7 Good Money Habits You Need

Are you struggling to make ends meet or reach your financial goals? Create good money management habits through saving and spending opportunities to make your dollars stretch further. These lifestyle habits will set you up to be financially fit and reach your goals.

1. Live Below Your Means

First, you need to understand your finances by creating a budget and tracking your expenses. Your budget sets allotted amounts for the various wants and needs in your life, like shelter, food, and more. After you create a budget, you need to see if you are sticking to it. When you subtract your monthly expense from your monthly income, you will be left with a remaining amount.

Monthly Income – Monthly Expenses = Net Income

If you end up with a positive number, then you are living below your means! That means you have wiggle room for extra saving or spending. If the equation ends with a negative number, then you are spending too much and may not afford necessary bills like rent/mortgage, food, utilities, and more.

2. Create An Emergency Fund

It happens. When you least expect it, unforeseen circumstances occur leaving you in a financial pickle. With an emergency fund, you can be a step ahead of disaster and recover financially quickly. The general rule of thumb is to have 3 months of your income saved, but if that seems daunting, start with $1,000 and build from there. You will feel better knowing you have a safety net.

3. Minimize Retail Therapy

It’s easy to swipe your card to get a hit of dopamine on stressful days. Yet, these retail therapy sessions can rack up a high cost, leaving you with nick knacks and clothes you barely use and an expensive bill. Like eating too much food, too much shopping can leave you feeling worse off than better. Next time you have the itch to shop, try to go into these spending sprees with a budget or only get what you need.

4. Pay Off Debt Strategically

How are you managing your debt? Do you have a plan in place to pay it off efficiently and keep your head above water? Try using one of these debt pay-off strategies: snowball or avalanche method.

The snowball method chips away at your lowest debt first, regardless of interest rate, by paying more than the minimum payment on it. Once you pay off that loan, you take the full amount you were paying (minimum and extra) and apply it to your next lowest loan, building momentum.

For example, let’s say you have two loans. Loan A has $4,000 left on it with a minimum payment of $100 and Loan B has $2,000 left with a minimum payment of $200. You would put $300 total towards the minimum payments of the loans, then throw an additional $200 at the lowest loan, Loan B in this example. By putting $400 a month towards Loan B, you can pay that debt off quicker, then apply it to your current $100 minimum payment for Loan A, bringing it to a total of $500 per month. At $500 a month, you will pay off Loan A in no time!

The avalanche method takes interest rates into consideration. Interest rates can quickly raise the amount you owe on a loan if you are not careful. Instead of paying more on the smallest loan balance, you will pay more on the loan with the highest interest.

Building on the example above, let’s say Loan A has an interest rate of 7.5% and Loan B has a 4% interest rate. To pay down the interest faster, you would want to throw extra money at Loan A while paying the minimum on Loan B. Once Loan A is paid off, you can take that amount and apply it to Loan B to pay it off quickly.

These strategies outline a path to debt freedom when they are utilized properly.

5. Compare Prices Before Big Purchases

Avoid impulse buys, especially on big items like furniture, cars, etc. Spend time researching which product is right for you. Once you find that perfect something that will make your life complete, then compare prices. You may be able to find a sale at one store and discover another store has hiked the price. Savings can be found as long as you look for it.

6. Pay Yourself First

Save money by “paying” yourself first. When you get your first check of the month, pay your bills and then set aside a certain percentage to go into your savings. Do not make unnecessary purchases with the money you have left over. By putting it into a savings account, especially a high-yield savings account, you can earn dividends and save up for grander things, like financial goals.

7. Meal Prep

You can save money on food when you meal plan for the week. Planning ahead what meals you will have for the night can take the guesswork out of what you want to eat each night and cut back on grocery expenses. Plus, you can take it a step further and plan meals that have ingredients that overlap, saving you costs and reducing waste.

Start practicing these money management habits and reach your financial goals faster.