Research has shown that using your willpower is exhausting. When you’re tired or stressed, it’s hard work not to spend money whenever you feel like it. Once you make good personal finance into a habit, you won’t have to think about it. It won’t take as much willpower to resist the temptation to spend, and you’ll find yourself saving money without even noticing. If you’re in the habit of saving a little each month or tracking all of your spending, you’ll do it automatically and stay in control effortlessly.
If you’re looking for personal finance habits to keep you in charge of your spending, we’re here to help. Here are the 10 best personal finance habits that you need to know to save more and spend less.
1. Automate Your Savings
Imagine you want to save a certain amount of your salary next month. You’re completely enthusiastic and determined to put this money into your savings account at the end of the month. The trouble is that when it comes to next month, all of your salary has slipped through your fingers into coffee shops and clothing stores.
The solution is to set up your accounts so that you save money automatically. If you wait to save the money that you have left at the end of the month, you'll probably find that it's all been spent. Most banks allow you to open a savings account that you can link with your current account. You can then set up a monthly order to transfer a certain amount from your current account to your savings account, just as soon as your paycheck comes in. This way, you'll have taken the money you want to save out of sight and out of temptation's way.
2. Create a Budget
The familiar phrase "If you fail to plan, then you plan to fail" applies to personal finance as well. If you don't work out how much you can spend on things like basic living expenses, food, clothing, and entertainment, you won't be able to stay in control of your finances at all. However, it's best to keep your budget simple. Don't get carried away with complicated sub-categories—it’s enough to have sections for utilities, food, rent or mortgage, and entertainment and leisure. If your budget is too complex, you won't be able to remember it or stick to it. The main thing is to have a budget where your expenditure is lower than your income.
Remember that keeping a budget begins with tracking your spending—you can’t create a realistic budget unless you know how much you actually spend on your groceries each month. Very often, just keeping track of your expenditure helps you to slow down your spending.
3. Pay Down Debt
In an ideal financial world, you won’t have any debt. But in the real world, it’s likely that you do. Paying off debt can feel like pouring money into a bottomless pit, but it’s actually the single biggest step you can take toward improving your financial situation. This includes your credit cards—paying the minimum credit card payment means that you’re carrying credit card debt from month to month, probably at a high interest rate.
It's almost guaranteed that the interest rate you pay on your debt is higher than any rate you could possibly get on your savings. For example, the lowest average interest rate on a short-term personal loan is 5%, but the highest interest rate on a savings account is around 2%. Every month that you pay down your debt, you'll reduce the amount of interest you have to pay next month and save yourself money overall. If you have a lot of different kinds of debts, look into debt consolidation programs that replace multiple debts with one single payment.
4. Pay Bills Online
One great finance habit is to pay every bill on time. The trouble is that life is busy, and it’s easy to forget when payments are due. That’s why you should set up online bill payments: your payments are made automatically, and you’ll never miss a deadline. It also saves on willpower and mental energy, not to mention the stress of worrying that you might be late.
Another advantage is that most companies will give you a discount for paying online. This includes things like gym memberships and magazine subscriptions, as well as electricity bills and phone plans.
5. Do Your Research
This is especially true before making a big purchase. If you’re spending a lot of money on something, you want it to last, and you don’t want to pay more than necessary. Consumer reports give you objective and in-depth information about different brands so that you can make a wise buying decision.
The same is true when it comes down to long-term purchases like insurance or cell phone contracts, and if you are thinking about signing up for an extended warranty. They aren't always worth the money, so investigate your options and consider if it's worth the cost before you sign.
6. Cut Out the Easy Extras—But Don’t Overdo It
You’ve probably already heard that if you make your coffee at home instead of buying it at Starbucks every day, you’ll save over $600 each year. Look through your spending history for this type of regular, unnecessary payment that you can cut out of your life without feeling the pinch too much.
