Wise Financial Habits

A major contributor to stress is finances. Financial anxiety disrupts all aspects of our lives. Relationships are destroyed, dreams lost and health impacted. Financial health is not magically obtained but created by thousands of wise financial habits. The basics to wealth are: make more, spend less, save more. But when integrating these basics into our lives, we fail. Continually struggling to achieve and failing leads to abandoning the effort all together; soon we stuff unpaid bills in drawers and charge up our credit cards again.

Patience, mindfulness and a few little nudges in the right direction will assist in setting new patterns, relieve needless financial anxiety and bless our lives in countless ways.

1. Pay Yourself First

A key wise financial habit it to pay ourselves. We are a nation of spenders. Personal net-worth is dwindling. One of the first principles of improving finance is allowing money to work for you. There is nothing glamorous about putting ten percent of your paycheck into savings.

In the beginning, the interest returns are nominal. Over years and decades something magical happens as monies accumulate. The interest gains soon equal and then surpasses the monthly deposits. Start now; not waiting for the magical shift in wealth. Retirement, wealth, and comfort come from spending less than you earn. To start saving, we must cut back on some of things we want.

2. Eliminate credit card debt

A credit card shouldn’t buy the things we can’t afford. Most start fully intending to pay it off the debt. The banking industry doesn’t want you to payoff those credit cards. They issue credit limits based on the amount of interest they believe you can pay. Interest paid on a credit card comes directly from monthly income. After the initial spending frenzy your income is decreased by these interest charges. After paying yourself and for necessities (shelter, food, and transportation), pay down these balances.

Do not trust self-discipline. Self-discipline (lack of) is how the balances got there. Automate payments for bills, then take the cards out of your wallets, and use old fashion cash for spending until the cards are paid off, and spending is under control.

3. Include Unexpected Expenses in Budget

Cars breakdown, water heaters stop heating, and pets get sick. If our budget consists of a quick mental checklist of known bills, the unexpected bills will draw from personal savings and credit cards. Unexpected expenses happen; without planning they curtail the benefits of the first two rules.

“If you’re struggling with debt like I did when I was younger, one of the most important steps you can take is tallying up your debts and creating a plan to pay them off.”​

~Jeff Rose |Discover

We eliminate these setbacks by having an emergency account to cover expenses. A small percentage of your salary should be earmarked for an emergency savings account for unexpected expenses. Once the account reaches the goal then monies can be redirected to paying off the credit cards and paying more to yourself.

4.  Make it Difficult to Spend

Spending is easy. If we routinely spend more than we can pay-off in a month, new approaches must be implemented. Having easy access to credit and debit cards may be too tempting.

• leave the cards at home
• Call credit card companies and lower the credit limits
• Open a separate bill paying account that is not easily accessible for discretionary spending
• Utilize text and email notifications from banks

By requiring extra steps to get to the money, you aid self-discipline to curtail a spending frenzied mind.

5.  Evaluate reoccurring expenses

Re-occurring automatic expenses creep into monthly bills. Print-out credit card and bank statements; spend thirty minutes to exam where that hard earned money is going. Question large monthly bills for cell service, internet and television. Research alternatives. Through a little research, a few phone calls, and threats to switch providers, we can save hundreds of dollars. If you prefer the better service of a larger company, use that as a reward once those credit card balances are paid off.

6. Track Net-Worth

This simple technique takes only a few minutes each month. Tracking net-worth is motivational when we see the impact of saving and spending on our monetary worth. The trick is to simplify it, eliminating opportunities to fudge with numbers. The equation should be something simple like this:

  {Bank accounts + Investment Accounts+ major assets} – {Credit Card Debt+ Loans}  
  = Net worth

I determine value of my cars with Kelly Blue Book (depreciating monthly). I determine value of my home with Zillow (updating annually).

7. Automate Payments

When we struggling with finances, overdrawn and late payment fees add to the deficit. By living on the edge, bills are postponed until the last minute. An unexpected charge smacks the account with a thirty-five dollar overdraft fee. When living paycheck to paycheck a few extra fees has a cascading effect. Having an extra bill paying account, with automatic payments eliminates these unpleasant surprises. Fund the account when you are paid and allow the automatic payments to do the rest. Finding easy solutions and structures is a wise financial habit.

8.  Improve Income Making Potential

When finances are overwhelming, instead of making all the small changes, we are willing to make risky choices to escape impending doom. We never make enough to satisfy all our wants. Wants tend to grow in proportion to our income. The more we make, the more we want. Many people with million dollar incomes find themselves in financial ruins.

Improved income alone will not solve financial worries. We still should improve skills and gather experiences that translate into greater money-making potential. Education, social networks and experience accumulate to provide new opportunities. Instead of using free time vegetating in front of the television, start new hobbies, gain new knowledge, and expand social connections.

9. Use Bonuses and Raises to Increases savings and Payoff Debt

It is okay to use some of the extra money for immediate gratification. If we always live for tomorrow, we will never experience the pleasures of today. But these extra monies are excellent opportunities to improve our lives. Paying off high interest credit cards is like getting a raise. Once those nasty plastic-money-draining devises are paid off you can use credit cards to make money—through cash back incentives.

​Try splitting the extra money from your raise into different accounts. Direct half of it into the “pay yourself account” and the other into saving for something you would like. This wise financial habit is pain free with tremendous benefits.

10. Loans are Bad (but not always)

Loans are a necessary part of our society. Some purchases are worth paying interest and other purchases are not. Education and home ownership have tremendous long term benefits that outweigh the interest expense. In these cases, a loan is a smart financial choice. The college student should live frugally to keep loan amounts manageable. The new home owner should keep mortgage payments within the limits of a sensible budget.

Reliable transportation eliminates stress. An auto loan may be appropriate. With an average credit rating, many banks offer low interest rates. A large down payment and a conservative car purchase keeps payments manageable within a small budget. The pleasant feeling of driving a new car usually wears off long before the car payments are complete. If you buy a conservative used vehicle with low miles it depreciates at a slower rate than buying new. Be well-informed before car shopping, you will save money during the negotiation process by knowing the true value of a car and competitive interest rates.

​Allow a cooling off period before signing the papers. It is easy to agree to a bad deal when we are riding an emotional wave from the test drive.

Last week, I received a personal loan offer in the mail. In bold letters it encouraged, “TAKE YOUR DREAM VACATION NOW.” For a $75 processing fee and an introductory interest rate of 29.99% I could have $15,000 dollars in my account next week. The advertisement glibly proclaimed the loan was my key to a better credit rating.

The vultures are out there seeking to destroy futures. They prey upon emotions, search for the weak. They titillate our wants with immediate gratification and then like a parasite, they live off monthly payments long after the memories of the Dream vacation have faded.

A Few Words from Psychology Fanatic

Financial security boosts wellbeing. Failure in this critical element of survival strikes our confidence and invites thinking errors to protect our egos. Begin implementing wise financial habits today, discover security, and enjoy mental energy freed from the security to pursue other wellbeing activities.

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