If you are trying to increase your savings this year, do you know that good money habits can help you do just that?
Yes, money habits can be a powerful tool in getting you to reach your goal of saving for a particular fund. But take note that they need to be the right types of habits. Over the past few years, you could have formed some money habits even without you realizing it. They could have developed from the routine you do over and over again.
Take that morning drive or commute to work, you might not notice it but you keep on picking up breakfast on the way. Every Friday night, do you reward yourself with takeout so you don’t stress about cooking food when you get home? Or do you need to keep buying new gear to help motivate you to exercise?
You might not notice it but doing these things over a long period of time transforms them into a habit. There is a tendency you do them without thinking twice because you are so used to them. For example, professional athletes practice day in and day out for their chosen sport. That is why on game day, they make it look easy. This is because their mind and body have done the same thing over and over again in practice.
Using the same principle, good money habits can be formed. In fact, it would be a lot better to focus on these rather than unnecessary and avoidable expenses, focus on the ones which can help you reach your goal, not on the ones that can pull you away from them. There are a few tips to help you develop those good habits, but here are some of them worth looking into.
Set a goal
A good first step if you want to develop good money habits is to always set a goal. This gives you direction and purpose. You get to focus and set your sights on a target as you move forward. When setting goals, these are usually long-term targets supported by short-term objectives. This setup helps most people get to where they want to be.
One of the biggest goals people have is being able to buy their own house. Since buying a house is also one of the most expensive purchases you can ever make in your life, it can come off as downright scary. But there are times when having a house you can call your own can give you stability. This is one of the reasons why buying a house is one of the top financial goals for many Americans.
Setting a goal can even mean retiring early so you can enjoy the things you love to do. Your love for travel would need you to be strong and healthy to enjoy the places you want to go to. If retirement is opening a business you love, then that is a goal you have to carefully plan for as early as possible.
When you start talking about good money habits, the goal is to create consistency. And the best way to get started with that is, to begin with, small steps. You do not have to start with huge amounts to get big savings. Since the goal is consistency, saving small amounts can get you started now. As some people would say, the best time to start saving was yesterday. But the second best time is today.
Starting small helps you get started and you get to include the amount in your budget. It will also allow you to continue saving for a long time. In doing so, you build consistency and form the habit of setting money aside. Over time, you start doing it without thinking much about it. At that point, you already have built a habit.
When you do a certain task automatically without putting much thought into it, then you are already building a habit. The easier it is to get started, the faster it would be for you to
Increase over time
Once you find it easy to set aside money every month, you can now begin to slowly increase the amount you save. Just like the way you started out, you do not have to rush into it. Much like how you started with a small amount, the increase in the money you set aside needs to be in small increments. The goal is not to overstrain your finances to a point that you give up saving money.
It can be an increase of a few dollars every month. The important thing is that you put in more than when you started. Increasing it slowly over time can help you sustain the habit without thinking too much about the amount you are putting in. When you feel comfortable with the amount, increase it again.
Next thing you know, you are already setting aside a considerable amount in your income towards your savings. The good thing about this is that you can also get to take advantage of compound earnings. This is where the interest you earn over time is added to your principal amount. You then earn interest on that increased principal amount and the cycle just keeps repeating itself. This helps accelerate your savings over a long period of time.
Stick to it
Now that you have a goal and you are able to build the good money habits of setting aside money every payday, the next goal is to stick to that routine. This looks like an easy task but it is actually one of the toughest things to do when it comes to your finances. Building a habit is a huge help but over time, it becomes challenging to keep on doing the same thing over and over again.
Also, you will come across life emergencies where you might have no choice but to put a hold on your savings routine. You might go through a life-changing situation like health emergencies, death in the family, or even another global pandemic. In these instances, you might not only have to slow down on saving money but use part of what you saved to help you through a difficult time.
When situations like these happen, your priorities can change in an instant. From saving for a house downpayment to making sure that the medical operation is paid for. It can be setting up a business over putting food on the table. It is best to focus on what you need at present but never loses sight of your original goals. You can slow down or pause but never give up. Come back to your goals when you get back up on your feet.
Where to put your savings?
As good money habits allow you to save money, the question you might have now is where do you put them? Here are a few options for you to look into.
Since the pandemic hit, more and more Americans are realizing the importance of having an emergency fund. This fund can help you manage and weather unforeseen situations that could come your way. From medical emergencies, immediate house repairs, or even when you lose your job. Saving up for your emergency fund can give you the chance to focus on what matters when emergencies happen without thinking about your finances.
Retirement can be an exciting stage in your life provided you are able to prepare for it. A big part of the preparation for retirement is setting money aside for expenses. This can be in the form of investments, setting up a business for passive income, or even taking on consultation jobs as a part-time hustle. Of course, all these means that you have to save for it early and frequently This is why it should always be in the conversation when you are talking about saving money for the future.
The cost of attendance in college has been on a steady increase over the past few decades. Numbers by Education Data show that from 2010 to 2020, inflation for tuition in college was at 4.63% on average year on year. This is one of the reasons why it helps to save for your children’s college fund. They get to start their post-college life free of debt and hopefully be able to do the same for their children as well.
There are a number of good money habits you can take up this year to help you grow your savings and help you prepare for your future.