Some people grow up in an environment where they learn about money smarts. Others have more insecurity and instability, and they must grow to understand the keys to financial success piecemeal, with lessons learned from their own mistakes and those of others around them.
Whichever category you fall into, the reality is that success in your finances is almost formulaic: it works whether you were born with or without money or stability. No matter how early or late you start, the habits of becoming financially successful follow the same 5 tips, and we’ve shared them here for your information.
1. Know Your Goals
Just because you’re continually working, bringing in money, and paying bills, it doesn’t mean you’re moving forward toward your goals. You have to take time to think about where you want to be in life in the next 5, 10, and 20 years (or beyond), and set targets to build strong financial habits to get there.
For example, what do you do with your money when you have an extra few dollars? Do you find ways to spend it, pay off debt, or put it away into savings or investments?
Without goals, how do you know if you’re making progress on your finances? The first step to achieve financial success is to set goals, then build sustainable habits to reach them.
2. Get on Board With Budgeting
We get it. You work hard for your money. You want to be able to spend it as you please, and that’s not a bad thing. However, if that’s your goal, it’s going to be extra challenging to reach the level of financial success you’re trying to attain.
Instead, make it a habit to stick to a budget with your finances. Keep track of your income and where you’re spending your money. Is that $8 coffee every day worth it, or would that $200 (or more) a month be better spent somewhere else? Do you really need those streaming services? Is it worth the extra money to have someone deliver your groceries or meals?
None of those answers is wrong. The question is, where do you want your money to go? Some habits are money out the window, while others help you reach your future financial goals, like paying extra on your credit card or adding a few dollars to your HSA withdrawal (see this article by OJM Group for more information on this topic). Determine what is important to you, then include it in your budget for the month.
3. Build Your Credit Score
Some financial experts put a heavy focus on establishing a strong credit score, while others say that it isn’t necessary as long as you pay cash for everything. The reality is somewhere in between.
Having a good credit score is a necessary part of financial success because if you do need to take out a loan or start a business in your future, a strong credit history will lower your interest rate and save you money. Credit scores are also pulled by landlords and insurance companies to determine your eligibility.
You can easily track your credit score with free apps like Experian and Credit Karma. As an essential bonus, keeping an eye on your credit helps prevent identity theft.
4. Pay Off Debt
Successful financial experts don’t carry debt with them. They know that the key to independence is to keep their money in their bank accounts rather than giving it to creditors.
Look at your high-interest debt. It’s okay (and even necessary for credit building) to have small credit card balances and revolving credit accounts, but pay them off as quickly as possible to prevent accumulating a balance that becomes too high to handle. Always pay more than the minimum due when possible, and set up automatic payments to prevent late fees.
5. Build an Emergency Fund
Finally, you’ll know you’re on the path to success when you have a rainy day fund that you never need to break into (unless, of course, it’s an emergency). This safety net keeps you from skipping other bills to cover an unexpected expense.
What will you do if your car breaks down, or you’re out of work for a few weeks? The emergency fund should be enough to cover your essential bills, as well as credit card minimum payments, to avoid putting you into more debt.
Conclusion
Building your money habits around these tips is a surefire way to move forward on the path to financial success. Once you master these 5 important moves, you can begin exploring the world of investing, asset protection, and other wealth-building strategies that will help you reach your long-term economic goals.
