Just like making an effort to engage in good health habits can improve your physical health, adopting good financial habits can improve your financial health—no matter your starting point.
Below, we’ll discuss seven financial habits you can implement to set yourself on the right path for the next month, the next year, and the next decade.
Creating habits such as setting aside money in savings each time you’re paid can be helpful regardless of your ultimate plans for this money. However, by setting financial goals at the outset, you’ll be able to put more emphasis and direction behind these goals.
Some common goals to work toward could include:
Once you have your financial goals in mind, the next step should be to create (or refine) your budget. Although the word “budget” can make some people nervous, it’s nothing more than a spending plan for your money—and a budget can provide you with a surprising amount of financial freedom.
With so many budget templates available, your budget can be as detailed or broad as you wish. And though there’s no one-size-fits-all approach—many have had success by adapting some common budget approaches to fit their own needs.
A few of these include:
Though these approaches are different, they have a few things in common: the majority of your budget should include spending on needs, not wants; every budget should make room for savings; and, perhaps most importantly, every budget should also have room for some fun, non-essential spending.
A budget is only as good as the tools or approaches you’re using to monitor it. There are a variety of free apps and services that can aggregate your accounts in one spot to provide you with an instant snapshot of your progress.
Many banks and credit unions also have online budget tools that can help you track and categorize your spending, provide weekly summaries, and let you know whether you’re on track with your goals.
One key aspect of financial stability is an emergency fund—a sum of money that can be tapped for unexpected auto or home expenses, medical bills, or job loss. By having money specifically set aside for this purpose, you’ll be able to avoid placing these expenses on a high-interest credit card. You’ll also have peace of mind knowing you can handle whatever life may throw your way.
An emergency fund should be secure and accessible, but not so accessible that you’re tempted to draw from it for non-emergency expenses. For many, this means opening an account at an online bank or credit union that allows you to earn a modest interest rate while ensuring that bank-to-bank transfers have a day or two of lag time.
Periodic expenses are just that: intermittent (but predictable) expenses, such as property taxes, back-to-school expenses, auto registration fees, and others. Prepare for these expenses by creating dedicated “sinking funds.”
For example, if you know you’ll pay about $2,400 per year in property taxes, you can simply divide this figure by 12, add it to your budget, and allocate $200 per month toward this expense. This ensures that your budget is as comprehensive as possible.
With the average U.S. credit card interest rate hovering above 18 percent, credit cards can be one of the most expensive forms of credit. By taking four years to pay off a $1,000 balance (at a rate of about $30 per month), you’ll pay more than $400 in interest. Only by paying off your entire statement balance each month can you avoid having interest charges assessed.
It may take you some time to pay down your current balances. If so, consider consolidating your accounts into one low- or no-interest credit card or taking out a personal loan at a lower interest rate.
Whatever you do, don’t continue using your cards while you pay them down. If your cards carry a balance, you’ll be paying interest on each new charge right when you charge it! Instead, use just one credit card for ongoing expenses and be sure to pay it off each month.
One of the biggest factors impacting your credit score is your history of on-time payments. Even one or two late payments can sink your score quickly, and it may take years to recover. Though most creditors will provide a bit of wiggle room—such as not reporting a late payment to the credit bureaus until it is at least two weeks late—it’s crucial to ensure that your bills are organized and in a form that allows for quick payment.
Regardless of your income, assets, and debt levels, incorporating these habits into your daily life can help improve your financial future. Once you’ve achieved financial stability, you’ll be able to focus on improving your credit.
When ready, you can start building credit with a Partners Financial Federal Credit Union credit card. Our team of professionals can help you find the credit card that’s not only the right fit for you but also builds your credit and financial stability.