If your finances are spiraling out of control, you likely have some bad money habits that you need to break. You don’t have a budget, you aren’t saving money, and you may be spending a bit recklessly.
These are all bad habits that aren’t serving you or your financial future.
The good news is that you can stop the cycle of bad habits and replace them with better money habits. You can learn how to finally take control of your money and live financially free. Breaking these habits are difficult, but they aren’t impossible.
No matter what your income level is, you could benefit from learning these better money habits of people who always have money. Healthy money habits are the key to living financially free!
Table of Contents
1. Set Goals
The best money habit you can practice is to set your financial goals. Unfortunately, many people think that setting goals is difficult and skip this very important step. Don’t let this be you! You cannot achieve your goals if you never set them in the first place.
Take some time to write down what you would like to accomplish. Do you want to pay off your credit cards? Do you want to send your children to college debt-free? Do you want to invest more into retirement?
When setting goals, it’s important to keep these things in mind:
Be clear: You need to have clear, defined objectives when setting your goals. If you have vague goals, you will not know what you are working towards and will have no motivation to achieve them. Instead of saying “I want to save money” consider saying “I want to save ‘x’ amount of money for my emergency fund.” Specific goals are measurable and more attainable than unclear goals.
Be realistic: It’s a great idea to aim high when setting goals, but it’s also important to stay realistic so that you can actually achieve those goals. If you aim too high, you’re likely to get discouraged, give up, and keep repeating your bad habits. Practical and attainable goals will keep you motivated.
Be persistent: Achieving your financial goals requires you to be persistent and consistent. Whenever you fall off track, revisit your objectives. Why are you doing this? What are you saving for? There may be times when you want to give up and splurge, but if you stay persistent, you will see progress.
Set Short Term vs. Long Term Goals: Ever action you take should have a deadline and your goals should have clear timelines. This allows you to research what you need to do, make a plan of attack, figure out what’s working and what isn’t, and revise your goals if needed.
2. Remove Barriers to Financial Success
The key to developing better money habits is by recognizing the bad habits that are preventing you from achieving financial freedom.
Take a moment to think about daily decisions you make that may be hurting your efforts. Are you completely avoiding your bills because you are too afraid to open them? Are you spending money you don’t have so you can keep up with the Joneses? Do you have a poor mindset and give up once you fall off track?
When you understand the barriers that prevent you from building wealth, you stop making excuses and work hard towards taking control of your finances.
3. Follow a Budget
If you want to take control of your finances, then you need to get organized and learn how to manage your money.
Creating a budget allows you to keep track your expenses, keep track of which bills to pay and when, and allocate your finances. Following a budget puts you in control and stops you from overspending or dipping into your savings.
Many Americans fail to follow a budget because they think it is difficult and stressful. That couldn’t be further from the truth! Whether you use money-managing apps or free budget printables, there are many resources that make creating a budget quite simple.
In fact, we used our own budgeting template to pay off $25,000 worth of debt! If following a budget still seems overwhelming, check out our simple guide on how to start a budget or grab a pretty budget printable that works for you.
4. Pay Yourself First
Another great money habit to build wealth is to pay yourself first.
The concept of this tried-and-true method is simple: Before you pay anyone else, put money into your savings account first. It should become a habit and a non-negotiable, not something you try to do every now and then.
Often times, we pay down debt, pay bills, or buy groceries first and then put money into savings and investing. We should be doing this the other way around. Next time you get paid, put your allocated percentage into savings before you spend money on anything else.
The best thing you can do is to automate this process. In fact, you should be automating all of your finances if you want to develop better money habits.
We use Mint & Personal Capital to manage our money electronically and automate our savings.
5. Automate Your Finances
Making your bills and savings automatic can save you so much time, energy, and money. You won’t have to worry about paying late fees, and some companies even give you a small discount for making your payments automatic.
