9 Simple Financial Habits Everyone Should Have
We all like routines so the faster you can add on a new financial habit the easier it will be to make it something you do often.
Finances do not have to be complicated or complex. Part of learning financial literacy (especially for those with a low income) is to find more room for small wins. Instead of waiting until you have $1000 saved to be grateful for the extra $50 you put away unexpectedly.
Becoming wealthy or rich is the product of daily activities. Once you master which financial habits help progress your life doors will start to open.
Together with the help of Sam from Aussie-fi we created an in-depth list of 9 simple financial habits everyone should have especially when they're just entering the world of personal finance.
The key to success is to know what you want and go after it. Once you begin to implement these daily practices and find other people with similar mindsets, the world is yours.
Table of Contents
Before we dive into examples of great financial habits that you’ll want to start today, let’s define financial habit.
What is a financial habit?
You all know what a habit is right?
It’s something that you have become accustomed to doing. Something that you probably do without even realising you are doing it.
Think of things like biting your nails or cracking your knuckles - these are both habits.
Well, financial habits are exactly the same, just with money.
Chances are that you have many financial habits already, some good and some bad.
Developing good financial habits is a pivotal step in your generational wealth building journey.
What are good financial habits?
A good financial habit is one that is healthy, beneficial, and has a purpose. These habits would include turning on your bank overdraft so that if you ever forgot to put the correct amount in your account you would be covered.
Or automating your savings so that you know that each paycheck you are paying yourself before you pay someone else's company. Paying yourself first is definitely linked to financial stability.
A good financial habit is simply something you do that in some form involves money and will benefit your present self as well as future self.
What are bad financial habits?
A bad financial habit is one that has immediate consequences or will later on negatively impact you. Think of this as normalizing paying your bills late or not paying them at all.
Going into stores and aimlessly placing items in your cart with the intention of spending with a credit card and having zero intentions on paying it off in full.
If you have trouble saving for big purchases, wealth seems unattainable or your credit score is low and you don’t see any way to improve it, chances are bad financial habits are to blame.
The good news is that once you see that a lifestyle shift is needed, that is when the magic begins to happen.
Your mindset starts to open up to the possibility that just a few simple changes can pivot your entire life.
How do you develop healthy financial habits?
With daily intentions you will be able to form new cycles of managing your money and effectively building generational wealth. It’s all in your mindset and how you use your time each day.
Keep in mind we all have setbacks and each is a lesson to be learned. Part of building rich people habits is to keep going even when it is difficult.
1 - Get to know your monthly spending
Your monthly spending is something you must know in some form.
Whether it’s a number you keep in mind as you prepare for the next month, or it’s a list of things you know you buy or do each pay period, it’s something everyone with good financial habits is aware of.
This is how you figure out how your money can be better allocated.
If you haven’t created a budget yet or are unaware of the different budget styles that are available you can always check out the 50/30/20 budget or the simple no budget-budget.
Budgeting isn’t a way to restrict your spending, it's a way to free it up for things that truly matter to you.
Investing in yourself, traveling, saving for big purchases, and having freedom to take time off from work is the best gift you can give yourself.
2 - Live Below your Means
As people's income increases, often so do their expenses. This is a common psychological challenge that most people encounter at some point in their lives that can prevent financial progress.
Think of it like this, you only have just enough income to get by, so you are pretty stringent with your spending. However, you get a significant pay increase. All of a sudden you feel ok buying things that you once wouldn’t have. You mentally rationalise and justify these purchases.
The act of living below your means, essentially means to keep your spending as far below your income as you can.
By doing so you will increase the amount of money that you have left over each month. This money can be used to build wealth through saving or investing it.
Rich people get rich by living like they’re broke and broke people stay broke by living like they’re rich.
3 - Financial Goal Setting
Think of where you are now financially, and where you want to be 7 or more years in the future.
What you are envisioning for the future are your long-term financial goals. They are the things you want to achieve financially. You can then break down these long-term goals into medium-term and small-term goals.
Financial goal setting is an important financial habit as it gives you something to work towards. The world of personal finance is very broad. By setting yourself goals for different time frames, you can break down what you want to achieve into little bite sized pieces.
When creating financial goals for yourself, there are a few things that you should keep in mind. You want your goals to be realistic, specific, measurable and time based. For example, I would like to become financially independent by the age of 50.
4- Learn your spending triggers
Emotional spending (retail therapy) is a common response to emotional events or stressful situations. Let’s say that your boss yelled at you or you found out some upsetting news.
As a result of that situation, you feel agitated, angry, sad, overwhelmed, stressed, and maybe even a sense of anxiety. This reaction to the initial stimuli is what prompts us to want to feel better or distract ourselves. Distraction often comes in the form of emotional spending when we decide to only go shopping because of what happened to us.
Even excess spending to celebrate a win or acknowledge that you are implementing good financial habits... can be a form of emotional shopping and thus one of your spending triggers.
A spending trigger is nothing to be ashamed of learning what yours are will help you to implement rich people habits.
