Simple Tips to Develop Better Money Habits
In school, you learn about debit, credit, and finances but many can admit they were not fully prepared for real-life adult expenses. It took some buying cereal with their own money, and some soap. But if you learn how to spend money and save better, your money can go a lot further. They say experience is the best teacher but with the knowledge experience brings, also comes mistakes and some, at an expensive price.
Here are tips to help prevent money mistakes and develop better money habits.
- Create a budget
- Spend what is left after saving
- Borrow money to make money or do not borrow at all
- Eat out less and adjust your habits if necessary
- Note your net income
- Set your goals
- Extra source of income
- Make savings account inaccessible
1. Create a budget
Creating a budget helps you track your spending. When it comes to developing better money habits, one effective way to control your money is to review your financial situation, what gets measured gets managed.
It is important to not only create a budget but firmly stick to it. This goes a long way than just tracking your expenses. Instead, you will have to think critically about how you are spending your money and look for ways to cut corners on your outgoing cash. Hence you have to stick to the list. When you think about improving money habits, following a list is a good idea. So make a list of needs and stick to it. Create a habit of only purchasing items that are on your list and this will help you decrease the likelihood of wasting money on things that you do not really need.
2. Spend what is left after saving
Save what is necessary, not what is left after spending. To do this after preparing your budget, cut out unnecessary expenses and once you have an idea of what you spend in a month, you can set a savings goal. Figuring out how much you spend helps you save better. Keep track of all your expenses, cut unnecessary spending. Savings could be in terms of long term savings or short term savings.1
3. Borrow money to make money or do not borrow at all
Money can solve a lot of problems, and sometimes it makes sense to borrow money for things that will improve your life over the long-term. These loans can help cover expenses or urgent cash needs.2
The first step is to make sure that borrowing is actually the right choice. There are good debts and bad debts: good debt pays for things that provide long-term value and possibly even gain value over time, and bad debt pays for current consumption. So make the right decision, and make sure that you match your loan to your needs.3
4. Eat out less and adjust your habits if necessary
Eating out is easy. But it’s expensive. Food sometimes takes up a large chunk of most people’s monthly budget and breaking the fast food habit is one of the easiest ways to cut costs.4 The key is to have a plan in place to avoid eating out. You can plan your meals, eat from home, seek out affordable meal options, set a weekly limit, and you can also cut out, impulsive and emotional spending
5. Note your net income
Another tip for better money habits is to note your net income. This helps you create a budget as well as set a saving and spending plan. It also helps you to note if you are making enough or not enough. If you note the amount of money you have coming in, and it is not enough you can plan to increase your means of income or again, cut down on some spending. Noting your net income also helps you take better money decisions like taking a loan or mortgage.
6.Extra source of income
If you have a hobby or talent, you may be able to find a way to supplement your income, by making it lucrative. Having an extra source of income can also be helpful if you ever lose your job, or if you discover that you are not making enough.5 It also helps you to save more and clear debts that might not be cleared easily depending on only one source of income.
7. Set your goals
Now that you know your net worth and have made decisions to save and cut down on unnecessary expenses, you can make a list of all the financial goals you want to accomplish in the short- and long-term. Short-term goals are goals you want to achieve within the year, and Long-term goals are the goals that may take years to achieve, these include; retirement, or buying a house. It is good to identify your goals and priorities before you start planning a budget and making a savings plan. This will help to set out a well-defined plan.6
8. Make savings account inaccessible
It is a bad money habit to tap into savings when something unpredictable comes up or rather if your savings are easily accessible spending your savings on things not included in the savings plan. This is a bad money habit that affects savings and may delay achieving saving goals. What you can do to avoid this is; make sure your savings account does not have a withdrawal card, avoid connecting it to an app that allows easy spending. Use a savings app to save and set a withdrawal date. To also make sure you are committed to your savings you can automate savings too by connecting to an app that withdraws savings automatically, or by setting up an automatic transfer between your checking and savings accounts.