How Healthy Are Your Money Habits?
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How healthy are your money habits? Do you want to save tons of money and live debt free? Do you want to enjoy your life by living it and not working your life away just to afford the basics? I am fairly confident that most of you will answer yes. The importance of personal finance is relatively well-known, but the how’s of it can still be a bit daunting.
I have been obsessed with personal finance for most of my adult life. My college years do not count except in a learning perspective – this is when I went into credit card debt. However, crawling my way out of it is when the obsession went from spending to saving. Despite a lot of life changes, my finances have stayed on point simply by following these 4 healthy money habits.
Healthy Money Habit #1 – Live Within Your Means
We have all heard this saying before, but how many actually adhere? It is not as difficult as you may think. Simply ask yourself before making a major purchase, these questions:
- Is this financially beneficial to me? (Long AND Short term)
- Is this something I really need (not just want)
- Can I really afford this?
Here is an example: A New Car.
Is this financially beneficial to me in the long and short-term? Well, let’s see. I need a car because mine is currently … (fill in the blank). If your answer is along the lines of ‘I need transportation’ or “my current car is in need of repairs more costly than the car is worth’, these answers seemingly justify a new car. However, this comes with a few other decisions, including the type of vehicle (car, crossover, SUV, truck, etc.), year of car (brand new with all the bells and whistles or slightly used, like perhaps a returned lease) and lastly do you want to finance or lease? A lease may run you more money depending on the wear and tear and mileage you intend (or unintentionally) put on the car. Financing may be more beneficial to your wallet in the long-term as more of an investment, per se.
Personally, all of our cars/trucks (and motorcycles!) are all paid in full, which means no monthly payments – truly a beautiful thing! Lastly, is this really affordable – now and say 3 years from now? Keeping in mind a new car may increase your insurance as well, thus creating even more money out-of-pocket.
Living Within Your Means
Living within your means essentially means curtailing the unnecessary spending – be it a new car or a shopping spree. If you cannot afford it, do not need it and it does not make sense financially, then do not buy it. Live within (or under) your means. This also pertains to the old adage Keeping up with the Joneses (and the 2016 movie – check out the trailer here. Just because your friend/neighbor/co-worker got it, doesn’t mean you need it. I remember as a child often asking my mom for something, saying that so and so had it as a reason why I should have. That never worked. She always came back with ‘you are not so and so’ (or ‘I am not so and so’s mom’). And that was the end of the discussion.
I know in today’s modern age of ‘I have to have that’ mentality, it is difficult to not fall into this trap. It may be hard, but with this healthy money habit, your wallet will thank you.
Healthy Money Habit #2 – Know and Maintain Credit
A good credit score can open up many doors, but most importantly will help keep interest rates low. Personally, I do not EVER pay interest, as I do not carry any balances. If I ever do have a balance, I do a balance transfer to another card to avoid paying interest. Typically, my Bank of America, American Express and Discover cards offer 12-month interest-free for a small fee (typically 3-4 % of total transfer amount ) or 18 months at a lower interest rate for no additional fee.
Now I need to take a step back here because I have had so many people tell me they have to carry a balance each month, otherwise they will not be able to improve their credit, or worse it will negatively affect their score. This is a MYTH. One I am surprised is still believed by so many people. Understanding how credit works is a very important part of maintaining good credit. Sites like Credit Sesame offer tips to better understand how credit works. You can also obtain your free credit scores, however, it is important to mention that these may not be the same scores that your lenders see. This doesn’t mean it isn’t accurate, it is just that it is not your FICO score; Credit Sesame uses Vantage Score. For a true representation, you are entitled to one free credit report each year from Transunion, Experian and Equifax – you have probably heard a lot about this one regarding the recent security breach. You will have to pay for your score though. By going to each site, you can request your score for a nominal fee (and a little extra footwork).
Healthy Money Habit #3 – Know Your Expenses
An extremely important healthy money habit – do you know where your money goes? If there is even the slightest question here, then you need to re-evaluate your finances. Try using a budget – I know, it just sounds dirty – but it doesn’t have to be. I recently discovered a great blog you may want to check out as well – Budgets are Sexy. Personally, I am an Excel nerd and I created my own budget that I work on constantly. Knowing and keeping track of all your income and fixed expenses will help you better manage your finances.
Once you have a grasp on your fixed expenses (i.e. mortgage/rent, cable, insurance, utilities, etc.), take a good look and see if you can’t lower some. In my Getting Rich Quick Blog, I touched on how to get your phone and cable bills lowered, or cutting the cord entirely. Shopping around for better rates or refinancing your mortgage are other ways to lower these expenses. I am honestly surprised how many of my own family and friends continue to pay more than absolutely necessary. I mean, in the end, isn’t the goal to have more financial freedom; meaning money for YOU, not your bills?
Healthy Money Habit #4 – Paying and Keeping Down Debt
Debt. Another dirty word. One that most Americans live in. I once had a friend who used to say he was ‘going to die in debt the American way’. You may feel this way too, but you don’t have to! There are many ways that you can pay down and keep down your debt. Knowing your financial needs, credit and expenses all play a part in this too. If you have good credit you can try my favorite – the balance transfer trick. This way you can pay down your debt without paying interest. Even with a good interest rate, you are still paying more than your actual debt.
Perhaps taking out a loan that has a smaller interest rate and consolidating your debt. Less interest is not as good as no interest, but it definitely beats more! The quicker you can pay the principal debt the faster you can be debt free.
Once you’ve figured out your financial needs and understand your credit and expenses, you can see where your money goes. If it isn’t going towards your fixed expenses, then it needs to be going towards your debt.
Personal finance is just that, personal. However, there are many useful tools to help. Be it Credit Sesame, my blog The Piccy Penny or some of my favorites like Club Thrifty or Money @ 30, there is a wealth of knowledge online. Take advantage of these healthy money habits and start loving life and your finances.