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No matter where you are in life, developing good money habits could be the difference between working until you are 80 and affording retirement.
Or it could even mean quitting a job you hate to work a job you have a passion for, regardless of the income.
But with so much personal finance advice out there, how do you develop good money habits?
In this post, I share with you 17 good money habits you need to start following.
By making it a point to incorporate these practices into your daily life, you will see positive change in your finances.
It won’t happen overnight, but it will happen if you have the patience and discipline to follow these rules.
Table of Contents
17 Good Money Habits To Change Your Life
#1. Pay Yourself First
What is the biggest thing you can do for yourself that will improve your finances?
You pay yourself first.
Most people either never save any money, or they say they will save after they pay all their bills.
But these people end up not saving a dime.
The solution is so simple and easy, it is embarrassing.
You save money before you spend anything.
Every time you get paid, you need to put money into savings.
It doesn’t matter if you can save $5 or $100, the key is to save something.
By getting into this mindset, you make saving money a priority and many times this evolves into you wanting to save even more money.
A great way to start paying yourself first is with your 401k plan at work.
Have money taken right out of your paycheck and into a retirement account.
But this isn’t the only way.
When you get paid, you can manually transfer money from your checking account into a savings account.
So the next time you get paid, make sure you save something.
#2. Automate Your Savings
To make paying yourself easier, many people set up automatic transfers to a savings account.
By doing this, you never have to remember to save money, it happens automatically.
Your 401k works this way.
You fill out a form and then each paycheck, you have money invested for you.
You don’t have to do a thing.
Many employers allow you to split your direct deposit as well.
Just ask for the form and have 90% of your paycheck go into your checking account and the other 10% into your savings account.
If your employer doesn’t offer this, your bank does.
Log into your account and set up an ongoing transfer.
You select the day, the amount, and the frequency and money will be transferred for you.
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I go into more detail about this in the post above.
#3. Save In Separate Accounts
As great as it is to save money, you eventually need to take it one step further.
You need to have individual savings accounts for all your savings goals.
For example, you have an emergency fund for unexpected expenses.
You have a vacation fund to help you pay for upcoming trips.
And you have a new car fund to help you pay for your next car.
You also have accounts for irregular expenses.
For example, you pay your car insurance twice a year, so you save monthly in this account to pay the bill.
Many people call these accounts sinking funds accounts.
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The idea is to have accounts for each goal so you can be motivated to keep saving for each goal.
An added benefit is it is easier to know how much money you have for each of your money goals when the money is separate accounts compared to when it is all in a single account.
For some people, they like mastering the first habit of just saving every month first, and then they tackle multiple savings accounts.
For others, they dive in head first.
You decide what is right for you.
#4. Create Financial Goals
One of the biggest bad money habits is not setting goals.
Do you have any financial goals you are trying to achieve?
For most people, the answer is no.
But having goals is critical to long term financial success.
In fact, studies show that 80% of wealthy people have goals whereas only 12% of poor people have goals.
What does this tell us?
It says that when you have goals, you are more likely to try to achieve them.
And when you do achieve them, you not only get ahead, but you are motivated to create and meet new goals.
Even if you fail at reaching your goal, odds are you will be in much better financial situation as a result.
For example, let’s say you have the goal to save $10,000 this year.
At the end of the year, you have $8,000 saved.
While you did fail on reaching your goal, you have $8,000 in savings that you otherwise wouldn’t have if you never set the goal in the first place.
Make it a point to sit down and create goals for yourself.
Create short term goals that you can achieve in one year or less, as well as long term goals that will take years to meet.
#5. Track Progress Towards Goals
As great as it is to set goals for yourself, you also need to track them.
You can’t just make a goal and then forget about it.
You need to keep it in front of you so you reach it.
This could mean setting reminders in your phone to review your progress or setting up monthly meetings with yourself or your partner to review how things are going.
If you have a hard time staying committed, you might need to break your goals down into smaller chunks.
For example, when I was trying to pay off my credit card debt, I was losing motivation because my balance was so high and my monthly payments were so small.
What worked for me was to focus on a smaller goal.
Here is how this worked.
My overall goal was to pay off my $10,000 in debt.
I broke this down to paying off $2,500 as quickly as I could.
Making $100 payment a month achieves my ultimate goal of reducing my debt, but psychologically, there is a big difference.
Seeing I have $2,000 to go instead of $9,500 is motivating.
Finally, when you review your goals, don’t be afraid to change them.
You might set a long term goal of wanting to retire early because you hate your job, but then you find a job you love and don’t want to retire early.
It’s OK to change your goals.
Life happens and as a result, so do our goals.
The key is to take your time when changing them to ensure these are goals you want to meet, not just a spur of the moment thing.
#6. Follow A Budget
One of the worst bad habits you can have with money is not following a budget.
This is a mistake most people make.
