Financial Planning
You may have heard the saying, “If it were easy, everyone would be doing it.” This statement often holds true when it comes to our relationship with money. Perhaps money isn’t your best friend right now; maybe you’re overwhelmed with credit card debt or faced with an emergency expense. Whatever your circumstances may be, don’t stress.
Here are 6 simple habits you can adopt to build a better relationship with money.
1. Create a Budget And Stick to It
Creating a budget (and sticking to it) is one of the most important things you can do for your financial well-being. It’s a responsible way to hold yourself accountable for how much you spend and could help you identify ways to save money so you can start working on your nest egg.
How to create a budget:
- Your first order of business is to make a list of your monthly expenses. While you’re at it, why not take a look at the interest rates you’re paying on credit card balances? Maybe you’ll find ways to reduce the costs of borrowing money.
- Next, compare your expenses to your monthly net income. How much are you left with after you meet your monthly financial obligations? Are there things you can cut back on to save money?
- Record your daily expenses to see exactly where your money is going. Keep track of which expenses are necessary and the expenses you can live without.
How to stick to a budget:
Financial discipline is easier said than done, but it helps to be creative. For example, reward yourself every time you stick to your budget by putting some extra cash in an emergency fund or towards a high interest rate credit card payment. Do you have some guilty pleasures like binge-watching shows on Netflix? Allow yourself to watch your favorite show every time you stick to your daily budget.
Once you start tracking your daily expenses and sticking to a budget, you’ll begin to see the connection between money and spending. Remember, you control your finances, your finances don’t control you.
2. Set Smart Money Goals
Personal finance writer Amy Fontinelle cautions, “If you aren’t working towards anything specific, you’ll likely spend more than you should,” explaining the importance of establishing personal finance goals.
Your relationship with money is best managed when you know what you want to accomplish financially.
Here are some smart money goals:
- Short-term: Building an emergency fund or buying a new computer
- Mid-term: Planning a dream vacation, paying off credit card debt, or buying a car
- Long-term: Buying a home or growing your nest egg with retirement planning
According to Ashley Feinstein from Forbes, those who take time to document their goals are more likely to achieve them. Here are a few tips to help you begin goal-setting and turn your financial dreams into a reality.
- Create a vision: When it comes to setting financial goals, think about where you’d like your finances to be in one, five and 10 or more years. It’s OK to dream; anything is achievable when you put your mind to it. In fact, documenting your goals can be a fun exercise. You could even create a vision board with photos of things you’d like to accomplish in life like going on your dream vacation, finally renovating your kitchen, or building a sizeable retirement fund.
- Make your goals measurable: After you make your list of goals, create an action plan to help bring them to life. This could mean cutting cable to save extra cash each month, contributing more to your 401k, turning your hobby into a side job, or consolidating high interest rate debt with a personal loan.
- Set benchmarks: Assign time frames for each goal and create small actionable steps that will help you get closer to achieving them. Setting benchmarks will help you stay on track and readjust your goals as needed.
- Celebrate your success: Give yourself a big pat on the back each time to you hit a benchmark, getting you one step closer to achieving your financial dreams. Celebrate in ways that keep you motivated to reach your next big goal.
3. Avoid Impulse Buying
Whether it’s that Snickers bar in the checkout aisle or a new flat screen TV, everyone’s guilty of impulse shopping from time to time. Unfortunately, multiple impulse purchases can eat up a large chunk of your budget without you even realizing it.
Here are some tips to help you keep impulsive buying at bay and become a more disciplined shopper:
- Shop with a plan. To avoid falling into the impulse buy trap, make a list of only what you need before you go into any store. Go shopping with a focus so you’re in and out and not distracted by sales.
- Shop with cash. Don’t bring a credit card to the store with you. Shop only with cash to avoid spending money on things you don’t need. Keep in mind, this tactic only works if you budget and make a shopping list ahead of time.
- Sleep on it. Take a step back and think before you buy anything, especially large purchases. This will give you time to decide if you really want or need the item.
- Avoid joining too many email lists. This could be difficult, as signing up for a merchant’s email list can be a great way to save with discounts and free shipping. However, you could get sucked into buying things you don’t need with emails that offer you one great deal after another.
- Build a happiness budget. Everyone needs a little fun money to enjoy life. Create a happiness budget that fits within your financial means so you can enjoy life’s pleasures without breaking the bank.
4. Automate Your Savings
A national poll by Bankrate shows that a quarter of Americans don’t have emergency savings. Saving money can be particularly difficult because there are lots of other things you can do with your money.
One way to become a savvy saver is to take an ‘out of sight, out of mind’ approach and automate your savings. Treat your savings account like a monthly bill, creating automated deposits from your paycheck into your savings account. Want to take it a step further? Shop around for high interest-bearing savings accounts.
Check out apps like Mint, Mvelopes or HomeBudget to help automate and grow your savings.
5. Calculate the Cost of Your Time
Many personal finance influencers encourage putting a price on your time. Acknowledging your opportunity cost could pose the question, ”what’s the trade off? between my time and the money I spend?” Considering time as a part of your relationship with money may make it easier to manage both.
Whether you’re a freelancer, an employee or a business owner, knowing how much money you earn hourly and how it relates to your spending can help you decide whether purchasing an item is worth your time, money or both. So, before you make a large purchase, ask yourself, “How many hours will I need to work to pay for it?”
6. Learn About Personal Finances
One of the best ways to improve your relationship with money is to become your own financial “eggspert.” Learn all you can about financial wellness and money management by taking a class at your local community center, reading a money management blog, watching educational videos, talking to a financial advisor or subscribing to a money management podcast.
It’s really about finding the right balance between your money and your life. Just make sure you’re learning from reputable and responsible sources.
At Best Egg, we offer a number of educational resources like: