How To Build Better Money Habits: 10 Tips for Secure Finances
With disciplined money habits, you can be on your way to a secure future and financial freedom.
Contributing Writer at Tally
May 27, 2022
We all work hard to earn a living and provide for ourselves and our families. However, no one is perfect, especially when it comes to managing finances.
It’s important to remember that there are ways you can improve your financial well-being.
Below are 10 better money habits that will give you a clear path toward financial success.
1. Build a monthly budget
One of the first steps to building better money habits is to create a monthly budget and follow it every month. There’s a wide range of budgeting plans, including the zero-based budget and envelope budget, so you can choose the one that suits you best.
You can also use budgeting software — such as Mint, EveryDollar or You Need A Budget (YNAB) — to streamline and automate parts of the process.
The key is to follow the budget as closely as possible. If you stray from the budget, don’t give up. Just realize the mistake you made, learn from it and continue following your budget for the rest of the month.
2. Crush your high-interest debt
Debt can be a big drag on your financial goals, especially high-interest debt, like credit card debt. Build better money habits by paying off this debt as quickly as your budget will allow.
You can further streamline your debt repayment by using a debt consolidation loan or a lower-interest line of credit, like with Tally†, which can help you lower your interest rate and reduce your number of monthly payments.
3. Get a good credit score
A good or excellent credit score can open many financial doors for you, including the ability to become a homeowner via a low-interest mortgage. This can help you on your way toward building net worth, which we will get to later.
Another benefit of a mortgage is that it’s one of a few good debts you can have because your home’s value will likely go up as the loan value falls, steadily growing your net worth over time. And when it’s time to retire, you have a valuable asset you can either live in or sell and downsize, using the proceeds to further pad your retirement savings.
4. Save for an emergency
Emergency savings is a great way to build better money habits, as it keeps you from falling deeper into debt if an unexpected financial burden strikes. Whether it’s job loss, auto repairs, home repairs, medical expenses or something else, having an emergency fund covering three to six months of expenses will help you get by in these situations.
If needed, keep yourself honest in your savings efforts by automating the process. Using automatic bank transfers, you can save money with minimal effort.
You can keep your savings in an interest-bearing bank account that is still easily accessible, like a high-yield savings account. This way it can grow when you don’t need it but still remain liquid for when you do need it.
5. Boost your student loan payments
While federal student loans are generally a low-interest debt, they can be a decade-long drag on your finances. You can eliminate this burden as soon as possible by making extra payments on your loans. You can either allocate more money per month to them or begin a biweekly payment plan.
When you pay biweekly on your student loans, you end up making a total of 13 payments per year. That 13th payment will go 100% toward your principal balance, helping reduce the loan balance more quickly.
6. Monitor your net worth
Net worth is an indicator of your financial health. It is your total assets minus all your liabilities, such as debt. With a positive net worth, you have more value in your assets than you owe in debt, which means you’re managing your finances well.
By monitoring your net worth, you can take action if you see it dropping. If it goes down or becomes negative, you can adjust your spending to reduce your debt and bring your net worth back up.
7. Focus on you, not the Joneses
It is easy to want to keep up with the Joneses. Your neighbor buys a fancy new car, and you suddenly get the urge to do the same. This is a normal feeling, so it’s important to be aware and try not to fall victim to it.
There’s a good chance your neighbor financed that vehicle and is stuck making monthly payments for the next five years, while your paid-off vehicle works just fine.
Focusing only on your needs and not the actions of others can help prevent you from falling into bad financial habits, like accumulating debt.
8. Make time for finances
Like physical fitness, financial fitness requires regular work. Set aside some time each week to review your finances. Ideally, you can spend an hour per week, but any amount of time will be helpful. The tasks may include entering and categorizing transactions in your budget, reviewing spending habits, tracking your savings, reviewing your credit report and more.
That one hour per week not only keeps your finances in order, but it can also help you spot and fix issues before they become larger financial problems.
9. Set up your retirement accounts
Tax-advantaged retirement accounts, like 401(k)s and individual retirement accounts (IRAs), can help you enjoy a comfortable retirement life. Setting up those accounts now and funding them with whatever your budget allows will put you on the path toward future financial freedom. Even if you can only invest 1% of your salary now, that is a good starting point.
As you get raises and bonuses, you can funnel those directly into your retirement accounts, letting you pad your future nest egg without impacting your quality of life today. For example, if you currently invest 1% of your salary and you get a 3% raise, you can increase your retirement contributions by that 3% raise.
This will mean you now save 4% of your salary and maintain the same standard of living. You can continue these increases every time you get extra money until you’ve maxed out your contribution limits. If needed, you can then move to other non-tax-advantaged retirement accounts, like a brokerage account.
10. Enhance your financial education
By becoming a student of personal finances, you can stay on top of your financial know-how and possibly improve your financial future. This might include regularly reading personal finance blogs or listening to finance podcasts.
Start better money habits for your financial future
By building better financial habits, you can steadily improve your financial situation and set yourself up for future success. These 10 good money habits will put you on the right path.
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†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.