The pandemic has taught us many things. Besides everything it has also taught us why it is important to invest our time in good money habits. Not everyone dreams of building wealth. But if you do, you need to start building the habits that will get you there. You cannot take up all the habits at once, however, you can start with baby steps and then move forward gently.
People do jobs and businesses to earn money. But this money must also be spent in a certain way. It does not matter how much you earn, if you spend 100% of your income you are back to square one. Therefore, proper planning, effort, and execution are needed to become wealthy.
12 good money habits are given below that can make you wealthy. Add these to your daily habits and grow your wealth faster than ever.
Freeze Your Spending as You Earn More
On average, if a person gets a raise, they immediately find a way to spend it. They may suddenly need a big house, a fancier car, some jewelry, or going out more often. Whatever the splurge, this habit is the reason, that no matter how much more money you earn, you never actually get richer, because you find new ways to spend it. This habit has a name: lifestyle inflation. And if you want to build wealth, you need to stop this.
Overhauling your budget to reduce spending makes a great first step. But from there, the battle becomes holding the line, not allowing your expenses to creep back up, especially when you earn more money. Or for beginners, you can start by spending a fraction of your earning. The key is to remain intentional about your savings rate at all times if you want to build wealth faster.
One of the major leaks in our wealth is the ‘income tax.’ But there are ways to reduce our tax burden. The first step is to become aware of one’s income tax liability based on the tax slabs. The next step will be to buy the tax savings instruments. This spending will then qualify for “tax deductions.” In turn, they will reduce our tax liability. We must build a habit of claiming the maximum tax deduction possible.
Prepayment of Debt
One of the most important things to do when building good money habits is to pay off your debt. Debt is not only expensive but has damaging emotional effects. Bank debts like home loans or education loans are often large values. Hence it takes time for repayment. Depending only on EMI payment to bring the loan to zero is a slow process. To speed it up, you should build the habit of loan prepayment. You may feel like you are out at sea with no life raft, but with the right debt payoff strategy, you can free yourself from the burden of being in debt. By paying off your debt, you can start saving more money and secure your financial future. Try to make at least one prepayment each year.
Pay Bills on Time
It’s easy to slip up and pay bills late here and there, but late fees add up and are a waste of money. What is the solution? First, list down all your bill and then categorize them. How to do it? Base it upon their frequency of occurrence (monthly, quarterly, annually). Also, note their last due date. Keep a habit of reviewing this list once every month, and pay them as you do it. This will prevent you from forgetting and racking up late fees. Make it a goal to pay a bill as soon as you get it.
First Budget Then Spend
One of the first and most important money habits to start is to start moving on a budget. A budget will help you manage your money successfully. Budgeting helps you pay your bills on time, build wealth by saving, and prevent financial mishaps. Start by preparing and updating an expense budget once every year. The budgeted value for each expense head will give you a reference. Expending beyond the budgeted number will count as overspending. There are a variety of budgeting tools and methods that can help you create your budget. The key to overcoming budgeting challenges is picking a budget method that is best for you.
Create a financial plan
Just like to reach a destination, you have to know where you’re going. The same goes when it comes to your financial future. Creating a financial plan will help you map out your goals and take action to achieve them. Include short-term and long-term financial goals in your plan to help achieve them faster. Identify all the financial goals of life. That will give a definite direction to your money-related activities. Start by listing down any forthcoming events in your life. Once the activity is listed, quantify it in terms of its financial cost. You can also, break your long-term goals down into smaller goals in order to accomplish them easier.
Not being adequately insured can cause major out-of-pocket costs. Getting the right insurance can protect your income and assets. Of course, the type of insurance policy you need depends on your situation. A typical Indian family must keep these insurance covers handy: life, health, and motor insurance. The size of life and health covers must be sufficient. Also make a habit of reviewing the size of life cover and medical cover your need once each two years. With age and standard of living, the insured amount must grow. Make sure that your insurance policies provide the needful cover as reviewed.
To grow your money and build real wealth, you need to start investing. Investing your money can increase your income and secure your financial future. You don’t need a ton of money to get started investing. Once you have saved enough and have planned your future goal, start planning an investment strategy. For the majority, using mutual funds as their preferred investment vehicle will help. But for people who can take more risks can include stocks in their portfolios.
Automate your finances
This is one of the smartest ideas among all the good money habits. Simplify your life a bit and ensure your bills are getting paid on time by automating your finances. You can set up automatic bill pay and even have money automatically transferred to your savings accounts. You still need to regularly review your finances, but this is a great way to take control of your money. Set a percentage of your after-tax income as your desired savings rate, and set up automated recurring transfers to your savings account or brokerage account. Schedule the transfers to take place every time you get paid. If you prefer, you can use automated savings apps to set up other savings triggers.
Plan it with your spouse
Planning your financial goals becomes very difficult if your thoughts do not coincide with your spouse. You both can think about where and how you want to invest. If both have income, the savings and investments become easier. You can divide both the expenses and the savings. Mutual understanding and coordination are important factors in this case.
Unexpected bills and crises hit all the time. So frequently, in fact, that there’s no excuse to fail to expect them. Bulking up your emergency fund is one of the best money moves you can make. The goal is to save 3-6 months of essential living expenses to cover unexpected events. Start a habit of putting aside 1-5% of your monthly income into the emergency wallet. Let the size of the wallet grow over time.
Pay yourself first
An excellent way to save money fast is to pay yourself first. This means you pay yourself by saving money before you spend any money. For example, when you get paid, you will put aside a set amount or percentage and deposit it into your savings. This way, you save first and spend later. This is an essential money habit to build because you are putting your financial goals first.
The whole process of money management deals with giving us the ability to save and invest money. But as critical it is to invest money; it is equally important to stay invested for the long term. It is also necessary for people to learn to analyze their investments before investing. When you embrace good money habits in your life, you set yourself up for financial success. Planning for your future, saving money, and staying on top of your finances will lead you to the financial freedom you desire. And you’ll be prepared for those unexpected expenses, avoid penalties and late fees, and have money for a wonderful retirement.
Recommended Read: Top digital product ideas to make money online while you sleep