Key takeaways
- Write down short-term and long-term financial goals.
- Save early and consistently, and create a budget to manage spending effectively.
- Pay off high-interest debts first and consider consolidation or refinancing for better terms.
- Regularly check accounts, apply the 24-hour rule to avoid impulse buys, and use expert resources to learn how to be better with money.
Maintaining good money habits can be the difference between achieving your financial goals and falling short.
More than two-thirds (72 percent) of Americans do not feel financially secure, according to Bankrate’s financial freedom survey. Some of the top personal finance issues getting in the way of their financial security include not having enough emergency savings, low retirement funds and high debt.
Practicing good money habits can help to overcome those financial hiccups by establishing regular saving contributions, mindful spending and overall financial awareness. Here are some simple yet effective tips for learning how to be good with your money.
1. Write down your financial goals
The habit: Having financial direction and focus
Putting your financial goals in writing transforms them from abstract thoughts into tangible targets. It incentivizes you to commit to achieving those goals.
Start by identifying both short-term and long-term goals. Short-term goals might include paying off a credit card or building an emergency fund, while long-term goals could include saving for retirement or purchasing a home. Make sure the goals have realistic timelines and specific amounts. With these written goals visible to you regularly, you can revisit and reflect on them to improve financial habits, stay motivated, track your progress and adjust as needed.
2. Start saving early and consistently
The habit: Regular saving
Whether it’s for short-term goals, long-term goals or an unexpected emergency, saving money will always serve you well on the path to financial success.
To open a savings account, research banks or credit unions offering competitive interest rates and low fees. Apply online or in person, providing the required identification and an initial deposit if needed.
A high-yield savings account offers higher interest rates compared with traditional savings accounts. To maximize your savings growth, make sure you understand any minimum balance requirements or fees associated with these accounts.
Try automating your savings to ensure that you’re putting money away regularly and frequently. By arranging automatic transfers of a specified amount or percentage of your paycheck, you’re effectively paying yourself first.
Most experts recommend putting aside 20 percent of your income toward savings, though it isn’t always possible to achieve that amount. Even a small amount set aside regularly can build a significant nest egg over time, especially if it’s earning a competitive rate of return in a high-yielding savings account.
3. Create a budget
The habit: Mindful spending
A budget helps you to live within your means, avoid debt, and achieve financial goals. Managing finances without a budget is like walking around wearing a blindfold. If you don’t have a budget — or struggle to keep up with it — a spending plan can help you monitor how much money is coming in and going out.
Budgeting apps are also a good way to manage your money. Downloading a budgeting app is a great way to simplify the process and integrate it into your day-to-day life.
You’ll need to connect your bank accounts to the budgeting app so that it can track and log your income and expenses. Many of these apps automatically categorize each expense for you, though you can also manually set up those categories and adjust expenses as needed.
While a budgeting app can make it easier to stay on top of your spending, it’s still up to you to reduce your spending where necessary.
4. Minimize high-interest debt
The habit: Responsible borrowing
Debt isn’t inherently bad — it can be a tool to achieve certain goals, like funding an education. But mismanaging debt can lead to serious long-term financial burdens.
Make sure you understand the terms of all your loans and credit cards, and prioritize paying off those that have the highest interest rates. High interest means you’ll amass more debt over time as your balance compounds. Aim to pay more than the minimum monthly payment to avoid having debt pile up faster. Also, try exploring strategies such as debt consolidation or refinancing to secure more favorable terms.
With that said, those who have the highest interest rates on their largest debts may want a more balanced approach to paying off debts, so that they can pay off certain small debts to stay motivated as they make progress toward paying off the larger ones.
5. Check your accounts daily
The habit: Awareness of your financial situation
Like your physical health, your financial health needs regular check-ups. In fact, deliberately checking your bank accounts each day, from a mobile banking app or online, can ensure that you spot potential issues early and take action before a problem escalates.
For example, you might have been fraudulently charged for a subscription service. The earlier you detect an unauthorized charge, the more likely it is that you can get it resolved quickly and refunded.
Having an idea of your daily account balance is also a great way to avoid overdraft fees. You’ll know what you have available to spend and either refrain from going into the red or make a transfer if necessary.
To help stay on top of your accounts, consider setting up mobile banking alerts that notify you when your account balance is low.
6. Implement the 24-hour rule
The habit: Avoiding impulse spending
Impulse spending is a tendency to make nonessential purchases for immediate gratification, often leading to regrets later on. It’s a bad money habit that can wreak havoc on your budget and hinder your financial goals. The 24-hour rule is a simple strategy to help combat impulsive purchases.
When you’re tempted to buy something that isn’t a necessity, wait 24 hours before making the purchase. During this time, ask yourself if the purchase aligns with your financial goals, as well as whether you have a genuine desire for it or were just tempted in the moment. Often, after the initial impulse passes, you’ll find that you’re comfortable with foregoing the purchase, saving you money and preventing buyer’s remorse.
7. Learn about money from experts
The habit: Developing financial literacy
Financial literacy — the knowledge and application of financial skills — is what drives individuals to make informed decisions about their money. There are swaths of financial resources available to you — especially through the internet. Whether from library books, podcasts or online courses, you can likely find some medium that’s both free and suited to your learning style, which can provide valuable financial insights.
Explore topics like budgeting, investing, retirement planning and debt management. Engaging with reputable financial experts can help you navigate the complexities of the financial world. If you’re reading this, you’re likely already inclined to better understand your finances.
Bottom line
By incorporating these strategies into your financial routine, you can establish a strong foundation for financial success. Remember that building good habits is a continuous process. While they might not come naturally right away, it’s important to celebrate small achievements along the way as you work toward a healthier financial future.
–Bankrate’s Sheiresa McRae Ngo contributed to an update of this article.
