When it comes to money, like so many areas in our life, we can pick up bad habits over time. If we’re not careful, these bad habits can have lasting ramifications on our financial life and wellbeing.
The good news is that habits can change. With the right tools, information and resources, and a willingness to replace your current habits, you can start to create more wealth in your life. To help you, here are seven financial habits that will generate you a high return on investment.
1. Know your financial position
It never ceases to amaze us just how many people have no idea where they are at financially. If you don’t know what your expenses are or what your surplus or deficit is each week or month then how can you make informed financial decisions? How can you know if you are living above, below or within your means?
While it can be scary and confronting when you find out how much you are spending, how much debt you are really in or how much shortage you have each month, you can’t expect to change or improve your financial situation if you don’t know where you are at the moment.
2. Become financially informed
The truth is none of us came into the world knowing how to handle money. There was no school subject on it, and if you are like many of us, you would have grown up in a family where talking about money is taboo. So why then do we expect ourselves and others to be masters of money when we’ve had no education on it?
Let’s break down some ‘myths’ for you. The truth is many people have money issues, and contrary to popular belief, they don’t go away with more income. If anything, more income can amplify problems further and get people into more strife. How many times have you heard about someone winning the lotto and then ending up worse off as a result?
The good news is that there are many books, courses and resources that can help you increase your financial intelligence and help you become smarter with your money. So don’t let pride get in the way, make sure you invest the time and money in educating yourself. After all, when you know better, you can do better.
3. Keep your mindset in check
The way you think about money can have a considerable impact on the way you manage your money and how much you have. Take a moment to think about how you talk about money.
- Are you in the habit of focusing on how little you have?
- Do you complain about all of your bills and that money comes in and goes straight out the window?
- Do you stop to appreciate what you have or are you always focused on what you don’t have?
What about the phrases you use? Have you ever said:
- “Money doesn’t grow on trees.”
- “This will break the bank.”
- “We’re flat broke.”
- “Filthy rich.” or “Stinking rich.”
The way you think and talk about money can ultimately determine how much you have. To help you change your money mindset here are a few quick tips:
- Forgive your past mistakes around money and move on – the past or your upbringing doesn’t need to be your future.
- Open your mind to possibilities – there is a significant amount of money changing hands every day despite what you may think there is no lack of it.
- Practice gratitude – Oprah said it best, “Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.”
4. Clear your debt first
One of the most frequent questions we get asked is “shouldn’t we save first?” While saving is essential, debt compounds until it is paid off and can very quickly get out of control. Interest rates can be extremely high on credit cards, and you can find yourself rapidly accumulating debt if you can’t pay it off quickly.
To get out of debt the first step is to live within your means and be mindful of your spending habits, which will be a lot easier now that you know your financial position! Ask yourself honestly, are you prone to retail therapy when life doesn’t go your way? Do you like grabbing a “bargain” on the credit card? It is these types of spending behaviours that can get you further in debt.
5. Set up a savings direct debit
Treat your savings as a bill, make it essential and set it up as a regular direct debit. This will avoid any forgetfulness or worse justification for skipping a payment. By not having to think about it or consciously see it leave your account you are less likely to miss it and more likely to grow your savings faster.
Your savings account should be in a high-interest account or mortgage offset account (if you have one) that ideally doesn’t have a debit card attached.
6. Invest your savings
As your savings grow, it’s important to get your money working for you. While some savings accounts can generate good interest, the reality is that many other investment strategies can make you more money.
Again, you will want to be financially informed before you start investing your money in property, shares, bonds or any other investment vehicle, so you understand the risks and benefits of each investment and determine what is within your risk tolerance.
7. Keep an emergency fund
The truth is happily ever after is not guaranteed. There can be many things can happen to us over our lifetime from illness and injury to losing our job, having unexpected maintenance on the house or car or another unexpected life event that can result in us needing money – fast.
An emergency fund is a great way to ensure you have money aside for a “rainy day” without disrupting your day-to-day budget or savings plan. Like your savings account, your emergency fund should be in a high-interest account or mortgage offset account to ensure it is making or saving you money.
What financial habits have generated you a high ROI?