This better money habits guide is complete with everything you should start doing right now to set yourself up for financial success.
I’m not going to lie here, many of these suggestions can take time and might not be attainable for you right away. But, getting started right now will set you up long-term.
In fact, I’m still working on a few of these items myself.
But with hard work and dedication, everything in this list is very possible to do and will become so automatic in your everyday.
Ready to build good money habits? These twelve tips below will get you on the right track today.
What Are Better Money Habits?
Starting better money habits are the good practices you start to follow as it relates to your finances and overall financial health. It ensures you can live more comfortably, are building wealth, and eliminating financial stress.
There are plenty of better money habits you should establish, but here are some of the top ones you should consider doing as soon as possible.
1. Fix your credit score
While this might not necessarily be a “better money habit,” this absolutely needs to be included in here.
Too many people fail to realize what their credit score is or how much it can affect anything you plan to do in the future.
I’ve used Credit Karma for years to keep tabs and it’s completely free to have an account. You can check in as much as you want and they have a lot of useful information to help you along the way.
Look at your score and start putting a plan in place to fix any issues, improve your number — or if your score is good, then keep doing what you are doing.
- Pay off any lingering debt that was sent to collections. This will help knock your score up and knocks it off your report. If you can’t pay them upfront, you can typically set up a payment plan.
- Pay any of your bills and loans on time, EVERY TIME.
- Use a credit card intelligently to boost your score points. If your score is too low to get approved for one, many times banks will work with you on a credit card that acts like a debit card. It will help you build some credit points and when you have enough, you can apply for other credit cards
If you ever want a house, apartment, or other loans, your credit score can hinder that happening. Here’s how you can get a good credit score and maintain it.
2. Minimize credit card debt
One the more obvious items on this list, but also absolutely needs to be said is to minimize credit card debt.
Credit cards are good for a few things:
- Establishing credit
- Improving credit score (long as you pay on time)
- Buffer for emergencies
- Getting reward and travel points
The problem is, many credit card companies love approving people and then smacking them with 20%+ interest rates.
And your credit card debt comes with a cost. The average household with revolving credit card debt pays $904 in interest annually according to NerdWallet.
Yet, people are the problem too. If you can’t afford to pay something in cash or pay something off quickly, don’t charge it.
Americans are increasingly getting in more and more credit card debt. Just look at this article about the average credit card debt in each state.
Pretty insane.
Avoid big purchases and charges on your credit card, this ensures you don’t have to worry about any debt payment each month and that money can go to better use.
3. Pay extra on your student loan payments
If you are like me, you probably have some student loans that you need to repay. When first applying to all these loans, I had to estimate the amount I could roughly afford come a few months after graduation.
Not easy to do when you are unsure of your employment after college and where you will exactly be career wise.
While the interest might not be as high as say a credit card, you still want to pay these off as soon as possible.
Of course, it might be hard to pay more on your student loans, but when you can, do so.
Got a recent raise? Bonus income? Started budgeting and have money leftover? Use it towards your student loans.
You can also consider refinancing your debt to help lower the payments. A great place to do so is Credible. It’s completely free to use and helps you find the best refinance rates. Starting comparing your rates for free.
4. Know your current net worth & keep track
I think this is one of the most important aspects to developing positive money habits, yet is one that many often overlook.
Checking out your net worth can be scary, in fact, I wrote an article not too long about this.
But understanding your net worth helps you keep track of where you are at, what you are spending, and helps you see your progress.
Sometimes evaluating your net worth can be hard, but luckily there are simple tools out there to make it easier, like Personal Capital. I’ve been using this a lot lately and it’s free to use.
5. Understand all your expenses and review regularly
If you do not know where your money is going and what expenses you have, how are you going to know where to even begin to develop good money habits?
Having the full picture in front of you will help you figure out where your money is going and where spending cuts can be made.
Additionally, it is crucial to review this on at least a monthly basis.
Bills can change, loans can change, and your salary can increase. There is no limit to how much you should review, but just know how critical it is.
The simply way to do organize all this is through a spreadsheet or even a platform like You Need A Budget.
6. Create a savings plan and automate if need
Now that you know your expenses and are reviewing it on a consistent basis, you can truly formulate a unique savings plan.
