Developing Better Money Habits

To really start to see some long term changes in your finances, developing better money management habits is a necessity.

There are money saving tips to help you meet your financial goals, tricks to save money on your household costs and many other quick ways to save a little extra money, but those quick fixes will not help you develop better money managing habits in the long run. The best way to start maximizing your money is to change the way you habitually approach and handle your finances.

Have a Financial Plan

Studies have shown that people who lay out a budget and financial plan for at least the near future are much more likely to meet their financial checkpoints and ultimate goals. A common way to start planning is to consider the upcoming five years – what income you hope to have, the expenses you expect to face, investment or savings goals, and so on.

If you can, extend that picture even further to think about what your long term goals can realistically be and what you may have to earn or sacrifice in order to achieve them. Make sure to actually write down your plan. Seeing it laid out in front of you can be the difference between following through and falling to the wayside.

Invest

One of the best ways you can start to make a real change in your finances is by investing. Although many people think that investment is only for the 1%, in reality anyone can start investing with even a small amount of money. If you have no form of investments already, the best way to begin is by investing in yourself. This can mean starting an emergency fund, putting more into your employer-matched retirement plan, saving for that certification you would like to progress to the next level professionally and so on.

If you already have those bases covered, think about other long-term savings options that may fit your budget and time restraints, such as stocks and bonds. Along the same lines, once you have decided what to invest in you must decide how to regularly put money towards these investments. One popular way to save is to dedicate all of your spare change (or rounding up for purchases made with a card) directly into your investment account.

Ditch Small Daily Purchases

When you draw up your budget, you generally start by writing down your major expenses like your housing costs, car payments and so on. Those costs are easy to remember and easy to add up, so you consider them the bulk of what you need money for. When you look at your finances in this way, however, you can easily ignore small daily expenses that add up to significant sums over the long term.

The typical example is coffee. For those of you who visit your local coffee shop every day before work, you may be spending upwards of $150 a month for that daily cup of coffee. When it comes to things like this, try to be as realistic as possible. If you are driving a different route to work that adds an extra 20 minutes to your commute but that helps you avoid a 50 cent toll, you are not looking at the big picture. Try to cut things out that are costing you money but not adding much to your daily life.

Believe in Yourself

Having belief in yourself can go a long way, especially when it comes to your long term spending habits. In order to really start to see a difference in your wealth, you need to start behaving like you deserve the money you have and then some. It is difficult to convince a potential employer or client that you deserve to be paid a lot of money if they can see it written on your face that you do not believe you are worth as much as you are asking for. Another way to think of it would be to ask yourself why other people deserve to be rich and you do not. Once you realize that you have as much a right as the next person to be wealthy, it will be much easier to convince others of your worth as well.

Surround Yourself with Successful People

Your personal network can have a great influence on both your perspective and your opportunities. Studies have shown that being around motivated, successful people can better motivate you to take advantage of opportunities and strive to be successful then being around people with few aspirations. Beyond how your friends affect your motivation, your social network can be one of the most important vehicles for upward mobility as it opens you up to new ways of thinking and interacting with people. Ideally, you should surround yourself with people you look up to that you can form a mutually beneficial relationship with.

Prioritize High Interest Debt

Most Americans are tens of thousands of dollars in debt, either because of credit card bills or education loans. If you have a high interest debt, it is best to tackle it as soon as possible before dedicating larger proportions of your income to savings or investments. This is important because, while it may seem like a good idea to keep as much of your income soluble as possible, it actually does not make sense from a mathematical standpoint largely because of the effects of compounded interest. Unless you are earning more from interest on your savings than you are paying on your debt, putting off paying the debt first is a bad idea.

Save Unexpected Cash

If you are lucky enough to receive a bonus from your job this quarter, a big check from your tax rebate, winnings from a lottery ticket or any other significantly sized sums of money, pretend like you did not receive it. Put it immediately towards your emergency fund or investments, not towards a surprise vacation to Tahiti. Though it may be tempting, stashing away this money will make it go a lot further than spending it on a one-time event or item.

Cook at Home

Everyone’s lifestyle and situation is different, so it is hard to come up with a general rule for everyone to follow when it comes to how often you should eat out. There are some basic truths that should apply to most people, however. If you are eating out more often than you are eating at home, you need to eat out less. If you look at your banking activity and see that 30% of your income if going to take-out and restaurants, you need to cut back on eating out. Otherwise, try to think about what is a realistic expectation for how often to eat out given your unique situation.

Educate Yourself

These days you can learn the basics of almost anything by doing enough research on the internet. In addition, more and more universities are offering free courses online for a vast variety of different subjects. Many of these courses can be taken for credit towards a certification or even a Bachelor’s or Master’s degree. Once you have organized your finances to the best of your abilities, you can sign up for one of these courses to learn about the best next steps to good money management or smart investment for you.

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