5 Habits You Can Start Right Now to Be Good with Money

5 Habits You Can Start Right Now to Be Good with Money

It’s a new year and time to get your finances in gear. Wherever you are in your journey, we know that financial planning can be intimidating. But you don’t have to become an expert overnight. Here are five habits you can start right now to regain control of your finances.

• Build a Budget

One of the greatest money stressors is not knowing if you’re going to make it each month.

Building a budget will show you what you have coming in, what’s going out, and where you’re spending. It gives you control amid the whirlwind.

Start by sitting down and listing all your sources of income and how much they bring in. 

Next, make a list of your essential expenses — rent, water, electricity, etc. Don’t lump all your utilities together here. Seeing what you spend on each area will also show you where you can save money or where something might be going wrong with your bill (e.g. a crazy high water bill might be a sign of a leak). You can also call your utility company to see if your bill is comparable to what the previous resident paid.

If you have a credit card, budget to pay more than the minimum payment. (We’ll discuss this more in the next habit.) 

Now, look at your non-essentials. Don’t guess at this. Pull out your credit card and bank statements. If you use cash, save your receipts for a month so you can see where you’re truly spending money. You might be surprised!

Create a budget from your essential expenses, including general savings, retirement savings, and saving for your house. (Note: You may not have much money for savings right now, but small beginnings can make a big impact down the line. Start with what makes sense for you situation and grow your savings as you can.) Finally, see what non-essentials you have room for. You may need to cut back on some non-essentials. But you’ll be able to feel better about the ones you keep because you’ll know you’re not overspending.

If you’re still overwhelmed, check out a budgeting app like Mint, PocketGuard, or Wally. Just know that there you’ll need to invest some time to get it set up and optimized for your spending.

• Pay More Than Your Credit Card’s Minimum

If you’re stuck under a pile of credit card debt — or simply want to avoid credit card debt altogether — you need to pay more than your minimum monthly payment. Here’s why:

• In the long run, you save money. Making minimum payments barely puts a dent in the principle itself, and interest is added every month, meaning it takes longer to pay off the card. 
• Making above minimum payments can improve your credit score. Credit card balances carry about 30% of the factor for your credit score. 
• By paying the card off faster, your debt-to-income ratio balances out, which is important for when you prepare to buy a home. 

If you only have one credit card, paying more than the minimum is simply a matter of putting it in your budget. If you have more than one, there are a couple of methods for paying off debt that you might want to consider.

The Avalanche Approach: This plan focuses on paying off the card that has the highest APR first. You’ll continue to make your minimum monthly payments on any other cards, but this high-APR card gets your extra payments. Once it’s paid off, apply that card’s minimum monthly payment and your extra payment amount to the card with the next highest APR. Keep doing this until all your cards are paid off.

The Snowball Approach: This approach is very similar. Instead of focusing on the cards with the highest APR, you focus on the cards with the lowest balance first. Once you’ve paid off the first card, apply that card’s payments to the card with the next highest balance and continue until you’ve paid off every card. 

• Shop for Quality, Not (Necessarily) Cheapness

Finding the cheapest option for a purchase isn’t always the best way to save money. You may very well spend more money to fix or replace that cheap option. Instead, shop for items that are going to serve their purpose well and last.

This doesn’t necessarily mean you should buy the most expensive thing. High price doesn’t always mean quality work. Further, you may find options that aren’t the very best but will serve you well at a more affordable price. 

Research the products, read reviews and talk with people you know who’ve purchased that item. Skip over positive reviews written by people who have only recently purchased the products, and look for the ones that speak about the product’s quality and longevity. If something is outside your budget, get on the business’s email list and watch sales to get the best price. 

• Handle Your Bills Immediately

When bills arrive, open them immediately and consult your budget. If you can pay them now, do so. If not, figure out when that money will arrive and set a reminder in your calendar to pay it then. 

If you know you won’t be able to pay all your bills this month, don’t take the hit on your credit. First, determine which bills cannot be postponed. For example, if you don’t pay your utilities, they will be shut off, even if you pay part of the bill. For debts, however, you may be able to contact your lender to see if they offer financial hardship programs, alternative payment plans, or local organizations that can help. Prioritize the bills that must be paid, and make a plan for how you’ll deal with the others.

If you have a steady income that you know can cover your expenses, automated bill pay is an easy way to make sure you don’t fall behind. However, if you go this route, be sure to still read your bills. Make sure they’re at the amount you’ve budgeted for, and see if anything is unexpectedly high. This gives you a chance to investigate abnormal bills and either find solutions or adjust your budget accordingly.

• Invest Time in Your Financial Education

You don’t need a degree in accounting to be good with money. There are a plethora of easy-to-use resources available online. Do your research and find knowledgeable sources in a format you enjoy — blogs, podcasts, books, videos or courses.

If you’re truly ready to transform your finances, we recommend our in-depth Money Management course. It guides you through the process of identifying your values and goals. Then, you’ll learn how to set financial goals, manage your cash flow, save for the future, borrow strategically and protect what you have. You can take it at your own pace, so it’s easy to sign up at any time.

Are you ready to become in control of your money? Let’s get there together!