Financial Adviser: 5 Good Money Habits Everyone Can Apply to Become Wealthy
You may be working in the corporate world for some time now and you have always dreamed of becoming financially independent, but you cannot seem to save enough money, even though you are earning good income.
One of the most common reasons why some people fail to save is because their spending adjusts to their level of income. The higher the income you earn, the more you raise your spending.
Somehow, there is this psychological comfort that makes you feel financially secure when you are earning a lot of money. Your expectations of future income make you spend more today, making you feel rich until you realize that you have nothing in the end.
If you’re wondering why you’re not saving enough money, try to take a closer look at how you are handling your finances. How much money do you want to save regularly? How do you want to grow your savings and achieve your financial goal in the future?
There is a saying that wealth is largely the result of habit. If you develop the right mindset, you will have the right habits that can get you where you want to be in the future.
Here are the five money habits that you can apply to improve your financial well-being:
1| Learn how to control your expenses
Your journey to financial independence starts with having the right financial mindset. When you are determined to achieve certain financial goals in life, your mindset will dictate your spending behavior.
One way to control spending is through budgeting. When you budget your expenses, you will be able to plan how much you want to save first and how much you plan to allocate for your expenses.
Make a budget by projecting your expenses in a spreadsheet. Monitor this by tracking your actual expenses and comparing it with your budget.
When you see how you are doing against your budget, you will have better appreciation of what you spend. A budget is a useful tool for decision-making and evaluating your spending decisions.
Martial arts legend Bruce Lee used to say that a goal is not always meant to be reached; it often serves simply as something to aim at.
Although you may need to spend more than your budget on some items at times when it is necessary, the purpose of having a budget is to guide you and help you spend according to your priorities.
2| Learn how to be responsible in using your credit card debts
Credit cards are a great source of free credit when used properly. It offers a convenient substitute to carrying large amounts of cash when you go shopping.
The key is to avoid tolerating how credit card companies make money from you from their interest charges. When you pay the suggested minimum payment, you already agree to pay interest to them at an unreasonably high rate.
For example, there is a particular credit card company that charges an interest rate of 3.25 percent per month. Do you know that this translates to 39 percent a year?
If you follow this by paying the minimum, the difference will be simply added to your balance. The longer it takes, the bigger your debt balance will become as your unpaid interest accumulates over the months.
In fact, for as long as the minimum payment is lower than your interest, it will take you forever to settle your debt fully.
Use your credit card only for controlling your spending. For example, if you want to monitor how you are spending for your gasoline expenses, you can use your credit card so that all the expenses will be recorded in the monthly statement of account.
The same goes with other monthly expenses such as groceries and other regular spending. In this way, you can track your monthly spending.
Because your credit card expenses are budgeted, make sure that you can pay it off the following month. Avoid paying unnecessary interest charges over your credit card expenses.
3| Learn how to develop your own personal finance plan
A goal without a plan is just a dream. When you have financial goals in life, you need to write it down and put it in a plan.
If your goal is to go into business someday, you need to put a financial value to your goal.
How much do you need to save in order to achieve your goal? How long will it take you to achieve the goal at the rate you are saving? If it is not enough, what will be your alternatives to achieve it? Should you lower your financial goal or find other additional sources of income?
When you have a personal financial plan, it helps you monitor your progress. You will find ways to grow your savings to achieve your goal.
Similar to a business plan, having a personal financial plan helps you identify your financial goals with a timetable.
You should incorporate all your goals such as helping with the future education needs of your loved ones, paying your personal debts if there are any, and having a retirement plan into one comprehensive personal financial plan.
If you feel you lack the skills to create one, consider investing in educating yourself.
Attend a reputable financial planning class such as the Registered Financial Planner (RFP) program where you can learn the basics of financial planning and creating your own life-changing personal financial plan.
4| Learn how to plan for unexpected investment losses
There is always a risk that you will lose money in every investment.
If you are a risk-averse type of a person, meaning you avoid risk as much as possible, you can simply invest your money in government guaranteed investment instruments.
However, such investment vehicles will give you only the minimal return and may not be ideal if you are looking to grow your money at a faster pace.
If you want higher returns from your investment, you need to take bigger risks. Some people who tend to be more aggressive in investment and take more risks in their ventures may also lose their money in the end.
For example, you may put some of your savings in the stock market, but stocks nowadays are not doing so well. Your portfolio may be losing and giving you some worries.
When you invest in risky assets, learn how to manage your losses by diversifying. Allocate your investments among various instruments with different risk profiles. Manage your risk to the point that you achieve the right returns that you are most comfortable with.
For example, instead of investing in stocks for capital appreciation only, you can consider investing in dividend-paying stocks too so you can balance your risks with dividend cash flows.
5| Learn how to be a savvy investor
Becoming financially literate helps you make smarter decisions about money.
For example, should you invest your money in interest-bearing bonds or preferred shares? Is it good to borrow money to invest in real estate? How long should you hold your investments? These are some of the things that you need to learn in order to answer these investment questions.
If you feel that you don’t have enough knowledge and understanding about making financial decisions, you need to educate yourself. Read books on investment and personal finance.
Do not hesitate to invest in training and seminars on financial planning. The returns on continuous investment in personal finance education will more than compensate the cost of your money mistakes.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888