We all want to be wealthy, right? That’s easier said than done for most of us. So what are some real steps to take toward financial freedom? Check out these fifteen financial habits that will make you wealthy if you make them a regular part of your life!
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1. Do a budget every month.
This is probably the most important financial habit you can get into. Creating a realistic budget that you can stick to is the best way to take control of your money. Without a budget, it’s going to be very difficult to have any idea where your money is actually going. That’s what a budget does – it gives you a plan for your money so you can use it to reach for your goals instead of wondering where it went. Check out this full guide I wrote on how to write your first budget!
2. Live below your means.
If you pull out your credit card to cover costs by the end of the month because you’re out of cash, you’re living beyond your means. Continuing this habit will bury you in debt and increase your financial stress. It’s the opposite of becoming wealthy! Start living below your means instead. Cut out unnecessary spending and get rid of that credit card!
3. Pay yourself first.
You’ve probably heard this before, but if you’re like me, you might not really know what it means. Basically, this just means that instead of spending your money and saving what’s left, you decide to save money upfront and spend what is left. How many times do you actually save any money if you save what’s left after spending? Whether you’re saving your emergency fund, for a large purchase, or investing in your retirement account, make sure you’re including it in your budget and moving that money first!
4. Track your spending.
My spending habits completely changed when I started tracking my spending. I realized how much I was actually spending on things that were not necessary and were not helping me reach my goals. Tracking your spending helps you stay accountable to your budget and lets you know how much money you have left.
5. Have an emergency fund.
An emergency fund is a lifesaver. If you don’t have some cash tucked away for unexpected expenses, you could end up further and further in debt. Having an emergency fund of about $1,000 is a good way to cover most things that come up when you’re just getting started with managing your finances. Eventually, you can aim for having 3-6 months of expenses saved up in case anything major happens.
6. Save up for big purchases.
Whether you want to buy a TV, remodel your kitchen, or even put a downpayment on a house, it will always be less stressful to save up the cash. Financing for so many things is surprisingly easy, especially from retail stores. However, not only will you not have that purchase following you for months, but you can often get a better deal if you can pay cash upfront. This is especially true for things like cars and furniture. And honestly, if you can’t save up and pay cash for something, then you really can’t afford it!
7. Have a side hustle.
Creating extra income is a great way to continually improve your financial situation. Whether you have a blog, babysit the neighbor’s kids, or walking dogs, coming up with a “side hustle” that works for your life can help you meet your financial goals a little faster. This blog is actually a side hustle for me. I have a day job, and I also run my blog and YouTube channel on the side! Find something you love to do and see if there’s a way to make some extra money from it!
8. Understand your credit score.
First, I want to say that your credit score does not give a very good picture of your ability to handle money. It shows how you’ve done so far handling debt. I still think it’s important to understand your credit score and what it affects. Having a high credit score can make it easier to get a mortgage, can help you get approved for apartments, and even can affect getting hired for some jobs. You can pull your credit score from each of the major reporting agencies, Experian, TransUnion, and Equifax, once a year for free. Check your score and make sure there isn’t anything reported on your credit report that isn’t actually you!
9. Avoid the comparison trap.
One of the most common reasons people overspend is trying to keep up with other people. Avoiding comparing your life to what you see on social media can help you avoid the impulse to spend. Delete any accounts on social media that make either make you feel bad about yourself or your situation or that you notice cause you to impulse buy.
10. Pay off debt and live debt-free.
Paying off debt is the best way to put more money in your pocket. Create a plan to pay all your debt off as quickly as possible. There are different methods for tackling debt, but whatever plan you go with try to crush that debt as fast as you can. Once you have all that debt paid off, avoid going back into debt. Putting yourself in debt robs your future self. What could you do with your money if you didn’t have debt payments?!
11. Create passive income streams.
This habit can go a little hand in hand with building a side hustle. Passive income is generated when you set up a system once and then it continues to generate money over time. The main passive income stream that most people think about is investing. You can invest in different types of securities or funds and see returns if the price increases. If you have a blog for your side hustle, ad and affiliate marketing income can also be considered passive (though you do have to keep up with all the other blog stuff to keep it going!). Whatever you can think of that you can set up and put on autopilot to make you money can be a great source of additional income toward your goals.
12. Understand your net worth.
Your net worth tells you a lot about your financial situation. Basically, to get your net worth you subtract all of your liabilities from all of your assets. As you pay off debt or save money, your net worth will increase. It gives you a snapshot of your current financial situation every time you calculate it. If you aren’t familiar with what your net worth is or how to calculate it, check out this blog post and get your free worksheet!
13. Buy pre-owned vehicles.
Buying a brand new vehicle every few years is a good way to just throw money away. Cars depreciate immediately after you drive them home – this means your now paying a price for something that is no longer worth that price… the second you buy it! Buying a used vehicle can still mean you get a nice, well maintained, and reliable car. It will still be new to you and will save you money… especially if you save up cash to pay for it!
14. Contribute to retirement.
Start contributing to your retirement as soon as possible. I know it probably feels like retirement is so far away and you don’t need to worry about it right now. Please, please don’t put it off! Compounding interest is a beautiful thing, but you have to actually put money into the account for it to make any difference. The earlier you start saving, the more money you’ll have when you get to retirement.
15. Make your money work for you.
All of these financial habits are really about making your money work for you. Instead of spending blindly and wondering why you’re always worried about money, make sure you have a solid financial plan. Figure out what your financial priorities are – saving, paying off debt, buying a house, etc. – and set up your budget so your money is working toward those goals. You can’t just say you want to pay off your debt and have it happen without putting a plan into motion for making it happen.
Financial freedom is about more than just making more money. It’s about having the freedom to live the life you want. It will take some effort and patience to build wealth, but with these financial habits in place, you’ll be on the right track!
Find out more about budgeting and managing your money:
- How a Planner Changed My Finances
- Debt Snowball vs. Debt Avalanche
- Why You NEED an Emergency Fund
- Learn How to Stop Using Credit Cards – For Good!
