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10 Habits to Develop for Financial Stability and Success

Just like any goal, getting your finances stable and becoming financially successful requires the development of good financial habits. I’ve been researching this topic extensively in the last few years in my quest to eliminate debt, increase my savings and increase financial security for my family. I’ll talk more about these habits individually, but wanted to list them in a summary (I know, but I’m a compulsive list-maker).

Here they are, in no particular order:

  1. Make savings automagical. This should be your top priority, especially if you don’t have a solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount automatically transferred from your checking account to your savings (try an online savings account). Don’t even think about this transaction — just make sure it happens, each and every payday.
  2. Control your impulse spending. The biggest problem for many of us. Impulse spending, on eating out and shopping and online purchases, is a big drain on our finances, the biggest budget breaker for many, and a sure way to be in dire financial straits. See Monitor Your Impulse Spending for more tips.
  3. Evaluate your expenses, and live frugally. If you’ve never tracked your expenses, try the One Month Challenge. Then evaluate how you’re spending your money, and see what you can cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary. See How I Save Money for more. Also read 30 ways to save $1 a day.
  4. Invest in your future. If you’re young, you probably don’t think about retirement much. But it’s important. Even if you think you can always plan for retirement later, do it now. The growth of your investments over time will be amazing if you start in your 20s. Start by increasing your 401(k) to the maximum of your company’s match, if that’s available to you. After that, the best bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
  5. Keep your family secure. The first step is to save for an emergency fund, so that if anything happens, you’ve got the money. If you have a spouse and/or dependents, you should definitely get life insurance and make a will — as soon as possible! Also research other insurance, such as homeowner’s or renter’s insurance.
  6. Eliminate and avoid debt. If you’ve got credit cards, personal loans, or other such debt, you need to start a debt elimination plan. List out your debts and arrange them in order from smallest balance at the top to largest at the bottom. Then focus on the debt at the top, putting as much as you can into it, even if it’s just $40-50 extra (more would be better). When that amount is paid off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the $50 extra for a total of $120) and add that to the minimum payment of the next largest debt. Continue this process, with your extra amount snowballing as you go along, until you pay off all your debts. This could take several years, but it’s a very rewarding process, and very necessary.
  7. Use the envelope system. This is a simple system to keep track of how much money you have for spending. Let’s say you set aside three amounts in your budget each payday — one for gas, one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three separate envelopes. That way, you can easily track how much you have left for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in these categories. If you regularly run out too fast, you may need to rethink your budget.
  8. Pay bills immediately, or automagically. One good habit is to pay bills as soon as they come in. Also, as much as possible, try to get your bills to be paid through automatic deduction. For those that can’t, use your bank’s online check system to make regular automatic payments. This way, all of your regular expenses in your budget are taken care of.
  9. Read about personal finances. The more you educate yourself, the better your finances will be.
  10. Look to grow your net worth. Do whatever you can to improve your net worth, either by reducing your debt, increasing your savings, or increasing your income, or all of the above. Look for new ways to make money, or to get paid more for what you do. Over the course of months, if you calculate your net worth each month, you’ll see it grow. And that feels great.

Original – By Leo Babauta

How minimalism can simplify your finances — and help you grow your wealth

If your closet is bulging, your basement is cluttered and you can’t seem to save money, it’s time for a little minimalism — especially when it comes to your finances.

Use less. Spend less. Accumulate less. That’s what minimalistic money management looks like — and it leads to more money, more fulfilment, more clarity and better organization. It’s also better for the environment and your mental health.

Tidy up your financial clutter

Do you have accounts scattered across several banks and dozens of different money managers? Streamline your account structure.

In the majority of cases, Canadians need one chequing account (where your paycheques go into and bills are withdrawn from), one emergency savings account (don’t link this to your debit card so you won’t accidentally spend it), one general savings account (this is for short-term purchases like vacations or a car repair), two credit cards (one is a primary and the other is a backup, which should be from a different provider), an RRSP and a TFSA.

Having too many accounts is confusing and gets difficult to track. It also means you’re paying unnecessary fees, and scattered investments tend not to be optimized to your risk profile and overall goals — which means you’re not going to achieve your full investment growth potential.

Spend with intention

If your money seems to be evaporating into thin air every month, it’s time to pull back on your spending. More than likely you’ve got too many transactions running through your accounts for things you probably don’t need. Get organized by drafting up a budget (how you intend to spend). Cut your daily shopping trips down to one planned-out event per week, which means you’ll need to use a checklist. Keep a tally of your spending so that as you close out each day, you know exactly how much you spent that day. Intentional spending triggers the financial awareness you’re going to need in order to break overspending habits.

Purge your space and sell what you’re not using

Having more things doesn’t make you more powerful, smarter, a better person or more popular. In fact, it can have the opposite effect, and it’s financially unhealthy.

Make space in your life for financial abundance by clearing out the physical clutter in your living space. By selling your goods online or through a consignment shop, you’ll make money that can be put toward savings. If it doesn’t sell, donate it to a local charity. Many even have a pickup service.

So, dig out that old exercise bike, humidifier, area rug, patio set and toboggan, and list it all for sale. If you’re not sure whether to purge something, I recommend asking yourself “have I used this in the past twelve months?” If the answer is “no,” it’s got to go.

Minimize your advice circle

Having too many people weighing in on your financial plans is not optimal, especially if they aren’t qualified. Your dream team should include a financial planner who focuses on building a realistic financial plan based on growing net worth throughout the long-term; an insurance agent who can advise on how to best protect your assets and family in case something derails your plans (damage, illness or death); an accountant, if your finances are complicated, to focus on tax-reduction and preparation strategies; and a lawyer — whom you hopefully won’t need often — to advise on wills, property transactions, prenuptials, trusts, estates and other legal matters that might surface.

It will take a bit of effort to minimize your finances in the beginning, but I guarantee it: Less confusion and complexity in your finances will eventually lead to better financial health.

Original By Lesley-Anne Scorgie