I read this article on Leo
Baubata’s blog and thought it wise to share. I hope you
will find it useful. Just
like any goal; getting your finances stable and becoming financially successful
requires the development of good financial habits. I’ve been researching this
topic extensively in the last few years in my quest to eliminate debt, increase
my savings and increase financial security for my family. I will talk more
about these habits individually, but wanted to list them in a summary.
Here
they are, in no particular order:
·
Make
savings auto-magical. This should be
your top priority, especially if you don’t have a solid emergency fund yet.
Make it the first bill you pay each payday, by having a set amount
automatically transferred from your checking account to your savings. Don’t
even think about this transaction — just make sure it happens, each and every
payday.
·
Control
your impulse spending. This is the
biggest problem of most persons. Impulse spending, on eating out and shopping
and online purchases, is a big drain on our finances, the biggest budget
breaker for many, and a sure way to be in dire financial straits. See Monitor
Your Impulse Spending for more tips.
·
Evaluate
your expenses, and live frugally. If you have
never tracked your expenses, try the One Month
Challenge. Then evaluate how you’re spending your money, and see what you
can cut out or reduce. Decide if each expense is absolutely necessary, and then eliminate
the unnecessary. See How I Save Money for
more. Also read 30
ways to save $1 a day.
·
Invest
in your future. If you are young, you probably do
not think about retirement much. But it’s important. Even if you think you can
always plan for retirement later, do it now. The growth of your investments
over time will be amazing if you start in your 20s.
·
Keep
your family secure. The first step
is to save for an emergency fund, so that if anything happens, you’ve got the
money. If you have a spouse and/or dependents, you should definitely get life
insurance and make a will — as soon as possible!
·
Eliminate
and avoid debt. If you have got personal
loans, or other type of debt, you need to start a debt elimination plan. List
out your debts and arrange them in order from smallest balance at the top to
largest balance at the bottom. Then focus on the debt at the top, putting as
much as you can into it, even if it’s just $40-50 extra (more would be better).
Take the total amount you were paying (say $70 minimum payment plus the $50
extra for a total of $120) and add that to the minimum payment of the next
largest debt. Continue this process, with your extra amount increasing as you
go along, until you pay off all your debts. This could take several years, but
it’s a very rewarding process, and very necessary.
·
Use
the envelope system. This is a simple
system to keep track of how much money you have for spending. Let’s say you set
aside three amounts in your budget each payday — one for gas, one for
groceries, one for eating out. Withdraw those amounts on payday, and put them
in three separate envelopes. That way, you can easily track how much you have
left for each of these expenses, and when you run out of money, you know it
immediately. You don’t overspend in these categories. If you regularly run out
too fast, you may need to rethink your budget.
·
Pay
bills immediately, or auto-magically. One
good habit is to pay bills as soon as they come in. Also, as much as possible,
try to get your bills to be paid through automatic deduction. For those that
can’t, use your banks online payment platform to make regular automatic
payments. This way, all of your regular expenses in your budget are taken care
of.
·
Read
about personal finances. The more you
educate yourself, the better your finances will be.
·
Look
to grow your net worth. Do whatever you can to
improve your net worth, either by reducing your debt, increasing your savings,
or increasing your income, or all of the above. Look for new ways to make
money, or to get paid more for what you do. Over the course of months, if you
calculate your net worth each month, you’ll see it grow. And that feels great.
Visitors Corner: So glad you are here, were the tips
helpful? It will be a pleasure to hear your contributions. Don’t leave without
dropping a comment. Enjoy the rest of your day.
