19 Good Money Habits To Make

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Financial success includes creating good money habits to propel you forward and breaking bad money habits that are holding you back. Doing both will ultimately help you grow your wealth and live a financially healthier life.

Changing your habits certainly doesn't happen overnight, but if you want to break a bad habit or start a new one, you'll have to put in the effort.

With persistence and know-how, you can get started on creating better money habits today. In this article, we'll talk about bad money habits to stop and good money habits to make.

Let's jump right in.

Bad Money Habits to Break

When you're getting your finances in order, it may be helpful to make sure you have the right money habits. Many of us fall into poor financial habits, such as impulse spending, spending more than we make, and not putting enough money aside for the future.

Here are some bad habits to break if they apply to you.

1. Spending More Than You Earn

If you spend more than you earn, you'll quickly deplete whatever savings you have.

Having no savings means you'll start to build up debt, which may lead to financial stress and, if left unchecked, potential bankruptcy. 

Instead, focus on living below your means, which comes down to spending less than you earn. In order to do this, you can focus on either spending less money, making more money, or both. 

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2. Sinking Into Credit Card Debt

Racking up credit card debt is one of the most expensive money habits you can have. However, you can avoid it by paying off your credit card balance in full each month and not using your credit cards for impulse purchases unless you have the money to cover them.

If you have to use a credit card, try to pay off your balance each month.

Paying off your credit card can save you money in the long run by avoiding the interest that you would have been charged if you only paid the minimum each month.

3. Impulse Spending

There are so many ways marketers get into our minds every day to convince us to buy things.

If you spend too much money on impulse, you risk sinking into debt and face trouble saving for the future.

The first step to overcoming impulse spending is to be aware of it. You need to recognize when you feel an urge to spend money on something that is not a priority.

For example, you may be tempted to spend money on an impulse item when you’re hungry. Or you may be tempted to spend money on a non-priority item when you are stressed.

Check out this guide that explains why impulse spending happens and how you can stop it.

4. Shopping To Feel Better

Many of us have something we do when we feel down that makes us feel better. For some, that's shopping. It is very easy to buy stuff on the internet. This makes us susceptible to buying things when we are not at our best.

This leads to feeling better for a short while but generally feeling guilt and shame after, especially when the credit card bill arrives, and we realize how much money we spent for a good feeling that was very much short-lived.

5. Not Investing For The Future

When you don't invest for the future, it becomes hard, if not impossible, to retire. Compound interest causes your money to grow faster and faster the longer it is invested with positive gains. By having more money in the future, you'll be able to retire more comfortably and at a younger age.

If you don't have enough money saved up to retire, you'll have to work for the rest of your life. This is a situation that many people don't want to be in. Therefore, it's always a good idea to plan for the future, so that you can retire on your own terms.

Good Money Habits To Make

Making good financial habits leads to a better financial life overall.

It’s never too early to start building better money habits, and once you get into better habits, you'll start reaping the rewards. For example, when you cut spending money on things you don't need and instead use that money to pay down your credit card, you reap the rewards of getting out of credit card debt, which can help raise your credit score, give you peace of mind, and give you more opportunity to grow your wealth.

Let’s go over good money habits to make.

1. Follow a Budget and Track Your Spending

Making sure you stay on top of your finances is an important money habit. An excellent way to get yourself on track with your money is to create a budget and track your spending.

With a budget, you can keep track of where your money comes from and where your money goes. Furthermore, you can identify where you can cut back or determine if you need to make more money. You can see where you're spending too much or where you have room to improve. You'll see opportunities for your money, such as putting money aside for a family vacation or a downpayment on a house.

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2. Pay Down Credit Card Debt

It is very easy to become overwhelmed by how much you owe and how much you need to pay back when it comes to credit card debt. However, creating a repayment plan can make all the difference. Whether you pay an extra $50 per month towards your credit card or tackle it with every leftover dollar you have, getting out of credit card debt is easier with a plan.

Aggressively paying down credit card debt not only reduces financial stress, but also saves you money as you'll pay less in interest as your balance closes in on zero.

