9 Healthy Habits of Financial Management
Have you wanted to improve the way you manage your finances? Are you interested in finding out how you else you can reduce financial waste?
Here are nine tips to help you to getting your financial house in order.
1. Know Where you Stand Financially
It is difficult to plan ahead if you don't know where you're starting from.
Net Worth: this is everything you own less everything you owe
Net worth should be positive and growing, with assets increasing and debt shrinking.
Cash Flow: all income/cash coming in less all outflows
Managing money is about making choices: how much to save, spend, share, and invest.
Control how much goes out by creating a budget.
2. Live Within Your Means
Don't spend more than you make! But how do I do that?
3. Save by Paying Yourself First
Set up an automatic monthly transfer to a designated account, such as a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
Spend only the money that remains; however, cover your overhead expenses first! Items such as rent/mortgage, utilities, groceries must be paid first.
Any remaining money goes towards discretionary spending, such as eating out, entertainment, vacation, hobbies). You don't even have to spend it all! If you have funds left over, these are additional savings!
When used responsibly, credit can be a useful tool in your financial tool chest. A good credit history allows you to make big purchases, like a car, at reasonable interest rates.
That said, never take on more debt than you can afford. Have a plan to repay any debt within a reasonable time frame.
This is used to buy something that adds to your net worth and may go up in value. For example, borrowing to pay for an education is Good Debt - it is an investment in future earning power!
These are used to purchase goods that decrease in net worth, such as most consumer goods like TVs and furniture. While they might have some value, overall, they decrease your net worth.
5. Set up a Financial Safety Net
Ideally, you should have a cushion of savings to see you through six months - that's how long it will take, on average, to get a new job in your field if you become unemployed.
This net could be in the form of cash, investments, and even insurance coverage, such as disability, life, auto, critical illness, etc.
6. Wants vs. Needs
Beware of media advertising! They're awfully good at telling us what we NEED, but do we really?
Needs are those overhead expenses that must be paid first (see #3 above).
Wants are those discretionary items.
7. Delayed Gratification and Values-Based Goal Setting
Delayed gratification is an important life skill and should be learned early.
If you love chocolates and I gave you a chocolate, would it you eat it right away? What if I told you I would give you another chocolate tomorrow, IF you waited to eat your chocolate until tomorrow?
Studies have shown that those who eat the chocolate right away suffer from low self-esteem and are perceived by others as prone to envy and easily frustrated. Those that waited are more socially competent and self-assertive, trustworthy, dependable, and more academically successful.
The lesson: Strong willpower and impulse control will help us stay on-task and meet our goals throughout our lives.
How can I Set Successful Goals?
When setting goals, ask yourself:
- What's important to me?
- What are my future goals and how can I get there?
There is a far greater chance of success if your goals are tied to your values.
First, write down your goals. When goals are in writing, you can review them with others and monitor your progress. Success is self-reinforcing.
Second, use your values to set meaningful and compelling goals to help motivate yourself. In your life, what is most important to you? What are you willing to take a stand for?
Goals should be S M A R T
Specific - "I want to buy a new TV"
Measurable - "It will cost $700 for the size I want"
Attainable - "I will buy one when it's on sale"
Realistic - "I can save $75 a month"
Time-framed - "I can wait until Cyber Monday sales in November, which gives me 11 months to save money"
8. Track Your Spending
This will help you understand where money is going and where there may be opportunities to spend less and save. You may be spending more, or less, than you think.
Use a journal, spreadsheet, software, or smart phone app to help. Then compare your actual spending to your budget and make changes to your spending habits, as needed.
9. Create a Support Network
A strong support network can help keep you on-track and motivate you. Choose supportive family and friends to share you plan and objectives with. Check in with them and help each other stay on target.
It's easy to avoid confronting financial management head-on. Start with attainable goals and involve your network to help stay on track.
It's your money! Take control and succeed!
Want more information? Get in touch with us to find out how we can help you get ahead with your finances!