Before I could even figure out an exact savings rate and how much I could sock away each month, I had to know my full expenses.
Knowing what I had left after bills and loans, helped me calculate what I could save. Right away, I noticed I could save quite a bit more than I actually was to accelerate everything.
I personally do not have everything automated because I like to be in more control, but if need — automate the process.
If you feel like you won’t have much self-control or need that to not spend it right away, do it.
Now, before you even see that money in your account for bills or just on unnecessary spending, it’s already automatically transferred to savings, brokerage, or retirement accounts. Boom!
7. Ignore the Joneses
We should all be pretty familiar with the phrase, “Keeping up with the Joneses.” Essentially, this means we compare ourselves to our neighbors or what others have and try to match or outdo them.
As a society, we try so hard to match or compete on a socio-economic level that we easily set ourselves up for financial disaster.
In order to develop better money habits, ignoring the “Joneses” and focus on what you have will help ensure frivolous spending and put money back in your pockets.
It’s hard to do with social media and people’s mindset focused on material things, but once you start ignoring others, it gets easier to save money.
8. Dedicate an hour a week to your finances
To truly have a decent grasp on your finances, you need to dedicate time each week to your money. With anything else, practice is what gets you where you want to be.
Reading and talking about finances might not be super exciting all the time, but if you want to develop better money habits, you need to spend time on it.
This can be looking at recent budgets, upcoming bills, current savings and investments, reading topics related to those things, etc.
Just spend an hour or so each week and you’ll be surprised what you’ll learn.
9. Read money blogs and books
This essentially goes along with the above section, but it should also be its own separate section. If you want to develop positive money habits, reading personal finances blogs and money books will get you there.
I think a majority of people think learning about finances is hard and the media or experts certainly makes it seem that way.
This is what I thought a few years ago, but I taught myself how to manage my finances. It’s easier than you think, once you started dedicating time to reading.
But, there are a ton of great online resources and books that simplify everything and will have you understanding more about money in no time.
Below are a few I’ve read that got me started and occasionally I read over to this day:
- Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
- The Bogleheads’ Guide to Investing
- The Only Investment Guide You’ll Ever Need
- Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence
- The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich
- MONEY Master the Game: 7 Simple Steps to Financial Freedom
- Unshakeable: Your Financial Freedom Playbook
You can find more of my books and website recommendations here if interested.
10. Increase your savings rate with pay raises
Do you get annual pay raises? Got a recent one? First, congrats! Secondly, what are you doing with that extra money?
Whether a small or large raise, you should be smart with that extra money. The majority of people will start buying new things, upgrading a car or their home, etc. This is where lifestyle creep can take over.
Although I would recommend using anything extra to pay down debt. But if you have a handle on that, then use that money to increase your savings rate.
And the potentially do the same if you get a tax refund. Use that extra to pay a debt or to add to your savings or retirement.
Typically, our society can be too quick to spend it on something material that will only provide temporary happiness.
11. Take advantage of 401ks. Don’t have one? Set up an IRA
If you are a millennial or younger, most likely social security will not exist by retirement or will not be remotely enough to help you live during your golden years.
To develop better money habits means preparing for the future and retirement. If you work for a company that has a 401k with a company match, you better take full advantage of that.
If you work for yourself, you can open your own 401k.
I recommend Vanguard, which I’ve been using since day one. Some of the lowest fees, great choice of index funds, fairly easy platform to use, and helpful team of experts.
Now, if your company does not have a 401k currently and you don’t have your own business, you can still open up a traditional IRA or Roth IRA. There is no excuse to not prepare for your future!
12. Own up to your financial mistakes
The final piece for improved money habits is you have to own up to any financial mistakes you have made. No matter how bad.
If you are in denial or rather ignore the mistakes you are making, you are only setting yourself up for more failure.
Everyone makes mistakes and money mistakes are the easiest to make. But only you can come to terms with your debt, any bad investments, or even if it is just a lack of knowledge.
Recognize it. Respect it. And move on to correct it.
We are in a digital age where learning and mastering knowledge is easier than ever before. It’s up to you to make changes.
Build Positive Money Habits
The above is only a start to building positive money habits, but it will place you far ahead of most people. The question is, will you take the initiative and dive in no matter what?
What better money habits have you started doing? Have other questions? Let me know in the comments below!