3. Work on Raising Your Credit Score

Your credit score is a number between 300 and 850 that reflects your financial history. It's an important number for many reasons: it can help you qualify for loans, credit cards, auto insurance, and even rental cars. In addition, a higher credit score means you pay less interest on your loans because lenders project that you have a lower risk of default.

Raising your credit score is achieved through several methods, including:

  • Never missing or being late with payments.
  • Having a long credit history.
  • Not applying for credit too frequently.
  • Using a small portion of your overall total credit. This means if you have a credit card with a $5,000 limit, you would want to keep your usage at 10% or lower on average, or $500 or less.

Read this article for tips on how to raise your credit score.

4. Create an Emergency Fund

Life can bring unexpected costs, like a trip to the emergency room or a broken-down car. It's important to have a fund for emergencies like this. If you don't have a way to pay for these unexpected expenses, you can leave yourself in debt and throw off your entire budget.

Emergency funds help protect you from life events that you don't expect. It's the money in your bank account that you can use when you need to cover something.

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It's recommended to keep your emergency fund in a savings account, separate from the rest of your money. This helps to prevent you from drawing on it for non-urgent reasons.

5. Live Below Your Means

Spending less than you make is the definition of living below your means. This comes down to focusing on your needs and foregoing your wants, except for when you have a surplus of money.

You don’t need to live a cheap lifestyle, but living more frugally by cutting back on your living expenses and paying attention to your spending choices can further help with your savings goals and put more money into your bank account.

The two main ways to live below your means, as mentioned earlier, are to spend less or make more. When you make more money, you're able to live a more lavish lifestyle, if that's the lifestyle you prefer. However, what isn't financially responsible is living a more lavish lifestyle by racking up credit card debt and never growing your wealth. When you don't grow your wealth, you can end up in more financially stressful situations.

6. Automate Your Finances

Automating your finances means setting up automatic transfers to save money, paying certain bills, and even paying your credit cards automatically.

When it comes to saving money, automating your savings allows you to save money without thinking about it. As time passes and an unexpected expense comes up, you'll have money waiting for you that you may not even remember having.

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Setting up automatic bill payments enables you not to miss payments or be late, which means you'll stop incurring any late or missed payment fees you have been in the past. Additionally, you won't risk a credit score hit from being late or missing a credit card payment.

7. Keep Track of Your Net Worth

Your net worth is what you own – your stuff, your home, your savings, your investments, your retirement accounts – minus all of what you owe – your credit card debt, auto loans, mortgages, etc.

Keeping track of your net worth is beneficial because it gives you a picture of your financial situation. You can see how much you have and how much you owe. By knowing your net worth, you can continually improve it. Using an app to track your net worth can be helpful.

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8. Create Financial Goals

Creating financial goals is often the first step to improving your financial well-being. Making specific financial goals for both the short-term and long-term will help set you up for success.

For example, a short-term goal might be to pay down a $5,000 auto loan in the next year, while a long-term goal might be to reach $100,000 in your 401(k) in the next 5 years.

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Your financial goals should be specific, realistic, and relevant to you in order for you to have the most success. Check out this article on how to make SMART financial goals. 

9. Learn About Investing and Invest Regularly

Investing is one road to wealth, however, you'll want to understand what you're investing in before starting. For example, some will invest in index funds while others will invest in individual stocks. Some will invest in real estate, and others will invest in high-risk cryptocurrency. 

Regardless of what you invest in, do your homework first and understand the risks, as you can lose some or all of your money when you invest.

That said, successful investors see their wealth grow exponentially over time due to compound interest. 

10. Pay Yourself First

Treat yourself as an expense. Before spending any money each month, pay yourself something, even if it's only $20. Save that money in a separate bank account or invest it.

By paying yourself as an expense, you save money each month. If you get a raise at work, consider paying yourself a little more to continue to benefit from having a higher income.

The benefit to paying yourself first is that you're putting money aside for either your financial goals or to treat yourself once in a while guilt-free as that money was set aside for such occasions versus spending your money impulsively.

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11. Check Your Credit Report Annually

You can get your credit reports from Experian, Equifax, and Transunion each year for free by checking out this site. Checking your credit reports each year is helpful so that you can find any discrepancies in them and get those discrepancies resolved. It’s important to have an accurate credit report so that your credit scores are accurate. This will help you get the best rates on loans and can also help you get better rates on things such as auto insurance.