They see a budget as restricting how they spend their money.
The idea of putting off today for a better tomorrow doesn’t interest them, so they never budget.
But your budget doesn’t have to be this way.
You can set it up so you not only save for a better tomorrow, but you can also enjoy today.
It’s all a matter of perspective.
And the good news is you don’t have to put a lot of effort into your budget.
You can make a detailed budget or just track a handful of spending categories.
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The key is being aware of how you are spending money and making an effort each month to put something into saving.
#7. Work At Avoiding Impulse Buys
We make a lot purchases in the moment these days.
Many times we are simply tired or stressed and buy without thinking things through.
Other times we fall victim to the slick advertising and think we need to have the item in question.
You need to work to limit your spur of the moment impulse spending.
Luckily there are a few games can you play to trick yourself into waiting to see if you really want the item.
- The Waiting Game: Simply wait a pre-determined amount of time before buying something. People use anywhere from 1 day up to 2 weeks.
- The Would I Rather Game: Ask yourself if you would rather have the item, or the money it costs? If you would rather have the money, then don’t buy the item.
- The Right Now Test: Before buying, ask yourself if you would start using the item right now. If you wouldn’t use it for a few days, then chances are you don’t really need it.
There are many other money games you can play with yourself to limit wasteful spending.
The key is finding the one that works for you and use it to stop buying things you will later regret.
And if you have a house full of things you never use, take the time to clean out your house.
Seeing all the money you waste by making impulse buys will send a strong message to yourself.
#8. Take 2 Minutes To Save Money On Everything You Buy
A simple trick to improve your finances is to take a couple of minutes before you buy anything and see if you can save some money.
This savings won’t be hundreds of dollars each time, but over time, the savings compounds and as a result, you improve your finances a lot more than you might think.
Here is how you make this work.
When shopping online, see if there are any coupon codes available to lower your price or even get free shipping.
Just search the retailers name and coupon code.
Another option is to use cash back websites.
I like using Swagbucks and Rakuten.
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I use both because they offer different cash back amounts and different stores.
They work by offering you cash back when you shop at your favorite retailer.
The cash back amount varies, but is anywhere from 1% up to 25%.
You then have the money you save put in your bank account via PayPal.
I save a few hundred dollars each year using these services.
To start using Swagbucks, click the link below and get $10 for free.
To start using Rakuten and get $30 after you spend $30 online, click the link below.
When you are not shopping online, you can still save additional money.
As you are checking out, ask the cashier if there are any discounts thy can apply to your purchase or ask if there is a discount for paying in cash.
Surprisingly, they usually have a coupon they apply to my purchase most of the time.
By taking just a couple minutes, you can lower the cost of almost everything you buy.
#9. Plan For Expensive Items
Large expenses can ruin your finances quickly.
To limit their impact, there are two things you can do.
First, you save ahead for them using multiple savings accounts as I mentioned earlier.
The other thing you need to do is research.
Start looking into items ahead of time.
Say you need to replace your washer soon.
Instead of waiting for it to break or randomly going to the home center one Saturday and picking a model for sale, do your research first.
Find out the features the new units have and then determine what ones, if any, you want to have.
Then read a lot of reviews from other users.
While it is important to not put too much weight into a single review, pay attention if many reviews cite the same issue as this could be a design flaw.
Then see how much it costs and figure out how you could pay less for it.
Maybe you wait until the end of the year clearance sales.
Or maybe you pay attention for an open box or floor model that will be heavily discounted.
The more research and time you put into your large expenses, the more money you will save.
And the greater the chance you will buy the right one for your needs and not regret the purchase.
#10. Save A Portion Of Windfalls
This one is related to the idea of paying yourself first.
Whenever you come into money, get it from a bonus at work, a tax refund, a lottery winning, etc., it is a good financial habit to save a portion of it.
The more you save the better, but you can decide on the amount you save.
For me, I save 80% of the windfall and spend the other 20% however I want.
And when I say I save the money, I typically use it to fund long term savings goals, like for a vacation.
If you have debt, you can split the money three ways.
Put 50% to help pay off your debt, put 25% into savings, and spend the other 25% on whatever you want.
Since these windfalls tend to be higher dollar amounts, you can really use them to get ahead financially.
#11. Pay Off Debt Quickly
If you have student loan debt, and auto loan, or credit cards, you need to work to pay it off as quickly as possible.
This is because it is near impossible to build wealth over the long term if you are saddled with debt.
Think about it.
If you are paying someone else $250 a month instead of yourself, who is getting rich?
Certainly not you.
The good news however is that by making it a point to pay off your debt, you can save money.
The more you put towards your debt each month instead of just paying the minimum payments saves you on interest charges.
So set up a plan to get out of debt.
My favorite is the debt snowball, which organizes your debt from smallest to largest and you pay off one debt at a time.