While there isn’t a great secret to becoming rich and building generational wealth, if you listen to any millionaire they will tell you that they acquire assets, leverage debt, mind their own business, and value their time.
Once you look at life as a series of rich people habits and daily choices, it doesn’t seem as devastating to implement a simple budget, reevaluate your financial goals periodically and add more financial resources to your tool belt.
5 - Start acquiring assets
Acquiring assets is crucial to building generational wealth. Opening a brokerage account and making your very first stock purchase is how many of us will begin to acquire assets.
Another example is buying jewelry and wanting to pass it down to your children or other people you care about. When you have gold or silver you can also sell it or loan it to shops for different amounts of money.
Acquiring assets through buying real estate is another popular rich people habit that makes building generational wealth not only something you can enjoy now but in your old age too.
Who wouldn’t want to make their money work for them? By learning more ways to acquire assets and determining how to implement rich people habits you are ensuring your future success.
Every time you pay yourself first you are obtaining another asset by boosting your savings or investments. Generating assets is not complex. All you need is a plan for your money and motivation to keep going even when it’s hard to keep implementing new habits.
If you need some help getting started, feel free to check out our step-by-step guide on how to create an investment plan.
6 - Make a plan for using credit cards
Majority of people get their first credit card with enthusiasm but don’t realize that a credit card is a contract. A credit card company approves you for a line of credit on the promise that you will clear your balance each month.
If you don’t clear your balance by the time your statement is generated they add on interest.
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Interest is usually the reason why so many people think it is impossible to clear their balances.
When you make a plan to pay off your debt and live below your means you will feel much more secure in your financial habits.
Plus it will boost your credit score when you use your credit card with a purpose and keep your utilization low.
7 - Always Have an Emergency Fund
According to CNBC, a study in 2019 found that only 40% of Americans could pay a $1000 expense that was unexpected. Sadly enough, many people around the globe live pay-check to pay-check.
If this is you, you should make it your number one priority to create a fully funded emergency fund.
An emergency fund or rainy day fund is literally some spare money tucked away for when things go wrong. And let me tell you, in life, they do!
How much money is in your emergency fund really depends on your own personal situation. A good starting point is to have 3-6 months worth of your expenses saved up.
Having an emergency fund has a huge number of benefits. Some of the most notable are the peace of mind it gives you and the ability to keep your head afloat when unexpected expenses pop up in life.
Related Post: Guide for creating an emergency fund
8- Start using sinking funds
A sinking fund is money put away with the intent of spending. My favorite times of the year to create a sinking fund for is travel, anniversaries, Christmas, and Thanksgiving.
It helps to decrease your financial stress and alleviate financial anxiety.
Now know that you can set a budget and not depend only on your credit cards to pay for your items. Forming rich people habits includes giving your money a job and making it work for you.
Robert Kiyosaki, author of Rich Dad Poor Dad drives this point home when he suggests that one thing that the wealthy get right, is making their money work for them before giving it to someone else’s company.
9 - Never Stop Learning
Ask yourself this. Is there anything in life that you have truly mastered?
Is there any one topic that you truly understand everything about? Maybe there is, but for most people, myself included, the answer is probably not. And this is completely normal and ok.
Personal finance is a topic so broad that there is always something new to learn. No matter your current level of knowledge on personal finances, there is always something new to learn.
Don’t become complacent with what you know!
Check out our Growing List Of AMAZING book recommendations. (Personal finance and self care)
Continue to challenge yourself, push boundaries and grow. This is an incredible financial habit that can actually be applied to many other things in your life that are not related to your personal finances.
There are a huge variety of ways that you can continue to learn. Read books, listen to podcasts, take courses, have conversations with others, question what you know. In this day and age, the number of ways you can learn is unlimited. Never stop learning!
For example, last year I was introduced to a side hustle called matched betting. I read multiple matched betting guides and was able to earn $1000+ a month from this new side hustle. I would never have discovered this goldmine if I wasn’t committed to learning everyday.
Conclusion
Creating good financial habits is a key step to building wealth over the long term. Having good habits allows you to effectively build wealth slowly over the long term without even making it a focus.
Think of it like this, let's take a few of the habits above and apply them to an individual and have a look at the results. If someone lives below their means, they will have excess money to save or invest.
If they set financial goals and begin acquiring assets, they have something to work towards and are actively increasing their means of passive income though asset producing assets.
If they have a fully funded emergency fund and pledge to never stop learning then they are safeguarded against things going wrong and are set to be able to adjust to new learning in the world of personal finance.
What is the end result when you start practicing these personal finance habits? You become your own personal finance guru!
Someone who is actively building wealth purely through top notch personal finance habits.
Creating good personal finance habits for yourself is truly the easiest way to build wealth for yourself.
Start today, not tomorrow.
Drop a comment and let us know which habit you plan to try out soon!
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More about our guest blogger: Sam is the sole author and creator of www.aussie-fi.com a personal finance blog that aims to simplify personal finance by splitting it into 4 main topics → earn, save, invest and more. Subscribe to Aussie FI to receive a FREE net worth tracker, stock portfolio tracker and goals sheet
