16 Ways To Create Better Money Habits With Big Impacts
Do you wish you had extra money to save at the end of every month?
Everyone wants to save more, but somehow only some folks actually do. Sure, in some cases it’s because they earn more, but that doesn’t mean it gets saved. It’s because of consistent actions taken, over time.
Eventually, these actions become money habits, and you end up doing them automatically. The great part is that anyone can pick them up, including you. To get you started, I’ve compiled a list of better money habits for folks trying to transform their finances.
16 Ways To Create Better Money Habits
1. Focus on the behaviors that drive the result
Your daily money habits are what ultimately drive any long-term financial goals. When it comes to personal finance 101, this is a universal truth shared by financial advisors. So if you want to win in the long run, you need to modify your behavior to enable it. You lose weight by making small changes to your lifestyle and sticking with them. You save money the same exact way.
2. Annualize your expenses
This is a great rule of thumb that helps you internalize the impact of your choices over the long-term. Start looking at purchases you make as annual cost, not a per purchase expense.
This means you take your purchase and multiply it by how often you make it, whether daily, weekly, or monthly. You’ve heard the overused example of how much a daily cup of coffee costs annually e.g. $2 x 365 = $730 a year.
While overused, the point is valid. Small reoccurring purchases add up big no matter your financial situation.
3. Limit your grocery shopping to once a week
This is something that took me and my family a long time to start doing, but the results have been huge. Between my wife and I, one of us would go to the grocery store every single day. We’d intend to only buy a few items, but it would never work out like that.
As a result, every trip would result in impulse purchases that added $5-$20 to the bill. This adds up to thousands of dollars a year. That is a lot of money!
By limiting our grocery shopping to once a week, we’ve forced ourselves to plan out our meals better, which has greatly reduced our overall costs.
4. Don’t carry a credit card balance
Credit cards can be a great tool for money management, but that can come at a cost. If you don’t pay off the bill every single month, you are paying your interest rate on top of your purchase.
That can wipe out a lot of the gains you’ve made from other activities. There is a common myth in personal finance that you need to maintain a balance to increase your credit score. The truth is your credit score will improve the lower the utilization you have. The best utilization rate you can have is 0%, so avoid the interest and improve your credit score by paying off the balance every month.
5. Purchase daily consumable in bulk
There are certain things you know you are going to buy and use every single day. Things like toothpaste, toilet paper, deodorant, shampoo, napkins, paper towels, etc.
Make a list of these items, and buy them in bulk when you see them on sale. It’s a quick way to lock in savings on items you 100% know will get used.
6. Audit yourself frequently
This sounds scary, but it’s not. All I mean is that you should take time to track your spending on a daily, weekly or monthly basis. It’s an easy way to help stay on track.
Try to see if you recognize opportunities to reduce costs by tweaking little things. An example would be, If you notice you are paying monthly for a streaming service you don’t use, you should cancel them. Or likewise, you may find that you are purchasing something monthly that has a cheaper annual option, like car insurance.
7. Get organized
When you’re not organized, it’s hard to make sound decisions. You will always be reacting to the latest bill or expense, as opposed to planning for them.
If you read any personal finance book, they always talk about creating a budget for this reason alone. It forces you to react in advance, so you know what to do when they actually happen. If creating a budget alone doesn’t help, try using something like the envelope system.
8. Live debt-free
Paying interest on items that go down in value is like setting money on fire. The way to avoid this altogether is to live debt-free. If you’re working on getting out of debt, a good strategy to try is called the debt snowball.
9. Create breathing room, get an emergency fund
Crises happen, and when they do, the last thing you want to think about is money. Because of this, you’re apt to make rash decisions because you aren’t thinking straight.
Having a well-funded emergency fund gives you room to breathe. That extra space is where better, more thoughtful decisions happen.
10. Spend money when it matters
It’s not always wise to buy something based on the price alone. In order to be competitive, lower-priced items usually sacrifice quality for cost. Sometimes buying items like this can be more costly in the long run.
For example, I’m a runner and put in about 35+ miles a week. My shoes usually cost around $100 a pair. That’s not a huge amount of money for shoes, but it’s certainly not a small amount.
What I’ve found though is that the cheaper shoes didn’t last long, or provide good foot support. That means I would need to buy them more frequently, and I would probably hurt myself in the long run, which wouldn’t be cheap.
11. Get a whiteboard
I know this sounds simple, and it is, but the results can be huge. Why? Because whiteboards make it easy to write things down. Whether it’s due dates, grocery lists, outstanding balances on debts, your current net worth, or savings goals, writing them down makes them way more likely to happen.
12. Sleep on it (before a big purchase)
Don’t ever make a big purchase before you give yourself at least 24 hours to “sleep on it”. Often times we get so excited about getting the new thing, that we don’t think clearly. A night of good sleep can do wonders for that.
13. Don’t trip over dollars to chase pennies
We oftentimes hinder our ability to make more money because we are so focused on saving it. The most common scenario is when you do something yourself that you should pay someone else to do but don’t. While not worse, you could have better money habits.
What you’re not taking into account is the value of your time and what you could create with that time back.
14. Utilize bank accounts for specific purposes
This is a tip that could have a big impact on how you automate your finances. Personally, I used to use one checking account for all my banking. This made it very difficult to start saving money for specific purposes because everything blurred together. Now I have very purpose-driven checking and savings accounts.
For example, I have one for saving for vacation and another for emergencies. Tying the desired outcome to the way you’re saving for it helps reinforce a positive money habit.
15. Keep things simple
This may sound counter-intuitive after some of the other behaviors I mentioned but stay with me. You don’t have to do everything. Just do what works, and stick with it. Don’t over complicate your finances by trying everything at once. Pick a better money habit you want to start and do it for a few months. If it works, keep doing it. If it doesn’t, change it. Once you’re ready, you can then try something new.
16. Best Money Habit…Pay yourself first
Another better money habit that can help you build wealth faster is “paying yourself first“. In a nutshell, it means that after you get paid from your job, set aside money for investing, or paying down debt before you pay anyone else in your budget. I’ve been doing it for a few months now and I’m loving the results!
What else would you consider a better money habit? How about any bad money habits people should avoid? Leave a comment in the notes below!