Just like any other goal, financial success requires the practice of good financial habits. If you want to finally eliminate debt, increase your personal savings, and achieve financial security for yourself and your family, you need to take a good look at your current spending. Assess which ones are truly necessary, and start making changes to the way you budget and spend your money.
To me, being financially stable and having a lot of money are not synonymous. You may have a large income but, it doesn’t always mean you’re financially stable. Financial stability ensures that you are capable enough to hold on to the wealth, even during difficult times. So, irrespective of your financial situation, you should strive to become financially stable and develop the habits of a financially stable person.
10 habits that can help you become financially stable
Make savings your top priority
Putting aside some amount every time you get your pay check should be your number one priority, especially if you don’t have a solid emergency fund yet. Set an amount that gets automatically transferred from your payroll account to your personal savings account as soon as they arrive. Scheduling auto transfer makes it impossible to miss this habit. Financial experts advice to set aside 10-15% of your monthly income for personal savings.
Say no to impulse spending
For most of us, this may be the most challenging habit to keep.But imagine how much money you can save if you stop the impulse of eating out, buying stuff and making online purchases. Impulse buying accrued over time is a big drain on our finances, and stopping this ‘addiction’ can lead to huge savings in the future.
It would be good to start monitoring your expenses and maintain a list of your spending. This way, you will become more conscious about making unnecessary purchases and will gain greater control of your budget.
Assess your expenses
It is a good practice to maintain a list of all your monthly expenses and see if any of these need to be cut or reduced, or if there are less expensive options for you. Oftentimes, we spend more than what we need, and listing the things that we buy helps us see which ones can me omitted from next month’s budget.
Also check if there are items that can be bought at a lower prices some place else, or if there are less expensive options for certain goods. If clipping coupons is not your cup of tea, try scanning bar code on your smart phone. This will look smart and savvy. There are various coupon apps available for free download.
Most people in their 20’s or 30’s often think that they are too your to start thinking about investing for their retirement. But considering the costs of health care and medication that are inevitable once you reach your senior years, it just makes perfect sense to start investing in your future as early as your 20’s. If possible increase your 401k to the maximum of your company’s match, if this is available to you. After that, invest in Roth IRA.
Keep your family secure
You can keep your family secure by taking care of the below
- Having an emergency fund
- Having life and health insurance
- By contributing to your retirement fund
- Having your children as beneficiary and nominee in all your financial accounts
- Estate planning and will writing
It is very important for you to save for an emergency fund, so that you are financially secure. If you have a spouse, children, or other dependents, it is in their best interest for you to get a life insurance and prepare a will. This way, their needs are taken care of, if anything happens to you. It is also good to research other types of insurance, such as homeowner’s or renter’s insurance. Although homeowners insurance is mandatory till you have mortgage on your home.
Pay off and avoid debt
If you have credit cards,personal loans, or debt in other forms, you need to start a debt elimination plan. List out all your outstanding debts and sort them from smallest balance at the top to largest at the bottom. Starting paying off your debt starting from the top.
Save a few dollars whenever you can so you can add these to the next payment. Continue this process, with your extra amount you are saving snowballing as you go along. This can take some time, but see the debts being crossed out in your list will surely be gratifying!
Use the envelope system
Here’s a very simple way to help you keep track of how much money you have for spending. Every payday, set aside the amounts in your budget, withdraw those amounts, and put them inside individual envelopes. This will help you track how much you have left for each of those expenses.
Make sure to keep your spending for each expense within what is in the envelopes and do not overspend within each category.
Pay bills immediately
Make it a habit to immediately pay your bills as soon as they come. If possible, try to get your bills paid through automatic deduction. You can also use your bank’s online checking feature to make regular automatic payments. Doing this helps ensure that all the regular expenses in your budget are taken care of.
Read about personal finances
Can you answer, what is personal finance?
Personal finance is about getting most out of life for a fixed amount of money. It’s very broad and essentially existential subject, unfortunately not taught in schools.
Take time to educate yourself on managing finances. Make it a goal to grow your net worth by reducing (and, eliminating) your debt, increasing your savings, increasing your income and getting higher return on your investment.
Look for ways to make more money, or to get paid more for what you do. Over the course of months, you’ll be able to see your net worth grow. And that will feel great!
How to check your financial stability?
Now, the big question. How to measure your financial stability? Or how to know, if at all you have a financial stability.
There’s only one way of gauging this. Your cash flow. The difference between income and expenditure. If the number is in negative, you’re in trouble, no matter how much you earn. On the other hand, if cash flow is a positive number, you’re on a right track. Continue tracking it over months and possibly years.
A stable cash flow should fluctuate within a fixed range every month. If you just started managing personal finance, you’d see an increase in cash flow, especially if you are developing saving money habits. But in the long run, cash flow should flatten out and not vary much month over month.
How to calculate your cash flow? It’s very simple, sign up for a personal finance app. Link your financial accounts and see your numbers, your cash flow, income, expenditure and investment returns. I use PersonalCapital to track my net-worth and cash flow.
You can use other tools as well. You can even measure your cash flow with pen and paper, writing down your income and tallying all expenditure. Whatever you do, do measure your financial stability, else my effort in writing this story is of no value.
Do share your opinions about being financially more stable.