12. Further Your Money Education

Learning about money will help you build stronger habits and be more financially savvy. You may become inspired by what you read and use what you learn to make more money and grow your wealth, allowing you to live your life with more freedom.

13. Avoid Lifestyle Inflation

Lifestyle inflation is when you start spending more money when you start making more money. So, for example, if you get a raise and start earning $200 more per month, lifestyle inflation would be when you start spending up to another $200 per month. 

One tactic is to pretend like you didn’t get a raise or didn't start earning more money and, instead, save or invest that extra money each month. So, in the example where you got a $200 per month raise, you would transfer that $200 to a savings account, an investment account, or straight to paying off some of your debt instead of using it on something you don't need.

14. Stay With Your Current Car As Long As You Can

It’s tempting to buy a new car every few years, especially with many car dealers offering to roll in your current loan with a new loan. But this doesn’t make financial sense long term. A good car can last you ten years or longer if you take good care of it.

Every month that you don’t have an auto loan is a month you’re saving potentially hundreds of dollars. Those hundreds of dollars each month can be used to save up for things like a down payment on a house, college for your kids, a dream vacation, or it can be used to help you get out of debt faster, as some examples.

Additionally, you could opt to drive used cars. It's wise to have a used car looked at by a mechanic you trust before finalizing a purchase. Even used cars with over 100k miles can last several years if you don't drive a lot, and you'll save a heap of money over time.

15. Look For Ways to Reduce Living Expenses

There are many creative ways to reduce living expenses. For example, it's often possible to negotiate your cable, internet, phone, and auto insurance bills. For those who don't want to negotiate themselves, the app Trim exists to help. Trim negotiates your bills for you, making it easy for you to save money.

Other ways to save money include:

  • Shopping with cash back apps like Swagbucks
  • Adjusting your thermostat by a few degrees
  • Being more conscious about turning off lights
  • Keeping yourself healthy to reduce the need for more frequent healthcare visits and procedures

Check out this article for 40+ ways to lower your living expenses.

16. Understand the Difference Between Your Needs and Your Wants

A good money habit to make is to know what your needs are and what your wants are. A need is something that gets you through life and that you can't live without. Examples of needs include:

  • Rent or Mortgage payments
  • Food
  • Healthcare expenses
  • Utilities
  • Transportation 

On the other hand, a want is something that you can live without. Examples of wants include:

  • Video games
  • Designer clothing
  • Eating out at fancy restaurants
  • Buying a luxury car

When you don't have an abundance of money, focusing on your needs and living a frugal lifestyle will help you improve your financial situation overall.

17. Start Preparing for Retirement While You're Young

The sooner you start investing for your retirement, the more money you have the potential to have, meaning you'll retire more comfortably and possibly at a younger age. Your 20s are the best time to start planning for retirement, though it's never too late to start if you're older and haven't started a retirement account.

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Take advantage of your company's 401(k) plan if they offer one. Otherwise, consider alternative options like a Roth IRA.

You can use our retirement calculators to calculate how much money you'll have in retirement, what age you can retire at, and how much you'll need to save to reach your goals.

18. Spend Time Each Month on Your Finances

Spend time each month going over your finances. This could mean anything from tracking your spending to checking your net worth. Use a free app like Personal Capital to connect all of your accounts in one place, and then you can see your income, expenses, net worth, and more.

By taking the time to look over your finances, you can see the progress you've made over the past several months, or you can notice anything that doesn't look right, such as overspending.

19. Review Bank and Credit Card Statements 

Make it a point to review your bank and credit card statements frequently. When you do this, you can find expenses that you may have forgotten about, such as recurring subscriptions, and you can also catch fraudulent charges. Contact your bank or credit card company immediately if you catch a charge that you don't recognize.

Credit card companies can reverse fraudulent charges, saving you from being liable for paying them.

Wrapping It Up

You'll improve your financial situation little by little by little by getting into good money habits. You'll be able to get out of debt, save more money for your future, and reach the financial goals that you've set for yourself.

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