October 18, 2018

5 Habits for Financial Success

While managing your finances may seem like a simple task, sometimes we find ourselves falling into a rut and wondering, “How did I get here?” Debt can pile up quite quickly, and once you’re down, it can be difficult to get back up. By following these basic habits, you will be setting yourself up for long-term financial success.

1. Follow a Budget

Perhaps the best way to maintain your finances is by actually knowing what you can and do spend on a regular basis. To start a budget, begin tracking your spending over a month or two. Print out or view your bank statements online to average out your monthly expenses. Use an app, such as Mint, or a spreadsheet to analyze your spending habits and identify any potential problem areas. Once you have a general idea of where all your money is going, you should be able to build a budget that helps you live within or even below your means. And don’t forget to include a budget line for “fun” spending—just be sure you stick to it. Overspending on going out can add up quickly! Finally, to stay on track, make sure you consistently balance your checkbook.

2. Manage and Avoid Debt

While avoiding debt is the best case scenario, we all know how difficult this can actually be. It’s important to be mindful of interest rates, since paying high interest on debt can quickly cripple your finances. Analyze your overall debt and try to pay debts with the highest interest rate first. For existing debt, always search for lower interest rates. If you have credit card debt, many times other companies will offer balance transfer specials, where you can have a 0% APR for a specified period of time. While opening more credit cards might not be the best solution for you, perhaps having that extra time with zero interest could be a good option. You may also want to consider consolidating your debt; again, just be sure you shop around for the best rates.

When it comes to credit cards, the best way to look at it is, if you can’t afford to pay for something with cash right away, don’t use a credit card. Try to avoid borrowing for anything besides large purchases, such as a house or car.

3. Save First

When you’re struggling with debt, saving may not seem like it should be a top priority; but it should be. Always make sure to put aside money for savings before anything else. Even if it’s a small amount, and even if you have existing debt to pay, every little bit helps. Try to establish an emergency fund with a minimum of three months of living expenses (a year is better if you are able). Also, take advantage of any 401(k) match your employer may offer.

4. Buy Insurance

Having insurance can protect you from a major financial blow. Be sure to consider the different types of insurance and think about what is important for you. It can be worthwhile to have home, auto, health, life, disability, and potentially personal liability insurance, depending on your personal situation. Review any policies you have regularly to make sure they are continuing to meet your changing needs over time. Your employer may provide certain types of insurance, but sometimes it’s just as important to shop around for additional coverage. Make sure you are working with trusted and reputable advisors and companies.

5. Protect Your Credit

Having good credit is of the utmost importance when it comes to successful finances. A good credit score is important if you need to get a loan, rent an apartment, or in some cases, get a job. In order to maintain and improve your credit rating, pay all of your bills in full and on time. If you don’t have a credit history, establish one (you can open a credit card to do this). Monitor your credit report on a regular basis. Try not to close accounts. If you do, it’s generally better to close a newer account versus an older one, but keeping your accounts open and not using them is better than simply closing them. Finally, try to minimize the total amount of credit you use.

By following these basic strategies, you should be able to maintain a relatively comfortable lifestyle and not have additional stress from financial burdens. Be mindful, stay on track, and don’t forget to let yourself have a little fun!