We are all creatures of habits. Good habits are critical to success. Master these 9 habits and you’ll be well on your way towards financial success.
1- Track Your Spending
From apps to check registries, there are many ways to track your spending. It doesn’t really matter how you do it, as long as you make it a habit. Not only will tracking spending help you spot erroneous charges and fraud, it will make you more conscious of your spending habits. You may find out that you’re spending more than you thought on things that you don’t really value. Tracking spending also gives you a baseline for budgeting.
2- Ignore the Jones’ (and the Smiths, Williams and Lees)
There’s a prideful streak in us all that likes to compare ourselves to others. Practice turning this off! Don’t worry about what car your neighbor is driving, what vacation they went on last, or the size of their TV. Instead, learn contentment.
Saving money isn’t something you should only do when you have money left over at the end of the month. With this attitude, you’d likely never save. And if you did, you wouldn’t be saving enough. Make saving a priority and make saving a habit. Which means you do it consistently. Regularly save money for emergencies, retirement and goals.
If you make saving a habit, you’ll soon find yourself sitting on a decent pile of money. The last thing you want is for that money to sit idle. By investing your money, you can at least keep up with inflation, but better yet, you can grow it further or earn passive income. Invest prudently, however. Keep your short term savings such as your emergency fund in conservative investments such as high yield savings accounts or short term bond funds. Your longer term savings, such as your retirement fund (assuming you are not close to retirement), on the other hand, can be kept primarily in higher yielding, riskier investments such as stocks.
5- Diversify Your Investments
When you invest your long term savings, one strategy to mitigate the risk while still achieving solid yields is by diversifying your investments. You could simply invest all your long term savings in the stock market. In the long run, you’ll earn some solid returns, but in the mean time you’ll have a wild ride. On the other hand, you could spread your investments out between conservative stocks, aggressive stocks, international stocks, short term bonds, long term bonds, risky bonds, REITs, etc. This way, the different investments cushion each other from price swings.
6- Re-balance Your Investments
To take full advantage of your diversified investments, you should regularly re-balance your portfolio. Have a target ratio of your different investments. Each time you re-balance you sell a portion of the investments that have done well and buy more of the investments that have done poorly to bring your portfolio back to your target ratio. For example, you might aim to have a 70-30 ratio of stocks to bonds. But perhaps stocks have done well lately, so when the time comes to re-balance, your stocks now make up 80 percent of your portfolio, while bonds only make up 20 percent. You’d now sell stocks equal to 10% of your portfolio value and use the proceeds to buy more bonds. By doing this, you increase your chance of selling investments at their peak and buying them in their dips. The Mustard Seed Money blog has a great post further explaining the reasoning behind re-balancing.
7- Pay Your Credit Card Bill In Full
Your credit card can be a valuable tool, if you use it right. This means only spending within your budget, and then paying off the credit card in full every single month. Don’t skip a month. Ever. If you do, you start wading into debt spiral territory.
8- Check Your Credit Report
Thanks to recent laws, you are now entitled to one free annual credit report from each of the three credit bureaus. This is more valuable than you might realize. Your credit report is likely the first place you’ll spot identity theft. Each of the three reports will look very similar, so spread them out over the year. Every four months, request one of your three, allowing you to monitor your report throughout the year. The only legitimate site to request your credit reports is www.annualcreditreport.com
9- Seek Out Free or Low Cost Leisure Activities
Your free time is potentially your biggest money drain in your budget because your free time offers unlimited spending opportunities. Most of your bills are relatively fixed. Your free time, on the other hand, can easily cost you hundreds or thousands per hour if you let it.
Now, there’s nothing wrong with occasionally spending money on fun things. There’s just no need to default to expensive activities. Instead, be creative. Relax. Regularly do things that are free or inexpensive. Take walks, hit the library, go to the park. The Simple Dollar has a great list to get you started, but the options are limitless.
And Don’t Stop Here!
These 9 habits touch on some of the biggest financial pitfalls, but there are so many other frugal habits to implement! For more, check out the list of Things Smart People Do to Save Money.
While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.