Smart people know the importance of adopting sound financial habits; even if you’re wealthy. Living by sound and sensible financial habits is not stingy like some people think, but is a rather clever way of living. Incorporating healthy financial habits in your life can help you prepare for the future, acquire better money management, and even make you wealthier. We all need to maintain smart financial habits, especially during times of economic uncertainty. Due to the coronavirus outbreak, many people are struggling to maintain the same standard of living, and being more financially aware has become a necessity and not a luxury, even for the more fortunate. Here are four financial habits that smart people have that you can apply today.
1. Clarity, Planning, and Goals
The most simple, yet important, financial habit is being financially aware. You will not be able to apply other habits, build, or maintain your health without knowing exactly where your money will be going. Before you receive your monthly paycheck, make sure to jot down all of your financial obligations and figure out exactly what you will be doing with the remainder of the money. To manage your money more efficiently and have clarity regarding where and how you spend it, you need to set a budget. Setting a budget will help you set a clear boundary between your “needs” and “wants.” Your “needs” can’t be neglected, however, the budget that you set for your “wants” can be controlled. A part of the money should be directed toward business plans and life goals. At least 20% or 30% of your monthly income should be kept aside for investments or savings.
The goals that you set should be S.M.A.R.T.: specific, measurable, achievable, relevant, and time-bound. This will help you measure your progress. For instance, if you need to pay off $26000 in debt, a smart goal would be to “pay off $26000 in 8 months.” Setting a plan on how to achieve this goal within this timespan is a must. In this case, you know that you need to set $3250 aside each month for 8 months. This financial habit of goal-setting can be implemented in many aspects of life; for example, many organizations use it to set goals to improve their marketing efforts and increase sales.
2. Passive Income
Having a monthly passive income can help you pay off your debts and improve your wealth. Passive income is typically money that you can acquire without putting in much effort. The financial advisors at MoneyMash explain the different ROTH IRAs for investment can help generate a monthly passive income. You can also explore your stock, rental property, and side hustle options. All you need to do is dedicate some time and secure an upfront amount of money and then make returns with minimal effort over the long or short term. You’re free to get as creative as you want as long as you learn how to make this a financial habit. Your options are unlimited, and you don’t even need to invest a lot of money to make great returns. Even if you make as little as $50 of passive income each month, it eventually builds up, and you can end up having a good amount of money on the side if you need it.
3. Cutting Down
Cutting down on unnecessary costs is an obvious move. While there’s nothing wrong with enjoying an occasional coffee cup from your favorite coffee place, don’t make it a habit. If you pay $10 every day on food and drinks, this adds up to $3650 a year. Instead, you can take your coffee in a travel mug to work and prep your lunch in 10 minutes each morning. This doesn’t even have to be a daily thing; you can have your usual coffee and delicious lunch 2 times a week, and you’ll still save a lot of money. Figure out other unnecessary costs and try to eliminate them.
4. Emergency Fund
Keep in mind that unexpected finances can show up at your door at any time. Whether it’s a minor car crash or a broken fridge, repairs can cost a lot. Having an emergency fund will save you the trouble of compromising other finances or using up money that’s designated for other purposes. Without an emergency fund, you’ll find yourself accumulating great debts.
Managing your finances and applying financial habits is a vital way of life. No matter how well off you are, acquiring financial clarity should be a lifestyle. Money, the economy, quality of life, and standard of living are all volatile; you never know what’s going to happen next. However, with the right financial approach, you’ll be doing yourself a favor by setting yourself up for financial security.
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