Feel like you’re falling behind when it comes to money or your bank account at the end of the month? You’re not alone. Roughly 78% of Americans live paycheck to paycheck. However, it doesn’t need to be this way. Here’s how to take control no matter your situation by developing these 5 key habits.
#1 – Read About Personal Finance and Money
Don’t feel like you need to crack open some boring economics textbook with fancy jargon. For example, you can browse MSN money articles or listen to podcasts of your choosing. The point is to familiarize yourself with money basics. You can’t practice what you haven’t learned and what you don’t know can hurt you financially. So many people tell me they’ll learn about money once they get some but this is actually a$$ backward. You need to know about money before you have it, arguably more so than once you do have it. Otherwise any you are currently making will likely just slip through your fingers.
Another reason to read is to keep yourself motivated. Have you ever noticed that when our attention flags, we tend to forget or lose motivation in what we’d set as a goal? It’s the same with money and finance. Read, listen or watch to stay inspired, whether it’s via YouTube videos, podcasts, website articles, books, magazines – whatever gets you to actually put in the time. You don’t have to major in this stuff. Spend an hour a week at the beginning until you’re reasonably familiar with money and investing basics. Then keep touching base. Your bank account will thank you.
#2 – Automate Everything
We throw away so much money on late fees, then get hit on our credit score because of it. Maybe your interest rates go up too on things like loans and other debt. The best practice of the financially stable is automating their bill payments whenever possible. It’s usually free and easy to either link your bank account or credit card so do it.
While you’re automating your payments, automate too your savings. If you have or are eligible for a 401k, set it up and automate it. Start out small if you have too – even if it’s $20 bucks. You’ll quickly adjust to the new paycheck amount and start adding to your wealth rather than your debt. Keep upping the amount over time. You can set up an IRA or savings account too for automated payments or even your investments through brokerages like TD Ameritrade, E-Trade, etc.
#3 – Live By the 70/30 Rule
There’s a lot of money advice out there but little in the way of concrete numbers when it comes to how much to spend or save. Ever notice that? What should you be spending every month or paycheck? Certainly spending 100% or more of your paycheck isn’t working though a majority of Americans do it.
Financially stable and wise people spend reasonably. A great practice is to follow the 70/30 Rule: spend 70% of your net income and invest the remaining 30% in money-making activities, even if that’s just a savings account with paltry interest. 70% is reasonable. It’s not so frugal you feel like you’re missing out on life but it’s not being a spendthrift either. Whether your income goes up or down, this percentage stays the same to let you know what you should be spending to stay within your means. Putting aside 30% means you aren’t spending today’s money at the detriment of your future and also safeguards you in case of emergencies – which always happen.
If you’re spending more than 70%, you’re living beyond your means. It’s that simple whether you like it or not. Either you have to spend less or earn more or both, otherwise you’re putting yourself in financial jeopardy.
#4 – Keep Your Debt Low
It’s hard to find anyone without debt these days. Between car loans, student loans, mortgages, medical debt and credit card debt, we’re all usually carrying some amount of liability we’re paying off. Some debt is useful if it gets us ahead. After all, maybe your education actually paid off or you can’t get to work without your car. In general though you want to keep your debt payments below 25% of your income. This is roughly the threshold banks use for assessing risk and if anyone knows risk, it’s banks. They know that if your total debt rises above this number, you’re putting yourself at increased risk for default and money problems. Basically you’re one emergency away from default or being late on payments.
If you’re total payments exceed 25% of your income, focus on paying it down before you go on a new vacation, buy a new car, upgrade your kitchen or shop for new clothes, etc. Prioritize high interest debt first or perhaps pay off the easiest to pay debt in order to lower your total overall payments. If you’re following the 70/30 Rule (and you should be), you can prioritize paying down debt over building wealth until this 25% threshold is met.
#5 – The Best is Yet to Come
Sometimes the best habit to cultivate is moderation. We have a problem with hyperconsumerism in America. We spend spend spend and if we can’t buy or experience what we want, we think we’re poor. The thing is, there’s so much stuff out there and so many experiences to have that we honestly can’t have it all. As soon as you buy the latest gadget, a new one replaces it. Fear of missing out is what the advertisers and marketers want you to feel about their products. Just remember that it will all be there tomorrow and probably ten times as much and better. Focus on knowing what your needs are and covering them first – including money for your future – before going out and spending on the ephemera of the material world. You can never have it all. Not even the richest people in the world can do or have everything. Don’t think you’re “poor” when you can’t keep up in a race where the goal posts keep moving. Having this anti-FOMO attitude will help you prioritize and keep more money in your pocket for those things that mean the most to you.
Money Made Easy
They rarely teach money basics in school and if they do it’s at a time we’re too young to appreciate it or understand the concepts they’re teaching. It falls to us as adults to learn this stuff on our own since it’s so central to how we navigate the modern world and safeguard ourselves against emergencies while working toward goals like home ownership, retirement, and enjoying our lifestyle – whether that’s through vacations, shopping sprees, eating out or whatever it is that floats your boat. Typically things take money and unless you have a money tree in your backyard or a trust fund, you have to manage what you get, which is limited. Do yourself a favor by following these 5 money habits to gain control of your finances and save yourself from the stress of them being out of control.
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