It’s the New Year, and for many, a time to reflect and set new goals. According to a recent survey on spending habits, “63% of respondents lived paycheck to paycheck in 2020.” Developing effective money habits are crucial for a healthier, wealthier future and something anyone can achieve with discipline and practice. Below are our top six money habits that will set you on a path to financial health in 2021.
Identify Your “Why”
Before you do anything else, carve out time to identify why you want better money habits. Do you need to get out of credit card debt? Are you hoping to retire early? Do you want to provide a better future for your kids? Travel the world? Your why will be that little voice keeping you on track when you want to stray from your goals.
Track Your Spending
This is a must-do if you hope to have better spending habits. Find a time every month, week, or even day to go over your spending in relation to the money coming in. Create separate categories for different kinds of expenses. You will likely have a fixed category for expenses that do not change like your mortgage or car payment. Develop other categories for expenses such as going out to eat, entertainment, and shopping. You might be shocked at how much you are spending in some categories!
Set a Budget
Now that you understand your spending patterns, set a budget for each of your categories. Paying in cash or with a debit card is much easier to track and keeps you from the constant debt cycle that comes with using a credit card. Keep your budget accessible so you can refer to it when you need to. Mint is a great app for keeping track of your budget.
Create Small, Achievable Goals
Instead of making one goal for the entire year that might be abandoned 6-months in, make a 90-day goal with clear directions on how to achieve it. Some examples could be paying down a specific debt, saving a certain amount of money, or any other tangible goal that aligns with your “why.” By creating a deadline, you are holding yourself accountable and breaking down what may feel like a large, daunting task into bite-size pieces. Your goals may change throughout the year, so re-evaluate them every 90 days.
Pay Yourself First
This piece of advice, made famous by Robert Kiyosaki’s famous work, “Rich Dad, Poor Dad,” feels counterintuitive but is a life-changing habit to adopt. Each time you get paid, put a percentage of that money in savings first before anything else. While challenging at first, you’ll be amazed at how your spending adapts over time. You may also surprise yourself with how much you saved over the year!
Learn About Money
Lastly, healthy money habits are a continuous learning process. Read a book, attend a seminar, surround yourself with financially savvy people. Invest in your financial education and you will see results.