But it's important not to go overboard. If you remove every pleasurable item from your life, you'll end up resenting your savings efforts. It's likely that you'll find yourself spending more in a revenge shopping spree because you feel that you deserve it after depriving yourself of so many fun purchases. So, keep a few low-cost ‘extras’ in your life—just choose them wisely.
7. Keep an Emergency Fund
You never know what's going to lie around the corner. That's why one of your basic priorities should be to build up and keep an emergency fund. Ideally, this will be enough money for you to cover your basic needs for 6 months, but a 3-month emergency fund is better than nothing.
Keep this money in an easy-access savings account, so that you can get to it quickly when you need it, but it’s ring-fenced away from your spending money. And don’t tap into it to pay for a vacation.
8. Stay On Top of Your Credit Statements
Part of keeping healthy financial habits is to stay aware of your financial situation. This is why it's important to check your credit card statements carefully in case there are errors. Credit card and identity fraud are all too commonplace—looking through your statements means you’ll catch it early if it should happen to you.
It's also good to check your credit report regularly. You're entitled to a free credit report from each one of the major credit agencies—TransUnion, Experian, and Equifax—once every 12 months. That means you can request one from a different agency every 4 months. Look through your credit report for errors, or signs of fraud that could drag down your credit rating. If you find any, make sure to do what you can to fix them as soon as possible. Poor credit will affect your ability to get a loan or a mortgage for reasonable interest rates, makes it difficult to qualify for the best rates on your credit card, and can even make it impossible to rent an apartment or buy a car.
9. Make it Hard to Overspend
Overspending is just so easy. You decide to spend on a new pair of shoes; your work bag is getting shabby and worn; you're feeling tired and don't want to have to cook dinner tonight, again. It's really difficult to stop yourself from splurging entirely—but you can make it harder to overspend.
Don't keep too much cash in your pocket. A full wallet makes you feel rich and hoodwinks you into spending more than you intended.
One of the biggest ways that people lose money is through impulse buying. Make yourself a rule that you won’t buy anything that costs more than a certain amount of money immediately. Instead, wait for 24 hours to see if you still want it.
Online shopping is particularly dangerous for impulse buyers. If you're shopping on a website that offers to remember your credit card or invites you to join one-click checkout, don't accept it. Having to find your credit card and enter your details gives you time to change your mind about your purchase—which is why the online stores don’t want you to do it.
Grocery shopping is another minefield for unnecessary purchases. Before you go, write a shopping list. This way you're a lot less likely to buy food that you don't need or to accidentally buy more produce than you could possibly eat. It's also best not to go shopping when you're hungry – you’ll end up spending a lot more than you intended. One study in 2013 found that people who shopped when hungry spent an average of 64% more than non-hungry shoppers, even when they weren’t buying food.
10. Take Advantage of Special Offers—But Use Them Wisely
Using coupons and taking advantage of promotional sales can help you save a lot of money on your regular shopping and on large purchases. For example, the January sales are a great time to buy an expensive item like a new computer or home appliance. Clipping coupons is another great way to save money on your everyday goods.
But it’s important not to get carried away by special offers. Stores make these offers to induce you to spend more money than you’d intended—either you feel like you can spend the money that you saved on the discounted item, or you end up buying more of the item on sale than you needed because it’s such a good price. Don’t let yourself be led astray. If the discount isn’t for something that you would buy anyway, you won’t save money by getting it at a lower price.
You could also be tricked into spending more than you save. For example, if you drive 10 miles out your way to save 2 cents a pound on apples, you’ll have spent more money on the extra gas than you’ve saved on the apples. So, consider promotions carefully before you buy.
Take Back Financial Control Today With Better Personal Finance Habits
Changing your personal finance habits doesn't need to seem daunting. Each one of these suggestions is a small step that you can implement straight away, but they can add up to a major change in your financial situation. If you feel that you can't take on all of these habits at once, then start with just 1 or 2. There's no point waiting for someone to give you permission to take control over your finances—you have to do that for yourself.