18 Better Money Habits You Need To Start

The first step towards a secure financial future starts with practicing some better money habits. If you wish to retire rich you have to take note of your money habits like saving small amounts every month, curbing unnecessary expenses and so on.

With a little foresight on your part, you can save and have enough for your future as well as be prepared to tackle any unforeseen emergency.

Like forming all good habits, saving money is also about training your mind about the importance of budgeting, creating small financial goals and so on.

In this blog post I will share 18 such practical tips to train your mind and develop better money habits.

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What are Better Money Habits?

Developing better money habits involves adopting practical lifestyle changes and practices to help you achieve your financial goals and establish a healthier relationship with money. This will also improve your overall financial well-being and reduce stress associated with money.

Start by identifying any bad money habits, such as impulsive buying and replace them with positive habits like making purchases when in genuine need.

The tips in this article will guide you to handle your money better and gain clarity when taking any important financial decision.

18 Better Money Habits To Start Right Now

Start With Setting Some Financial Goals

When we speak of better money habits, it starts with setting some smart financial goals. If you don’t know where to begin ask yourself if you have any financial liabilities, for example student loans or mortgages.

Follow These Easy Tips:

Note Your Financial Goals

What are your financial goals and how much money you need to accomplish them? Some common examples could be:

— Buying a car

— Purchasing a house

— Getting married

— Traveling the world and so on.

Make Your Goals Time-Specific

When you have time-specific goals it makes you more focused to achieve them. So catagorize your goals into:

• Short-term financial goals – 6 months to 5 years
• Mid-term goals – 5 to 10 years
• Long-term financial goals – More than 10 years.

Make Goals Easier To Achieve

This would help you in being clear about your objectives, like if you want to purchase a house within 2 years which would require you to make a down payment of $15000, you can divide this amount into 24 months which comes to $625 per month.

Create A Monthly Budget

A good money habit you can start is to create a monthly budget to help you track your monthly expenses, savings and your spending habits.

Tips for creating a monthly budget.

Note your monthly income

How much do you earn in a month? Do you have a fixed job where you taxes are deducted? In that case take into account your take home salary only.

If you are self-employed determine how much you make on an average in a month. If there are additional incomes in form of a part-time job, social security or child support include those as well.

Note Your Monthly Expenses

Find your credit card and bank statements as well as any other receipts from the previous month to determine how much you spend monthly.

Make a list of your monthly expenses like

• loans
• mortgage
• rent
• groceries
• insurance
• child care
• utility bills

Determine Your Fixed And Variable Expenses

Fixed expenses are those expenses that you incur monthly and their amount stays the same like rent, childcare, internet service, any set credit card payments, mortgage and any other expenses whose monthly amount remains the same.

Variable expenses are those which tend to fluctuate on a monthly basis like,

• Entertainment
• Gasoline
• Dining out
• Groceries
• Buying Gifts
• Any unforeseen expenditure

Since your fixed expenses are likely to remain the same each month, allot that amount from your income towards your fixed expenses as soon as you receive your salary.

Likewise assign an estimated amount for your variable expenses. If you aren’t sure how much money you should allot go through your bank and credit card statements to have a rough estimate.

Use tools like monthly budget planners, grocery and meal planners to track expenditures.

Pay Yourself First

When we talk about better money habits, the concept of paying yourself is almost always cited, many times after you are done with all your financial obligations you are left with inadequate savings in your bank account.

So each month set aside a particular amount which can go to your retirement fund, emergency fund or for other investments. Before you set your budget, set a particular amount each month for yourself.

Know where to invest

Invest money under the tax-advantaged account, like a 401k or 403b. As a self-employed person you have options such as a Solo 401k, an IRA, SEP-IRA, or a SIMPLE IRA.

You can also use the Roth 401k or Roth IRA, where tax on contributions is paid up front, but withdrawals are completely tax-free.

Additionally you can also save money with a 529 savings plan, which helps your earnings to be tax-free if you use the funds to pay for qualified education expenses.

A health savings account or HSA also offers huge tax savings, if you have a high deductible health plan, you can pay for qualified medical expenses totally tax-free.

Start saving early

Although not a prerequisite, but it helps if you start saving and investing money early in life. In my post about money saving tips for your 20s I have spoken about the magic of compound interest when you invest your money.

In layman terms, your money increases exponentially due to compound interest, so if you start investing from an early age you will have a huge advantage in wealth accumulation when you retire.

But it’s never too late to begin planning for your future. If you didn’t start investing early, know that most retirement accounts do allow for additional contributions to accumulate more for your retirement.

Invest based on your retirement age

Suppose you are 40 and you plan to retire by 70 you have a time-horizon of 30 years to keep investing.

The longer your horizon the more aggressive you can be with investments, if you wish. Like stocks are generally very risk but these give the highest returns while bonds are less risky but they offer fixed returns with lower rates.

Here is a simple calculation to invest your income wisely to get maximum returns. Like if you are 30 years old, subtract your age from 100 and you’ll get 70, use this as percentage to invest in stocks, and the remaining can be invested in bonds or money market funds which gives you low but safe returns.

