Building good credit is extremely important, there’s no doubt about that. But what you don’t want to do, is create a life where you’re dependent on credit, and you’re borrowing to live.
When used carefully, credit is a necessary tool to help build your financial future. That being said, credit has to, and I repeat, HAS TO, be used so attentively. Simple rule of thumb: if you don’t have the cash in your debit account to pay for whatever you’re purchasing on credit, don’t buy it. Rather than using credit as a means to purchase the things you can’t afford, use credit as a tool. If you’re putting something on credit, pay it back before your statement is due so that you can (1) avoid interest, (2) build up your credit, (3) avoid the stress of built up debt, and (4) create good financial habits.
6. Start investing
Next on our list of financial habits…investing. What if I told you that your money could work for YOU, and that you didn’t have to work for your money?
You probably wouldn’t believe me, right?
Well – allow me to introduce you to your new BFF, and a basic investment term you oughta know: compound interest. In simple terms, compound interest is the concept of your money making money, (which we’ll call interest), and that interest, making you even more money. In other words, the core concept of investing.
With investing, comes wealth, which is why it’s an important factor when it comes to your financial planning. For more info on investing, check out the read below.
7. Set financial goals
In order to build wealth, you need be clear on what you’re trying to build towards. Do you want to achieve a certain income? Are you striving to pay off your debt by a certain period of time? Is there an ideal net worth you’re hoping to hit?
Set some financial goals and write them down. Set up an action plan to determine how you’re going to get there, and keep yourself accountable.
Remember, sky’s the limit – so don’t sell yourself short when setting your financial goals!
8. Avoid lifestyle inflation
A parallel to financial habit #2 (live below your means); avoiding lifestyle inflation is one of those financial habits that’ll really pay off in the future.
So you might be thinking, lifestyle inflation? WTF is that? Fair question, my friend!
Lifestyle inflation, otherwise known as lifestyle creep, is when we start to spend more money on luxuries that we perceive as needs, although there’s no direct value add to our lives. In other words, as we start to increase our income, we spend more money on things we normally wouldn’t spend it on, just because we can. It’s a little bit of Keeping Up with the Joneses meets Get Rich or Die Tryin’.
Lifestyle inflation can catch up with you real quick, so evaluating your budget and staying close to your financial goals is key as you start to earn more income.
9. Hedge yourself with an emergency fund
Regardless of your current income level, how much debt you have, or whatever financial situation you’re in – you need an emergency fund.
Think of your emergency fund as a rainy day fund – an amount of cash that’s liquid and that you can easily access, well, in case of an emergency. Maybe that’s a sudden job loss, a broken furnace, unexpected car repairs – the list goes on. Whatever the case is, you’ll always want a lump sum of cash that you can pull on if needed.
A good amount to start with is $1000, and overtime you should build that amount to cover 3-6 months of your living expenses.
$1000 might seem like a lot right now, but small steps add up to bigger ones, so start putting away what you can and you’ll be surprised at how fast you can save for an emergency fund.
10. Educate yourself on personal finance
The wisest of the financial habits – always keep learning. Your personal finances are never a one and done. Money comes, money goes. There are always new opportunities to earn, save, invest, and more – so keep yourself educated on personal finance.
Whether that’s reading a new book on personal finance every year, or doing research on ways you can get better with your finances – don’t stop learning.
I have a hunch you’ve already got this financial habit in place… after all, you are here reading this, right? 🙂
Keep up the great work and continue the self-learning!
11. Review your finances regularly
Last but not least, review your finances on the regular. Bringing us back full circle to the first financial habit (track your expenses), doing a financial review routinely is so important for your financial success.
Here are some things you should be reviewing, at a minimum, on a monthly basis:
- Total income you brought in
- Expenses for the month
- Your current budget – is it working or do you need to adjust?
- Debt repayments – status and amount outstanding
- Emergency fund status
- Investment accounts
- Upcoming expenses and income
