Smart money habits can definitely help bring you closer to your financial goals. But with all the different pieces of financial advice, which one do you go for?
From the moment your parents taught you how to save money, you could have come across many different types of smart money habits or financial advice. From putting loose change in a piggy bank to managing part of your household budget and even opening a bank account. As you get older, family and friends will start giving you different money advice.
When this happens, it can become confusing real quick. You are getting a lot of different perspectives from people you know. It can get complicated as well because you might find conflicting ideas and approaches that do not work with each other. As soon as you use these money tips, they do more damage than good.
It is essential to take note that if you try to use all the pieces of advice at the same time, it will not work. You need to make a careful assessment of your current situation first. This will help you understand what specific problems you need to address. From here, you will have a better idea of what smart money habits you can take up for the year.
Of course, there are some money habits that can give you that edge when it comes to financial planning. But you have to choose the one that works best for you. To help you narrow down your choices, there are a few of them that have stood the test of time. Take a look at some of them below and they might just be able to guide you in reaching your money goals.
Commit to saving money
One of the smart money habits you can take up to help you get to your goals is making a commitment to set aside money for the future. There are a number of funds you can consider saving for starting with your reserve fund. If there was anything to learn from the pandemic, it was the need to have a reliable emergency fund.
Your emergency fund will help cover all your payments and expenses in the event that your income is reduced or stopped altogether. This fund can meet all your expenses while you look for a new source of income. Your retirement fund is another important goal you need to focus on because that is an inevitable time in your life.
It is not a question of “if” but “when?” The quality of your life in retirement will be determined by how consistent you were in saving up for it. This is the reason why you need to build the habit of saving money. The more you do it, the more it can become like second nature to you. You will not notice that you will just keep on doing it in the future. All because you developed the habit already.
Strengthen your emergency fund
As mentioned earlier, your emergency fund is one of the accounts you need to focus on. Smart money habits would not be complete if this was not included. But you might get confused because there are times this is referred to as a reserve fund. It has the same concept but this already includes your rainy day fund.
A reserve fund consists of two types of savings – your emergency fund and your rainy day fund. Both aim to give you the same financial cushion. The difference is what you use them for. Your rainy day fund is meant for smaller emergencies. This helps preserve your emergency fund which is meant for big emergencies like losing a job or getting seriously ill.
The idea is to compute how much your expenses are on a monthly basis. Then the goal is to save up for a month’s worth of expenses in your emergency fund. Top Resume shares that the average job search takes about six months. So it would be a good idea to try and save for at least six months of expenses. If you can set aside more, the better.
Pay your debts on time
It is quite difficult to reach your financial goals without going through some debt. Remember that there are some good types of debt and there are bad ones too. You need to focus on the good types of debt to help you reach your goals. But even then, you have to make sure that you are still able to meet your payments.
When it comes to smart money habits, paying your debts on time applies to everyone regardless of your current financial situation. The main reason for this is that late payments normally carry interest, fees, and other penalties. When they get added to your future statements, you end up paying more than what you owe.
On-time payments will not only help you save money, but they can also improve your credit score. The average FICO credit score for most Americans is 714 according to Experian. The one component that makes a huge impact is timely payment. If you have an excellent credit score, it can help open up financial opportunities in the future. It can be pre-approved loans or even low-interest rates.
Smart money habits mean saving money for huge expenses
One question you need to always ask yourself before you make a purchase is if you are paying for a want or a need. You always have to prioritize your needs over your wants. This will help move you closer to your financial goals. However, you cannot simply ignore your wants. Trying to suppress your wants can lead to spending more than you originally planned.
The trick is spending for your wants is to slowly save up for it over time. Try not to use credit in paying for wants, this can start a precedent where you begin to justify your wants and start to borrow money just to get them. What saving for your wants do is make you realize how challenging it is to set money aside for unplanned expenses.
It can do two things – help you appreciate that purchase or give you some time to think things through. If it is an impulse want, saving up for it helps you think it through. As you take your time building up the money you need, you can use that time to really think about what you will buy. If it is not that important, then you can redirect those savings somewhere far more important.
Simplify your budget
A complicated and confusing household budget tends to give you a tougher time managing your finances. When this happens, you might just not take it too seriously and begin to slack off. You need to understand that your household budget does not have to be complicated. It can be as simple as you want it to be.
There are a lot of reasons why you ended up with a complicated budget. You might have seen one online and decided to copy it or someone gave you what they are using. Those types of budgets might work for some people but if you are just starting out, simplicity is key. Just jot down all your expenses and all your income – that’s it.
Of course, you will soon add a few more items as you go along. But keep it simple when you are just starting out. This makes it easier to follow and monitor. It also gives you the mental win knowing you get to manage your budget on your own.
There are a lot of smart money habits you can explore to help you reach your financial goals. You just need to make sure that they fit your current situation and that they apply to your personality.