Were you ever taught how to build wealth? If the answer is no, you’re not alone. Believe it or not, it doesn’t have to be complicated. Habits can make or break any aspect of your life and your finances are no different. Here are the financial habits that will allow you to build wealth. Consider everything that’s impacted by your financial health:
- Being able to purchase the necessities in life
- Being able to borrow money
- Handling life’s trials like flat tires, broken washing machines, and any number of other things
- Sending your kids to college
Still, few adults received a good education in financial literacy. Poor financial habits can create situations that require years to fix. They can even lead to bankruptcy. Fortunately, habits can be changed! A thoughtful approach and perseverance are all that’s needed.
The power of eliminating a few poor financial habits and adding a few good habits is staggering, especially when you look at the long-term impact.
Identifying and Eliminating Your Poor Financial Habits
Few things can get in the way of success more than a bad habit. They’re hard to get rid of for a reason. But eliminating detrimental financial habits allows for greater financial freedom and success.
Habits that Will Keep You From Building Wealth
Not tracking your spending.
When the credit card bill arrives in the mail each month, are you ever surprised? Do you stare at the unopened bill for a while, heart-pounding, while you mentally tally up your purchases for the month? This is a common habit among those with financial challenges. If your money is essential to you, track it.
Turning a blind eye to debt.
It’s easy to convince yourself that a $49 payment each month is manageable, and it probably is. However, when that $49 monthly payment continues for 60 months, it adds up to a lot of money. Consider how much interest you’re paying.
Dealing with debt is like riding your bike against a wind that never stops blowing. It continuously takes from you. Avoid accumulating debt.
Impulse spending is buying things you didn’t intend on buying when you left the house or turned on your computer. You know you have a challenge with impulsive spending when you run to the store for a pair of brown socks and come back with socks, two pairs of shoes, and a new coat. Determine what you need and then purchase it. This is especially true for larger purchases. It’s easy to rationalize in the heat of the moment. Avoid falling into that trap. If you know you’re weak in this situation, be diligent.
Not saving automatically.
Most people think, “I’ll pay my bills, live my life, and then I’ll save whatever remains at the end of the month.” You stand a better chance of walking on the moon than making this strategy work. With this strategy, it’s way too easy to overspend there’s never anything left over at the end of the month.
Not realizing how little things add up.
Those little purchases might not seem important, but they quickly add up. That $5 coffee each day is over $1800 each year. That’s enough to take a vacation with your family. How many other small purchases do you make regularly? Soda? Ordering takeout? Make an honest assessment of how much you spend each year on coffee and these other items. What else could you buy with that money that’s more meaningful to you?
Are you habitually late when paying your rent, mortgage, credit cards, or utility bills? Did you know that credit card companies make more money from late payment charges than they do from the high-interest rates they charge? If you’re consistently late paying your bills, it’s costing you dearly.
These are the primary poor habits that lead to financial struggle. If you have one or more of these habits, you’re limiting your ability to build wealth. It’s well worth the time and effort to change those habits into positive practices that support your financial goals. Small changes can have a huge impact!
How to Build Wealth
Learning how to build wealth does not have to be complicated. Good financial habits lead to good results. When you control your habits, you control your future. The best financial habits can be subtle but powerful. However, they aren’t always easy to implement. For example, it’s not fun to live below your means, but it’s fundamental to achieving any financial goal.
10 Financial Habits That Will Have You Building Wealth
Spending less than you make.
Nobody achieves financial success unless you’re spending less than you earn. Spending more than you make is the primary cause of financial difficulties. If you’re consistently spending more than you earn, you either have to tap your savings or accumulate debt to pay your bills. You could also stop paying some of your bills, which creates serious challenges down the road.
Pay yourself first.
Save part of your income before you ever get your hands on it. This is easy to achieve by having your employer deposit part of your paycheck into another account separate from your checking account. A brokerage account can be a great idea. The money is more challenging to access, and it’s easy to invest. You can also set up your checking account to do the same thing at regular intervals. Just avoid temptation before transferring the funds.
Pay your bills automatically.
Provided you have the money in your account, there’s no reason ever to be late paying a bill. Most bills can be paid automatically. It’s a simple process to ensure that your bills are paid on time so you can avoid paying late fees. In those instances that a bill can’t be paid automatically, develop the habit of sitting down once a week and paying all of your bills.
Some argue that debt is necessary to purchase a car or home. Maybe. However, few other cases justify debt. Vacations, furniture, TVs, dining out, and so on are not good reasons for debt. These first two habits are enough to avoid 95% of potential financial challenges. Avoid spending more than you earn and avoid unnecessary debt.
Aggressively pay off debt.
Most debts take more in interest from you than the stock market will ever provide to you. Therefore, paying off debt can be better than any investment. A credit card debt collecting 22% interest is devastating. Paying off that debt is like an investment earning 22%. You won’t earn that in your everyday investing activities very often.
Figure out what you really need.
Food, clothing, and shelter are examples of needs. A second computer, a boat, and new curtains are examples of wants. When you’re thinking about spending money, ask yourself if it’s a want or a need. Not every “want” should go unsatisfied. However, spending this money is optional. If you’re struggling financially, there’s a good chance that you’re spending too much money on your wants.
Follow a budget.
I know some people hate the “b” word but even billionaires need a budget. Some incredibly wealthy individuals have lost everything due to excessive spending. Few topics have received more coverage than budgeting. There are books, videos, web pages, and apps dedicated to budgeting. Take advantage of them. Find a reliable source of budgeting information and put it to use today.
Make a reasonable budget and follow it. Pay close attention to financial habits that impact your family. Your family needs more than just money in the bank. What if you die or are unable to work? If you’re married or have children, there are other people to consider besides yourself. Making monthly insurance premium payments isn’t an enjoyable habit, but it is necessary for the protection of your family.
Plan for the future.
Wondering how to build wealth for the future? If you’re not regularly contributing to a retirement account, you’re planning to fail. There are options for those with conventional employment, as well as those that are self-employed. Make a goal to max out your contributions to one or more of these types of accounts. Your future will be all but guaranteed.
Review your progress regularly.
Sit down with your significant other once each month and review your finances. How much did you save and spend? How are your investments doing? How much money is in your retirement accounts? What adjustments need to be made? Are there any large purchases looming in the future?
These 10 financial habits are the habits that matter the most when trying to build wealth. How many of them do you currently possess? A few good financial habits can completely change your financial situation. Start with these fundamental habits and make them a high priority.
How to Build Wealth Doesn’t Have to Be Complicated
Putting smart, practical financial habits in place ensures financial health, just as poor financial habits guarantee financial disaster. Changing any practice can be a challenge. Financial habits are not an exception. The same strategies to change any other type of habit apply to financial habits.
Find a substitute behavior that delivers the same benefits without the negative aspects. Predict the likely obstacles and develop a plan to deal with them. Change slowly and expect a few setbacks. Look at your triggers and find a way to work around them.
The same process can be used to change your eating habits, adopt an exercise program, quit smoking, or get yourself to practice the cello each day.
Financial habits are especially important due to the relevance of financial resources. Everyone in your family benefits from your financial health.
Building wealth is as simple as addressing your poor financial habits and creating new, more effective habits. Start slowly, but begin today.