Do you wish to have more money in your bank account? Who doesn’t? But more often than not we cannot save as much as we hope to.
Sometimes there are many unforeseen and unplanned expenses, which can be avoided with a little foresight on our parts, but you know what it’s never too late to start. In this blog post I will share 17 practical tips and tricks to train your mind and help you develop better money habits.
Saving a decent amount each month is pretty doable if you only set your mind to it. Like all good habits developing a habit of saving money works mostly on a psychological level. So are you ready for some mind training?
Practical Tips for Better Money Habits
Write down your income sources: Sometimes our mind needs a visual conformation of facts it already knows. So this is a very simple mind trick where you note down your primary or multiple income sources.
Once your mind understands where the money is coming from it gets into an organisation mode on how to manage this money conveniently and to save this particular amount as much as possible.
Do this very simple exercise and do let me know if it has made a difference.
- Note down your monthly earnings in notebook. Write down what you receive each month or weekly, any amount that is credited to your bank account or received in cash. For the sake of simplicity, don’t include your interest from bank account, mutual funds or other investments.
- Next, write down all the things you want (pink rainbows and unicorns included!)
- Now determine how much you want to save out of this amount monthly.
- At last, decide which of the things you had written down earlier, you absolutely need to purchase, like your life depends on it. (pink rainbows and unicorns not included sorry!).
If you pay attention you will notice, your mind has automatically switched on to work mode and is now assessing each of those items you listed and giving you logical reasons as to why you shouldn’t purchase it.
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The difference between needs and wants:
Now that we are all done with tricking our poor little mind, it is a good time to tell you this simple exercise will give your mind a reality check in terms of your monetary strength and will help you distinguish between needs and wants.
- Needs and Wants: If there is one concept I had learnt absolutely beautifully from my dreary and boring as hell Economics lessons is the distinction between needs and wants.
- Needs are defined as those requirements which are necessary for your survival, like food or shelter.
- Wants are those requirements which you create and these are not necessarily pertinent to you survival, like dining out every other day.
Naughty Mind v/s Logical Brain
To give you my own interpretation, I think our mind is a naught little kid that is easily fascinated by the candy store. It needs all sorts of candies and ice-creams, even when our rational brain opposes it.
Your rational brain understands that you don’t need that candy you only want it because it tastes delicious, even though it will give you cavity. The mind quickly shuts down your rational brain and compels you to buy the candy. Logic be damned!
This is a simple candy example, if you notice your mind easily lures you into buying stuff you don’t actually need but you still purchase it because you want it.
But there is nothing wrong with it!
We all love to give in to our little indulgence once in a while.
But it becomes a problem when that “once in a while” becomes increasingly frequent and we go overboard and fall into the trap into buying things impulsively or become shopaholic!
Pay yourself: Before you set your budget and start making all the expenses, set a particular amount each month for yourself. Make this non-negotiable commitment to yourself.
The concept of pay yourself is necessary since most times after you are done with all your financial obligations you are left with inadequate savings in your bank account. You then wait for the next month’s paycheck repeat the same cycle.
Ultimately this negatively impacts your savings.
So each month set aside a particular amount for you. This money can go for your retirement fund, emergency fund or travelling or investing further. You will at least be assured of your sound financial future.
Some Book Recommendations
The bottom line is start saving and there is no right time or right age to start investing so begin now. If you are eager to learn about investments and personal finance I really recommend reading David Bach’s The Automatic Millionaire. Its a good book for those who are taking baby steps towards personal finance. Two other books by David Back which can be good financial guides are Start Late, Finish Rich and Smart Women, Finish Rich.
While the former is a guide on how you can have a substantial amount in savings even if you start investing late, the latter is a solid guide for women to know and make wise financial decisions.
Both books make it easy for readers to understand personal finance, a subject not many people are comfortable speaking.
Take up the 52-week challenge: Have you heard about the 52-week challenge where you start by saving $1 in the first week, $2 next week, $3 in third week so as each week passes by you keep increasing the amount by a dollar each until by the 52nd week you gain a total of $1368! How awesome is that!
Get a nice piggy bank like this one below and start this challenge, you can take this challenge individually or as a family. You may also modify this challenge as per your convenience. You don’t have to be in the US to take this challenge you literally can be anywhere in the world and take this up.
Determine non-negotiable expenses: There are some expenses you have meet each month like rent, utility bills, grocery bills, travel expenses etc.
Write down all those financial obligations and calculate the amount you are required to spend each month and total amount these non-negotiable expenses cost you each year.
Is there a way you can formulate a long-term plan to lessen some of these costs? If yes, then work on it from today.
Creating a Budget You Understand: Financial requirements and costs vary from person to person. Hence, create a budget as per your requirement and mostly importantly one that you understand.
