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Healthy Financial Habits to Develop

Young lady with slight grin holding and reviewing papers in front of laptop

It is so easy to spend money and purchase things these days. It can literally be done in one click. And while an individual purchase may not seem that significant in the moment, it can be impactful when you look at the bigger financial picture.

That’s why it is always important to review your financial activity. The best time to so is now. And then continue to do so on a regular basis. No matter what your financial situation looks like, having a plan in place that you follow can be life changing.

Developing healthy financial habits can do wonders for financial health and well-being. And the sooner you start, the better!

Here are three habits to start today.

Know What You Spend

A basic budget is where it all begins. You do not have to be a finance guru to develop one. It is simple to do. All you need is paper and pen or an excel spreadsheet. A budget should list out all your monthly income sources and all your monthly expenses. The difference between the two will show your estimated monthly savings or if you have overextended your means.

To get a clear picture, write it all down. Monthly mortgage or rent payment, auto payment, gas, insurance, groceries, coffee, subscriptions/memberships, etc. It is easy to not think of the impact of all these individual purchases when making them but writing them down will help you see the bigger picture.

Creating a budget is not intended to limit your use of your money. Rather, it is intended to help you maximize your hard-earned money and make sure it is being used efficiently while ensuring some is saved away for an emergency and/or special purchase. A simple review could enlighten you to an easy expense cut that could save you hundreds each month.

A simple spreadsheet and regular monthly review of your budget can do the trick, but there are numerous tech solutions available like apps to help as well. Many are free. Your financial institutions online banking and mobile app may have tools you can use. AFFCU offers a free personal financial management tool called My Financial Insights to help you track your spending, manage finances, and create savings goals.

Establish Financial Boundaries

Know your limits. We all have our wish lists of things we want and the desire to get the next cool thing on the market. Forget about the “Joneses” and what they are doing. Stay focused on living within your means and the budget that you have set.

Spending more than what your budget can handle will push you of the course you built for saving money and reducing your debt. Before you buy, ask yourself “Do I need this? Can I do without this?” Make sure there is a justifiable need for this purchase.

Financial experts often suggest following the “50-20-30 rule.” This rule breaks down a recommended guideline of how you should use your monthly income.

Monthly Income Management

  • 50% goes towards necessities, including utilities, food, and rent or mortgage.
  • 20% goes towards savings and debt, such as paying off loans or student debt.
  • 30% goes towards personal purchases, such as your phone plan, internet/cable/streaming services, clothing, and personal care.

By setting and following financial guidelines like these, you set clearer expectations and boundaries that you can follow to keep you on the path of financial stability and well-being.

Pay Yourself!

Yes, you read that right. Make paying yourself a top priority.

That means making sure you are preparing yourself for the future by saving and setting money aside. This includes saving for retirement, saving for emergencies, saving for other major life purchases, and more. Paying yourself is intended to help you be better prepared in the future.

A great place to start is your retirement savings, such as a 401k or 403b plan. Contribute as much as you can to take advantage of pre-tax payroll deductions. Plus, since it is taken out before you get paid you will hardly notice it happened or miss the money.

As you progress in your savings goals, or get annual pay increases, consider increasing the amount you contribute to these plans, while ensuring it works for your budget.

Set up direct deposit with your employer for your paycheck. It not only simplifies and speeds up access to your regular paycheck but using your financial institutions online banking tools you can set up automatic savings. Schedule automatic transfers to a secondary savings account or money market account. Moving money to a separate savings account before you even see it keeps you from spending it and moves you closer to your savings goal faster.

 

Creating smart financial habits involves commitment and can be challenging at times. But starting sooner, cultivating healthy financial habits, and adhering to the plan with regular reviews will set you up for a stronger, healthier financial future.