Know The Hidden Charges In Investments

A smart money habit, when you open a bank account or make any investment is to read carefully about the charges, maintenance costs, or any hidden costs.

Not all of us are financial nerds so the employees of financial institutions are bound to explain their terms and conditions to you, so if you don’t understand something ASK.

In fact before opening an account do some research on which banks offer the best interest rate, or have good investment schemes available.

Maintain A Good Credit Score

Maintaining a good credit score is certainly one of the better money habits you can develop.

A good credit score can get you favorable interest rates on loans, lower interest rates on credit cards and finance charges, as well as secure better rates on insurance cover.

Use your credit card prudently by paying your bills fully on time, and charging recurring expenses to your credit card; this can gradually improve your credit score while also earning rewards and cashbacks.

Manage Money better with the 50/30/20 rule

To manage your money better follow the 50/30/20 rule, it is actually quite a simple method of allocating your monetary resources.

Allocate 50% of your income towards your needs like rent, debt payment etc., while 30% of your salary should go towards your wants like entertainment, dining out etc. and 20% of the remaining amount should go into investments.

If your needs and wants go over this 50% and 30% mark, you need to make adjustment in your expenses.

Gain Financial Knowledge

Gaining knowledge about money can enhance your understanding of how to improve and advance your financial literacy. If you want to develop better money habits, these resources can help you a lot.

1. The Fidelity Investments website

2. The Faith Driven Investor podcast

3. The Rich Dad Channel on YouTube

4. David Bach’s The Automatic Millionaire.

Use automation to save money

A better money habit when it comes to savings and investments is to use automation. Automatically transferring money each month to an investment account from your salary will instill in you a much needed financial discipline.

Automated investments can keep you money habits in check and manage it wisely. This is why retirement plans like a 401k work, because it is deducted from your salary automatically.

Identify Triggers Of Impulsive Spending

Are there certain types of product which trigger any impulsive shopping instinct? Do you indulge in emotional spending when you are stressed or sad?

Whatever triggers you to spend recklessly identify and curb it, this includes not carrying your credit cards with you all the time or deleting those multiple shopping apps.

If you have an instant urge to buy something, buy it a few days later after going over your monthly budget.

Another useful tip would be to start reading your bank statements, as this is the best way to track your spending pattern.

Create An Emergency Fund

Unanticipated emergencies can arise at any moment so create an emergency fund and allocate a portion of your earnings each month to this fund.

It is also crucial to have adequate life insurance coverage to manage your living expenses for up to 10 years, your children’s education, mortgage, and any other outstanding loans.

Plan Your Debt Payments Wisely

Debts are terrible so don’t let it accumulate. If have credit card debt ask if your creditors can lower your APR (interest rate).

If you can refinance your home-loan at a lower interest rate than the current one then go for it.

Track your debt-payoff goals with a timeline and visualize how good it will be when you are finally debt-free. Use a debt repayment planner to stay focused on your goals.

Live Within Your Means

Most time we purchase things because we want them but don’t actually need them.

Like while buying for your groceries in a mall you come across a very expensive variety of wine, logically you know you don’t need it, but still you go ahead and buy it.

Now we all give into our little indulgences once in a while but it becomes a problem when that ‘once in a while’ becomes frequent and we go overboard exceeding our spending limits.

Find An Accountability Partner

Find an accountability partner who would help you to stay focused on your financial goals by speaking some uncomfortable truth, it could be close friend, spouse or your partner. Here are some ways you can discuss money with your partner.

Good Money Habits for Daily Life

Better money management can be done easily in your daily life with a few checks and balances in place. Follow these money saving tips.

Meal Planning

Cooking meals at home can easily save you $100 or more per month. Planning your meal and grocery for every week will save an extra buck; you would spend on a food delivery service or dining out.

Pay with Cash Whenever You Can

Use your credit card for big expenses, like travel tickets, or monthly groceries while for shopping purposes carry your debit card or cash.

When you hand out cash or see the message of amount debited from your account you might not have the urge to shop impulsively.

Prepare Coffee At Home.

You can save over $1,000 a year, by brewing coffee at home instead of buying it from Starbucks every day.

Wash Your Car At Home.

Washing your car at home instead of getting professional car wash can save you $200 to $360 a year. If your area has good public transit, commute on the bus or subway or consider carpooling to save fuel costs. Running your errands into one trip every week also allows you to save on fuel costs.

Save Money on Utility Bills

Assess your utility bills and explore opportunities to reduce costs by implementing practices that promote conservation of water and energy. Additionally, if feasible, consider negotiating medical bills to decrease expenses.

Cancel Endless Subscriptions

If you feel you’re overspending on entertainment, consider exploring cost-free activities that can be enjoyed by the entire family. Also, eliminate subscription services that are infrequently used.

Shop Wisely

Focus on purchasing higher-quality items as they last much longer, than lower-priced items. Check prices online before purchasing something at a store and use coupon codes when shopping online. Shop at thrift stores and second hand shops to drive a good bargain.

Final Thoughts on Better Money Habits

The most challenging aspect of building better money habits is discovering how to begin. By gradually incorporating some of these suggestions you can regulate your spending and saving habits, create a budgeting system, pay off your debts and pave way for a stable financial future.

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