You know the saying that “Rich people don’t get rich by chance, they build their wealth.” And it’s true.
Being “wealthy” is not so much about how much you earn but about the Money habits you have, for the most part. I mean, earning a big sum of money each month won’t make you rich unless you have good money habits.
Ever heard of people who won the lottery and then didn’t have any of it left a few years later? Ever wonder why that is? That’s because they had poor money habits. And I know we are not talking about winning the lottery here, but adopting some Money habits will make such a big difference for you in the long run.
Unfortunately we aren’t taught all the “Money habits” early on in our lives but here are some habits that you need to adopt today if you want to have a better relationship with money:
1.Track Your Spending:
You need to know where you spend your money. Simple as that.
When I was little, my parents used to write all their monthly expenses down. And I think it was such a good exercise if you want to see where your money is going.
Because what gets measured gets managed.
When you write down your expenses, however small they might seem and then check them at the end of the month, you will be able to see the whole picture. You will know exactly how much money you spend on groceries, on takeouts, shopping, necessities etc. And you will also know where you are wasting your money and what changes can be made.
So write every expense that you have, however small it may be. Because all these expenses add up. And at the end of the month, go through the expenses and see what expenses can you cut back on.
There will be some months when you haven’t made any big purchases but the total expenses are still pretty high. And writing all them down will give you the complete picture.
Of course you don’t have to write everything in a diary, you can totally make an excel and make it easy for you to make the calculations. So keep all your receipts if you want to do it at the end of the month, or just make the entries at the end of each day. It will only take 5 minutes.
2. Have a Budget:
So basic, right?
But SO IMPORTANT.
If you want to build up your wealth, having a budget is super important. And this means that you know how much money you make and exactly how you are going to spend it.
So write down everything that you bring in each month and also write down your expenses for the month. Be honest here. Because the key to making a budget that works is complete transparency. So if you spend a few bucks each day to get a coffee, write that down, because it will all add up and help you make a better budget.
The best place to start with a budget is with the 50/20/30 Rule.
It is a little more complicated than your income vs expenses budget. But because you want to focus on building wealth and not living pay check to pay check, it is super important.
Here’s what it means:
- Calculate the total income that you bring in, each month from all the income streams that you have. Make sure this is the income after deducting the taxes.
- 50% is allocated for your Necessities: This will include your rent, car bills, insurance, Grocery bills etc. So essentially the things that are necessary for you, no matter what.
- 20% Savings: After the necessities comes the savings.These are essentially savings for emergencies, retirement, etc and also paying off your debts.
- 30% Wants: Lastly, comes your wants and this is the money for your personal spendings like take outs, going out to eat, drinks with friends, weekend getaways etc.
Just remember, that no matter what, you are not allowed to dig into your savings unless of course there is an emergency. So if you want to take a vacation, it needs to come from your “wants” section. You need to figure out what expenses you can cut from there to save for a vacation.
If you want to start saving more this year, check out this post for 15 things you need to stop buying right now.
3. Have a Savings Account:
And AUTOMATE SAVINGS.
This will probably be the best decision you will ever make on your personal finance journey. Open a savings account or two and automate your savings. So each month, as the income rolls into your account, a certain amount goes to the savings account automatically.
The idea behind having 2 savings account is having one that you can’t touch and that is for emergencies/rainy days only. And the second savings account can be for things like vacations, or car payments etc.
4. Do not Spend the Money you do not have:
Credit cards make it so easy to go overboard with the spending. But a money habit that need to adopt is to not spend the money that you do not have. And that means not making extravagant purchases on your credit cards just because you can.
Because all these purchases then start accumulating as bad debt and before you know it, your interest rates are off the roof.
Having a budget and knowing what amount you can spend on your “wants” will definitely make it easier for you. But what you need is essentially self control.
Don’t buy things you don’t “need”.And if you really want to make a purchase, consider saving up for it first.
5.Invest in Retirement:
Honestly, you can never be too early to start investing in your retirement funds. And even if you can’t invest a lot, a little money that you save in your 20s can go a long way.
So make a retirement plan and save whatever you can each month, even if it is a small amount. And it is a greta idea to start saving for your retirement plan early on in your life.
6.Set Financial goals:
Setting yourself financial goals is the best way to get ahead on living pay check to pay check. So, set yourself some goals to save a particular amount each month.
Of course you don’t have to set really big goals what seem unattainable. Set yourself some smaller goals like saving $100 per month. And then think of ways how you can achieve those goals. Think of what you can cut from your “wants” to reach this goal each month. It doesn’t seem like much but these small savings add up very quickly.
7. Start a Side hustle:
One of the best ways to get “wealthy” is probably making more money. No kidding. Working on developing a side hustle that will start paying you well in a few years is so worth it.
But keep one things in mind, the side hustle should be something that you are really passionate about. Because so often it takes a long time for side hustles to start making money and you will only be able to carry on if you really love doing that.
Starting a BLOG is probably one of the most common side hustles that could make you a good passive income in the long run. But mind you, having a money making blog is no joke and it takes a lot of hard work.
8. Invest in Yourself:
It is one of the most important habits that all the wealthy people have in common and it is that they invest in themselves. They invest in learning about new technologies & take up new courses to expand their knowledge every now and then.
They invest in themselves in order to allow themselves to do better in the corporate world and to climb the corporate ladder.
They also invest in themselves in terms of taking care of their physical and mental health.
Unfortunately we aren’t taught the things about money, investing and risk assessment in school or college. Most of us have to figure it out ourselves. No wonder so many adults fail at this.
That’s why it is super important t educate yourself about the various investment and saving options available and how to calculate the risks for each.
Believe that only you are responsible for your finances and take the time to understand how money works and what is the best way to invest your money for you.
There are 9 Money habits you need to adopt today in order to work towards your financial freedom and to get a better grip on your finances. Which of these do you already do and which ones do you need to start right now?