To get good idea as to how you would go about allocating your monetary resources, you have to read this excellent article by Nerd Wallet on the 50/30/20 rule of budget allocation.
Let me just give you a gist of the 50/30/20 rule.
- Calculate your income after taxes. Then allocate 50% of the remaining amount towards your needs that is the non-negotiable expenses.
- 30% of salary should go towards your wants like entertainment, dining out etc.
- 20% of your salary should go into investments.
According to this system, if your needs and wants go over this 50% and 30% mark, you need to analyse your expenses and work out a solution. I find it an extremely effective budget allocation process.
Additional Tips for Better Money Habits
Curb unnecessary expenses: Continuing the point of wants and needs. There are so many things we purchase because we feel it’s necessary but we don’t actually need.
When you observe these things add an unnecessary monetary obligation which can be curtailed with a little prudence on our part.
- Meal Planning: Planning your meal and grocery for every week will save an extra buck; you would spend on a food delivery service or visit to the grocery store.
- Use public transport: If your area has a solid public transport system and if it is convenient for you financially and healthwise, then you must take use it. You could also consider carpooling.
- Turn off lights and gas: Be a good samaritan and save these scare resources when you are not using these. Remember to switch off lights, turn off water tap.
- Cancel endless subscriptions: How many do subscriptions do you need? Gym, yoga, pilates, Netflix, Amazon, endless magazines and newspaper subscriptions, you don’t need it!
- Make your own coffee: Just imagine how much you will save!
Track Expenses and Identify Triggers: If you are an impulsive buyer you must identify your trigger points.
- Do you get crazy shopping whenever you visit a store, mall or market area?
- Are there certain types of product which trigger the impulsive shopping instinct? I go absolutely bonkers with stationery and earrings!
- Is the sale season heavenly bliss for you or online shopping is your safe den?
Whatever triggers you to spend more or rather recklessly identify and curb it. Every bank provides bank statement to its customers every month. A lot of people ignore to read it (slowly raising my hands!).
But let’s make it a habit to read bank statements every month.
You can find out your spending behaviour and also any additional cost your bank has deducted from you, like, ATM card costs, which is incurred when you withdraw money from other bank ATMs instead of your bank more than ‘x’many times a month, or any annual account maintenance cost.
3 Money Saving Apps I recommend:
- Mint: A very popular app and free too! Mint is provides a wholesome analysis into your financial health.
- Clarity Money: Also a free app. It helps you organise your personal finance by recognising opportunities for discount, coupons, catagorising your budget.
- You Need A Budget: Another popular budgeting app, it is good for beginners who want to start with the budgeting.
Go to the good old book-keeping: But if you are more harassed than impressed by apps simply write down your daily expenses in a book or a sheet. I have always seen my parents stick to this traditional method.
Get a good bank: When you open a bank account read carefully their charges and maintenance costs, any hidden costs, the rate of interest offered, investment schemes available, the expected returns.
If you don’t understand something ASK. Not all of us are financial nerds so the bank employees are bound to explain their terms and conditions to you.
In fact before opening an account do some research as to which bank is best suited for you.
Invest small amounts: Investments are for better financial and mental health. When you are financially secure you are mentally assured in face of a crisis. But how do we invest?
Investing in small amounts consistently is always better that one-time lump-sum investment. So invest small amounts consistently every month, if possible.
Since I live in India I am listing some of the options available in my country. However, most countries have multiple and similar investment options too:
- Bank Fixed deposits
- Time deposits
- Recurring deposits
- Post Office Schemes like Monthly Income Schemes, National Savings Certificates etc.
- Public Provident Fund
- Stock Markets
- Mutual Funds
When investing in mutual funds or stock markets it is good idea if you go through some financial planner, especially when you don’t have any idea of how the market works.
Sparse use of credit cards: Credit cards are really bane rather than boon. I personally have never used credit card, ever.
Since there are already enough bills to be paid, I find it pointless to add an extra burden. Besides, my debit cards work just fine.
But I understand you may have different circumstances. So for starters, use your credit card for big expenses, like buying travel tickets, or buying monthly groceries.
For shopping purposes carry your debit card or cash.
When you hand out hard cold cash or when the amount gets automatically deducted from your account you will be inclined to control you urge to shop impulsively.
Parting with cash is difficult than swiping a card.
Make an effort: The singular most important factor in saving money is to make an effort and it starts with you.
Just take the first step towards saving and investing.
There is an old Indian proverb which says, “There is no bigger addiction than saving money, it is more intoxicating than alcohol.”
So those were some of my tips on cultivating better money habits, hope you found the post useful. Do you have some more tips on the same? Do share it. We all could do with a tip or two Right?