Most banks and financial institutions make it easy for you to set up automatic bill pay for the date and amount needed. Once you set it up, you’re good to go! Just make sure to occasionally check-in to make sure everything is running smoothly and you aren’t being overcharged for anything.
Automating your payments will not only save you money, but they will save you time and give you the energy to focus on your other money habits.
6. Use Separate Bank Accounts
Use separate checking and savings accounts to make automating your finances even easier.
You can set up your direct deposit to automatically transfer a certain percentage of your paycheck right into your savings. If you can’t trust yourself to save money, this may work great for you. You could even take it a step further and set-up your savings account at an external bank so that it’s out of sight and out of mind!
If you like to overspend, try having a separate account for bill pay. This will help you keep your spending money separate from your bill money.
7. Build an Emergency Fund
Did you know that most Americans wouldn’t be able to cover a $1,000 expense if an emergency were to happen?
Having an emergency fund is such an important money habit that it’s Dave Ramsey Baby Step Number One. Unforeseen events such as repairs, surgeries, or family emergencies happen, and not having an emergency fund can throw off your entire budget, make it even harder to save money, and pay off debt.
Make sure you have an emergency fund so that you have some flexibility in your finances and don’t have to dip into your savings. You get to decide how much money to set aside for emergencies. Most financial gurus (including Dave Ramsey) advise saving anywhere from $1,000 to three to six months worth of living expenses.
You can learn more about achieving financial freedom with these Dave Ramsey tips, listen to his podcast, or check out his book Total Money Makeover.
8. Live Frugally
So you’ve tracked your expenses, you’ve automated your finances, and you even set up separate savings and checking accounts.
There’s just one problem. You still don’t know how to save money.
You are not alone!
If you still can’t save money after tracking expenses, then it may be time to start living frugally.
Frugal living is not something that happens fast and there are varying degrees of frugality. Start small – try cutting cable and opt for Netflix, or make your own coffee at home instead of hitting the Starbucks drive-thru.
Click here to learn more about frugal living so that you can start saving money without depriving yourself!
9. Find ways to make extra money
People with good money habits don’t just cut expenses, they do everything they can to increase their income as well.
If you are on a tight budget, living frugally can get you far, but you should be looking for ways to make extra money as well. Luckily, earning money online has never been easier.
Whether you are looking for an easy side hustle or looking to start an online business, the possibilities for making extra money are endless.
10. Pay Down Debt
Ideally, all of your spare money would need to go towards paying down your debt. If you are making extra money, put that money towards your debt repayment. This will help you pay more than the minimum and save you money on interest as well.
There are many different methods out there to paying off your debt. Find a method that works for you and your budget. If you want a quick win that keeps you motivated, consider the debt snowball method. This method prioritizes paying off your smallest debts first before tackling your larger debts.
Putting all your money towards your debt can be tough, but you will breathe so much easier when you are debt-free!
11. Invest
If you have money to spare after paying bills, paying off debt, and building up your savings, investing is a great habit that could help you reach your long-term financial goals.
Start by investing more money into your retirement. Retirement may seem far off, but you’ll thank yourself later if you start contributing more now.
12. Increase Your Financial Knowledge
If you want to improve your finances, you need to understand how finances work. This means constantly learning more about business, money, and personal finance. Fortunately, there is an abundance of resources available.
There are many personal finance blogs (including ours!) that allow you to subscribe to their newsletter and receive financial advice straight to your inbox! You could also listen to podcasts on the go, take a financial education class, or read books from financial gurus.
Knowledge is power, and learning will help you become an expert with your money and help keep you motivated to power through your journey.
Final Thoughts On Creating Better Money Habits
You can create a bright future for yourself by developing smart habits that help you manage your money better. However, it is important to realize that just like any habit, good habits take time and energy to develop.
Remember to start small until you don’t even notice your good habits starting to form. Don’t beat yourself up if you get off track – just dive back in! This is how you not only form good habits, but stick with them for good!
