We all know that money doesn’t grow on trees, but gardening with a black thumb can feel easier than growing wealth, especially with rising prices and inflation making it harder to save and pay off debt. Luckily, you can do some simple things to change your relationship with money and start building wealth.
Here are the top three money habits to form:
1. Track your spending.
This is probably the most important habit to form if you want to start managing money better. Why? Knowing where your money is going makes it much easier to stress less about money.
There’s no denying it: tracking your spending can be a real pain. But it doesn’t have to be! In fact, once you get into the habit of tracking your spending, you’ll quickly see how powerful it can be.
Not only will you be able to see where your money is going each month, but you’ll also be able to identify any problem areas. Do you spend too much on eating out? Are you buying too many clothes? Would you rather be spending your money on travel or concerts?
And that’s not all! Once you know where your money is going, you’ll be able to make better financial decisions. You’ll be capable of setting goals and sticking to them. You’ll save money each month and reach your financial goals sooner than you thought possible.
Great ways to track spending include money apps like Nav.it, spreadsheets, and even pen and paper.
2. Make a plan for your spending
Once you know where your money is going, it’s time to start making a budget. A budget is simply a plan for how you’ll spend your money each month.
Budgeting can be a drag. It’s often associated with deprivation; all the fun things in life seem to go out the window. But it doesn’t have to be that way! There are plenty of simple ways to start budgeting that don’t involve making major lifestyle changes or feeling like you’re missing out.
Here are 5 simple steps for getting started on your spending plan:
1. Figure out what you need and want.
Make a list of everything you spend money on in a month, including bills, groceries, entertainment, and anything else.
2. Determine how much you can afford to spend.
Look at your income and figure out how much you can realistically set aside for spending each month.
3. Find ways to save so you have more money for things you value.
Once you know what you need and want, look for ways to save money on those items. For example, you might be able to cancel unused subscriptions so you can spend more money eating out.
4. Create a spending plan.
Once you have all the information, you can create a budget that works for you. Start by setting aside money for essential expenses, like rent and utilities. Then, you can determine how much you can afford to spend on non-essential items, like entertainment and eating out.
5. Stick to your plan.
The most crucial part of budgeting is sticking to your plan. That means being mindful of your spending and making adjustments as necessary. It may take some time to get used to, but if you stick to it, budgeting can be a great way to save money.
Some ways to start budgeting
There’s no one-size-fits-all approach to budgeting – what works for one person may not work for another. But some basic principles can help everyone get started on the right track.
The 50/30/20 rule
One popular method is the 50/30/20 rule. Under this system, you would break down your after-tax income into three categories:
50% for necessities like housing, food, and transportation
30% for financial goals and discretionary spending
20% for savings and debt repayment
The envelope system
Another common approach is the envelope system, where you literally put cash into labeled envelopes for different budget categories. When the money in an envelope is gone, you can’t spend any more in that category until the next pay period.
Other methods
Some people prefer to track their spending using a digital budgeting app like Nav.it, or a spreadsheet. This can be helpful if you want to see where your money is going over time.
Whatever your chosen method, the key is to find something that works for you and stick with it. Budgeting takes time and effort, but it can be a helpful tool for managing your finances and reaching your financial goals.
3. Save!
Saving money can feel like an uphill battle. You’re constantly bombarded with messages about spending, whether ads for new clothes, traveling, or nights out on the town. It can be tough to break out of that mindset and start saving for your future.
But believe it or not, small changes can make a big difference when saving money.
Here are a few simple ways to start saving:
Automate your savings. Once you’ve figured out how much you can realistically save each month, set up a recurring transfer from your checking account to your savings account. This way, you’ll never even see the money and be less tempted to spend it.
Make a plan. What do you want to save for? Whether a down payment on a house, a new car, or a rainy day fund, having a specific goal in mind will help you stay motivated to save.
Once you start saving, it’s easier to start investing.
Like saving, it involves setting aside money to be used later. But unlike saving, which is typically done for short-term purposes, investing is usually done for long-term goals.
The purpose of investing is to grow your money over time. Think saving for retirement. You can do this in several ways, but it is most commonly done through the purchase of stocks, bonds, or other securities. You can then sell these securities for a profit at a later date.
Investing is a great way to build wealth over time. It can be done with a small amount of money, and it has the potential to grow that money at a much faster rate than saving alone.
This is probably the most obvious habit to form if you want to build wealth, but it’s also one of the hardest. It can be challenging to break the spending habit and start saving, but it’s worth it! Even if you can only put away a little bit each month, it will add up over time. And, of course, the more you save, the faster your wealth will grow.
Related Reads
Overcoming Bad Spending Habits
9 Bad Habits and How to Change Them
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