Healthy Habits to Stay On Top of Your Finances
Updated: Mar 5, 2022
Staying on top of your finances and having a better understanding of your habits and overall standing can be a bit difficult. Here are some healthy financial habits you can adopt to make this process easier and get you back in the green and staying there.
Track Your Expenses
One of the best ways to begin understanding your total expenses, overall spending habits in general, and actual budget is to track your expenses. By doing so, you'll be able to see the big picture when it comes to your finances.
Tracking your expenses lets you become fully aware of what all you're spending money on, how much your bills are costing you each month, how any frivolous or fun spending is affecting your total amount of income left over each month, and how you can take steps to improve your income to outgoing funds ratio.
Use the big picture you make for yourself to make adjustments to any expenses that can be lowered or removed completely, create a safety net in your savings to ensure all of your mandatory expenses will be covered in the event of job loss or an emergency, and structure your spending habits to accommodate your future goals.
Do a weekly review of your expenses as well as a monthly overview to gain a better understanding of where your money is going and where you want it to be going by comparison.
Pay yourself (i.e., your savings) first
Once you know how much of your income needs to be set aside to cover all of your most important expenses, get in the habit of "paying yourself first." Before spending on anything that isn't an unavoidable bill or other significant upcoming expense, be sure to consistently allot a certain amount of your pay each period entirely for savings. (Once that's been set aside and placed in your savings, feel free to go get that iced coffee or hibachi dinner you've been dreaming of with the money you have left.)
Ideally, try to set aside about 5% to 10% of your income for savings each week (or whenever you receive payment) to go entirely to your savings. This provides you with that much-needed safety net mentioned above in the event that you have a medical emergency, your car breaks down, something in the home needs to be replaced, or some other unexpected expense occurs.
Once your savings are built up quite well, you may also want to consider putting an additional desired percentage of each paycheck into a retirement fund, college fund for your children or other loved ones, or some other form of savings for later.
Pay Down Your Debt with the Highest Interest Rates
Interest rates can be sneaky, and if you have a credit card or loan with a high interest rate that you didn't notice when signing up, you could find yourself paying hundreds in just interest every single month.
Make a habit of making every effort to avoid using your account with the high interest rate as well as trying to make as many payments as possible to lower the total amount owed on that account. It can easily derail your financial plans to be hit out of nowhere with additional charges of $100-$200 for accounts with large amounts of debt attached to them just because those accounts also have horrible interest rates, too.
When you make it a priority to put some extra money towards lowering those particular accounts' total balances, you will certainly reap the benefits and save plenty of money each month by simply not having to deal with predatory levels of interest each time your statement is ready.
Make Sure You Have Adequate Emergency Savings
This ties into the first two habits: you need to make sure you have adequate emergency savings. Making a habit of consistently checking your savings and being sure to add to it regularly will absolutely save the day in the event of an emergency.
Without adequate savings, you may be required to take out a loan, put up your home or vehicle as collateral, max out your credit cards or run their balances higher, or even try to find someone to provide financial assistance if something were to unexpectedly occur that you couldn't afford to handle on your own. Many of these other options can become quite problematic if you're even further unable to pay your debts afterward and risk losing your home, transportation, or owe tons more fees for maxing out your credit.
Make a habit of adding to your savings whenever possible and ideally doing so on a regular basis. (Tracking your expenses and becoming familiar with your spending habits will help you narrow down what an appropriate amount to set aside for your personal situation would be.) It's generally recommended to have, at a minimum, enough funds in your emergency savings to cover about 3 to 6 months' worth of expenses, such as your utility/power/phone bills, food and grocery costs, gas money (if applicable), etc.
Pay Your Bills On Time Every Single Time
As mentioned in our article about how important this is regarding your credit score, it's worth reiterating: pay your bills on time every time. This is one of the best possible ways to improve your credit score as well as show lenders, potential landlords, and other applicable persons that you can be relied on to make your payments without fail.
Even if your total amount of debt may rise and fall with the usual and unavoidable events of life, the importance of having a consistent history of on-time payments cannot be overstated.
Stay On Top of Your Credit Score
Speaking of credit scores, you also should get in the habit of regularly checking your credit score and seeing where you stand regarding that number and your overall finances. This will give you a good idea of how responsible your spending and payment-making habits are, and many of these websites also provide additional tips based on your results for how you can make changes to improve your financial standing.
Additionally, be sure to check your credit report at least annually to ensure there is no unusual activity, everything appears to be correct, and there are no fraudulent activities taking place in your name.
Additional Healthy Habits
Even aside from these main habits, there are a few other things you can do to further improve your "financial health" and lay the groundwork for further healthier money-related habits later on, whether it's by taking preventative measures now to save you money further down the road or by starting additional savings and investments to increase your funds upon eventual withdrawal.
Plan for and begin saving for retirement
Make (safe) investments
Utilize any available warranties (home/appliances/etc.)
Regular vehicle maintenance
Regular doctor checkups
Apply for federal or state financial resources and assistance (if applicable)
Avoid food waste to save money
Upcycle/repurpose clothing, furniture, etc.
Purchase good quality secondhand items when possible
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