Yahoo Finance 10 Better Money Habits to Start Now
Pad your savings by adopting the right habits.
If you often wish for money in your bank account, you may need to reassess your financial decisions and spending patterns. After all, often the reasons that we don't have enough money set aside come down to the purchasing choices we make and lacking a set personal budget. So if you want to boost your savings account and get your finances in tiptop shape, map out a concrete personal budgeting plan and focus on adopting these smart money habits. To get your finances in tiptop shape, here are smart habits to cultivate to help boost your savings account.
Save more.
Committing to setting aside a portion of your take-home pay each month is essential to building your wealth. Try saving 1% of your income, suggests Brent Weiss, certified financial planner and co-founder of Facet Wealth, a financial planning firm in Baltimore. "Start by saving 1% of your income. From there, increase this percentage by at least 1% every six or 12 months," Weiss says. The ultimate goal, he says, should be to save at least 10% to 15% of your income. "That may not be feasible for everyone," Weiss says, adding, "But the goal is to start saving at least some of your income. The 1% pledge can jump-start someone's savings."
Pay yourself first.
You've likely heard this sage advice before, but it's an important habit to put into practice. Before you are paid, you should determine a way to put your money into an separate savings account that you don't touch, advises Rocky Lalvani, a financial coach in Harrisburg, Pennsylvania. "This can be done through 401(k) deduction or automatic sweeps from your checking account," Lalvani says. For this to really work well, "the process has to be completely automated and the money has to go somewhere it's hard to access."
Factor taxes into your budgeting plan.
"Think of your income in terms of net pay -- the amount that gets deposited in your bank account after all deductions. It's not how much you earn -- it's how much you get to keep," says Laura Lonie, a certified public accountant and financial coach in Buffalo, New York. "It is so easy to think, 'Hey, I make $90,000 a year. Why am I always broke?'" she explains. "You may be netting only $60,000 after all deductions but living as if you have $90,000 to work with. You are broke because you are spending $30,000 more than you actually have available. Create your spending plan based on net pay."
Account for one-time purchases.
Helen Holden, the creator of CountingCandles.com, a birthday party planning website, suggests putting money aside every month for expenses such as birthday parties and gifts, graduations, school supplies and family vacations. "Sometimes people forget about these one-time expenses and are surprised by them," she says. If you tally up what you expect to pay for those expenses in a year, divide that by 12 and start putting money into an account, you might see your cash flow improve.
Put fixed expenses on credit cards.
"If you've had problems with credit cards in the past but don't want to give them up, only put fixed expenses on your credit cards," says Chad Rixse, a director of financial planning and a wealth advisor at Forefront Wealth Partners in Anchorage, Alaska. Rixse points to regular expenses such as your rent or mortgage payment, if possible, or your utilities and subscriptions, as ideal expenses to place on your credit card. "You make these expenses regardless, so it allows you to build credit, take advantage of card perks, but not overspend and get yourself in debt," Rixse says.
Automate your expenses.
"Automate as much as possible," Rixse says. "Bill payments, savings goals, etc. The more you can automate, the more consistent you'll be, and the less stress you'll have managing it or making payments on time." With that said, while setting up automatic transfers to your savings account is simple, you need to be conscientious of the financial needs for your lifestyle. For instance, if you're often living paycheck to paycheck, an automated bill coming through your bank account when no money is there could trigger costly bank fees.
Avoid lifestyle creep.
When you get a bonus or a raise, don't give into the temptation to use up all of the money on products and services that give you a more affluent lifestyle. "As your income grows, don't raise your spending to match your income. Raise your savings first," Rixse says. Experts suggest taking half of that raise and putting it into your savings and spending the other half on discretionary purchases like a vacation.
Pare down your expenses.
Alex Beene, a financial literacy coordinator and educator for the state of Tennessee, recommends finding areas you can scale back monthly. He assists many Tennesseans in not only finding work, but also becoming more financially literate. "I usually advise workers to look over their expenses for the month and pick three things they could live without. It may be a subscription they didn't use, a meal they didn't enjoy or a night out that wasn't worth it. Eliminate that spend in your budget for the next pay period and save those funds instead," Beene says. "By looking back at your expenses, you get a better grip on exactly where all your money is going, and by doing so regularly, you can decide what charges can be cut and saved in the future."
Track your net worth.
Knowing your net worth, or the amount of money you have once you subtract all of your debts, is an important step toward reaching your long-term financial goals. "This is the one number that best illustrates your whole financial situation. You can easily do it in a spreadsheet, with any number of apps or through a financial planner," says Zach Ashburn, president of Reach Strategic Wealth, a financial planning firm in Winston-Salem, North Carolina. If you monitor your net worth, you'll start to identity month-over-month and year-over-year trends to evaluate if it's going up or down.
Keep a money diary.
If you have bad money habits and want to improve them, this can be a clever way to make smarter financial choices, according to Alex Caswell, a wealth planner at RHS Financial, a financial planning firm in San Francisco. "In order to get good habits that developed over a lifetime, it is important to take the emotional aspect out of one's financial decisions," Caswell says. Aside from brushing up on personal finance basics, he recommends starting a "money diary, to help one reflect on what decision they made and why." By taking this simple step, you can start to make more rational financial choices.
Here are better money habits to start now:
-- Save more.
-- Pay yourself first.
-- Factor in taxes into your budgeting plan.
-- Account for one-time purchases.
-- Put fixed expenses on credit cards.
-- Automate your expenses.
-- Avoid lifestyle creep.
-- Pare down your expenses.
-- Track your net worth.
-- Keep a money diary.
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