It motivates you to pay off debt, which is why so many people love it.
Once you do get out of debt, you can then put the money that was going towards your debt into an investment account so you can start to grow your wealth.
#12. Challenge Yourself To Reduce Spending Each Month
In an ideal world, you would use a monthly budget to track your spending and make sure you are living within your means.
Plus you would see just how much money you are spending dining out or whatever your vice is each month.
But the reality is not everyone budgets.
While I encourage you to start a budget, here is the next best thing.
Each month, pick a spending category and try to reduce it for the month.
For example, you could try to limit your dining out expenses this month.
Then next month you can try to reduce your personal care budget.
Doing this makes you think more about the money you spend and forces you to cut back a little bit.
It also helps you to limit excess spending or emotional spending, both of which can easily destroy your finances.
This works best with variable spending categories, and not with fixed expenses like your rent as it would be near impossible to lower that expense for a month.
Finally, to make this work best, take some of the extra money you save and actually transfer it over to a savings account.
This way you truly save the money by not leaving it in your checking account to spend on something else.
#13. Pay With Cash More Often
Did you know most people no longer use cash when buying things?
Debit cards and credit cards are the most popular forms of payment out there.
Sadly, this can lead to unnecessary spending.
When you swipe a credit card, there is no emotional attachment to your money.
This is why after a day out when you total up how much money you spent, your jaw hits the floor.
When you pay with cash, you tend to spend less money.
This is because you see the money leaving your wallet and you think twice before spending.
I encourage you to try to pay with cash more often.
I know it can be a hassle to run to the ATM to get cash, so I’m not expecting you to go on a cash only diet.
Just try a weekend or two a month where you only pay with cash and take note of the impact it has on your finances.
#14. Take Advantage Of Credit Cards
I know I just told you to limit your use of credit cards, and I mean it.
But you will still use credit cards to buy things.
And when you do, you need to make sure you are using credit cards that benefit you.
I’m talking about using cash back credit cards and travel rewards credit cards.
These cards pay you back a small percent every time you swipe.
You can then use these rewards and get cash in your bank account or use the points to pay for travel expenses.
With the credit card strategy I use, we make $1,500 a year in cash back that we use to fund long term savings goals.
If you are using a credit card that doesn’t pay you back, you are missing out.
To find the perfect cash back credit card for you, click the link below.
And if you are interested in travel rewards, click the link below to find the perfect travel rewards credit card for you.
#15. Put Extra Towards Your Mortgage
One of the biggest mistakes people make with the money is not paying extra on their mortgage.
For most people, your mortgage payment is your biggest monthly expense.
And it is the most expensive thing you will buy.
Add in the interest you pay over the life of the loan, and you are paying tens of thousands of dollars in interest.
By paying a little extra each month, you pay less interest overall.
And you shorten the length of your mortgage.
So try to pay extra on your mortgage every month.
The great thing here is it doesn’t have to be a lot.
Simply round up your payment to the next ten dollars.
For example, if your monthly payment is $1,054.89 make a payment of $1,060.
That is an extra $5.11 every month.
I know it doesn’t seem like a lot of money, but over time it adds up.
Even with this small amount, you can save thousands in interest charges and slash years off your mortgage.
Think about your financial situation in 15 years with a paid off mortgage and how much extra cash you would have every month.
#16. Find Additional Streams Of Income
Most people rely on their income to pay down debt and invest their money.
Over time, they improve their finances, but they can do it a lot faster.
By having multiple streams of income, you can get out of debt faster and save more money.
Simply pick a side hustle you love doing and see if there is a way you can get paid to do it.
Then when you do get paid, take 20% to set aside for taxes and use the remainder to pay off debt or invest.
When I was using my website as a side hustle I was saving an extra $10,000 a year.
I never lived off this money, it all went into investments.
In 5 short years, I had an extra $50,000 saved.
This is huge.
But there is another benefit to having other income streams.
If you lose your job, you lost your source of income.
Without an income, life gets stressful since you still have to pay your monthly bills.
But with a side hustle, you have money still coming in.
Chances are it won’t cover all your monthly expenses, but it will pay for some and this will lessen the stress you feel just a little bit.
#17. Pay Your Bills On Time
Paying your bills when they are due has a huge impact on your finances.
The largest benefit is with your credit score.
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Since paying your bills on time is a factor that makes up your score, it only makes sense that your score will rise as long as you make on time payments.
And with a higher score, you qualify for better interest rates, saving you money over the life of any loan you take out.
Plus, many insurance companies use your credit to determine your annual premiums.
The better your score, the lower your premiums.
There are 17 good money habits you need to start following.
The sooner you make these a part of your financial life, the sooner you will see a positive impact on your finances.
In just a few short years, you will be so much farther ahead financially it will blow your mind.
But you have to start, and the sooner you start, the better.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.