Although many people start New Year's resolutions in January, January is nothing magical when it comes to self-improvement. The best time to make a change or set a goal is today. So when you are ready to improve yourself in your life, there is no time like the present. Here are five financial habits you might consider starting this year.
Commit to a written budget (and review it often)
The very first thing you want to do is commit to a budget. Having a budget is that Cornerstone and basis for financial success. Knowing where your money is going (and not) can help you understand where you are. If you've had trouble creating or sticking to a budget, decide to create a budget this year. A tool like mint can be a great way to put your budget on autopilot.
Remember that a budget is just a tool that will not allow you to spend money on things that you do not think are important so that you can spend money on the things that you think are important. If you already have a budget, make a habit of reviewing your budget at least monthly. This will help you identify where you could possibly make improvements.
When you start or set your budget again, make sure it is written down. Budgets that are not written down like goals can easily fall by the wayside.
Start (or build) your emergency fund
Another good habit for 2021 is Starting an emergency fund. An emergency fund should be one of the first things you do with extra cash in your budget. Even before you start working on reducing your debt or saving for retirement, it makes a lot of sense to set aside cash for emergencies.
A good rule of thumb is to start with a $ 1,000 emergency fund. It may not cover catastrophic emergencies, but it can help you avoid having to spend money on your credit cards in the unexpected event. Now that you've set up this basic emergency fund, you can keep building it while paying off debts or investing in the future. If you can, it is a good idea to have a few months of spending in your emergency fund. That way, in case you lose a source of income or have a major emergency, you'll be covered for a while.
Make a plan to get rid of your debt
The next habit to start or continue this year is to get rid of your debt. Depending on how much debt you currently have, it may not be realistic to pay off all of your debts in 2021. But no matter what, you should have a plan. There are a variety of different ones Debt repayment strategies – the debt snowball and the debt avalanche among many. It is important to choose a debt repayment approach that works for you and that you can stick to. Make a habit of spending less than you make and work to get out of debt.
Spend with a purpose
Another great habit that can help you live within your means is to spend with a purpose. Spending with a purpose means that you are aware of your expenses. If you ever wonder where all of your money has gone, you can benefit from being more spending-conscious.
Many people find success by establishing a non-essential expense rule. For example, before you go shopping alongside important things like rent, utilities, and debt payments, you need to write them down. Just writing it down (or taking a picture) is enough for many people to be more conscious and aware of what they want to spend their money on.
Pay first and give yourself a raise
If you're like many people, you may have good intentions to save money every month, but nothing will be left at the end of the month after all of the bills have been paid. One habit people who are financially successful have is to pay themselves first. Put your savings aside at the beginning of the month. It's a mental trick, but a lot of people find that having that money out of sight helps them save more money.
Another financial habit is always giving yourself a raise. If you get a raise at work or run into "extra" money, either put it IMMEDIATELY in your emergency fund or use it to pay off your debts. It is a good habit to put a raise or extra cash on your savings (rather than increasing your standard of living).
This is a good habit, especially if you are young or just starting out in your professional life. Of course, paying yourself and increasing yourself first doesn't mean that all you have to do is eat ramen or can't have nice things. But thanks to the magic of compound interestThe sooner you start saving and investing, the better you will be.
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Dan Miller (43 posts)
Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children.