budget are taken care of.
Action Items:
- List all bills, you have to pay regularly (e.g. monthly)
- Set up automatic payments for each of them.
Read about personal finances.
The more you educate yourself, the better your finances will be.
Action Items:
- Check out this List of Best Personal Finance Blogs in 2020
- Check out my 35 Genius Podcasts to Make Your Goals a Reality In 2020
- Pick one blog and one podcast, that you like best.
- Spend at least 15 min / day reading on the blog of your choice and / or listening to the podcast of your choice.
- Every day, after reading / listening, write down 5 things you learned.
BECOME A BILLIONAIRE BY DOING WHAT THE RICHEST PEOPLE DO EVERY DAY
Look to grow your net worth.
Do whatever you can to improve your net worth, either by reducing your debt, increasing your savings, or increasing your income, or all of the above.
Look for new ways to make money, or to get paid more for what you do. Over the course of months, if you calculate your net worth each month, you’ll see it grow. And that feels great.
Read: 101+ LEGIT WAYS TO MAKE MONEY ONLINE IN 2020 IN YOUR SPARE TIME
There you go! Those are the 10 habits of people, who are never broke.
Because I love actionable advice, I added some action items for each habit, so that you can get started immediately.
Leave a comment below to share, which of these habits you already have and / or which ones you plan to adapt starting today.
If you found this guide helpful, please share it with your friends. I’ll really appreciate that and will be happy to help them become financially independent as well.
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