5 Financial Habits You Should Reassess Yearly
Most people cite “better financial habits” among their new year’s resolutions, perhaps next to “eat healthier food” and “start going to the gym.” But acquiring good spending and saving habits is often easier said than done. With another whole year ahead, it’s once again time to reflect on these money management habits, reevaluate them, and identify the ones that must be laid to rest.
From neglecting your financial stockpile to paying debts late, there may be some detrimental behaviors that are bad for your finances and set back your financial goals. Understandably, recent global events and the resulting economic downturns might have impacted the way you manage your money—in one way or another. Still, now is a great time to take charge of your situation and choose the path toward a healthier financial future.
Are you planning to make some changes in the way you handle your finances? Here are some of the key financial habits that you may want to reassess, not just for the coming months, but for all the years to come.
Paying Off Debt
It’s natural for people to borrow money at some point in their lives, and most forms of debt are not inherently harmful. For the most part, it’s only when you let debt accumulate that it becomes a threat to your financial success and stability.
If you’re entering the new year with pre-existing debt on your shoulders, you may want to consider your options for debt consolidation. These options include credit card balance transfers and using a loan to repay all existing debt through a unified channel.
While there’s no harm in aiming to be debt-free, you should understand that it’s often unrealistic to have all your debts paid off in one fell swoop. If you’ve racked up debt from various sources, you may want to start practicing the habit of paying your smallest debts first. Your goal is to repay debt as soon as you can, and the easiest way to start is by paying off the smallest, most manageable amounts.
Having manageable debt ultimately signals creditors to trust you better—which, in turn, boosts your chances of getting your next loan or credit card application approved.
Having Reasonable Spending Priorities
It’s not always easy to follow through on your goals to spend less, but you can start curbing your spending by sharpening your skills in determining spending priorities. Ideally, you should be able to differentiate between urgent expenses, must-haves, and purchases to save up for. This can help you better identify all the expenses you need to make and how you can cover them, be it through your own savings or on credit. In the end, your funds will thank you for having a good sense of what is worth spending on.
Maintaining a Budget Plan
Regardless of how much you earn, you need a budget plan to adequately map out your cash flow. If you’re already doing the bare minimum of paying all current obligations without giving any thought to your savings, you may want to consider going beyond this mindset and proactively maintaining a budget. Having a budget plan is useful for many things, including tracking your spending, estimating your expenses, and calculating how much you should save to avoid spending more than you earn. When creating your budget, you can classify expenses based on fixed costs (rent, internet services, insurance payments) and flexible costs (food, leisure). Ideally, this will help you determine which of your expenses you can cut first if you need to save money.
This year, make it a point to improve your financial barometer by having a regularly updated budget—preferably one that is flexible enough to withstand precarious economic situations.
Preparing An Emergency Fund
If you haven’t done so yet, you should consider starting an emergency fund to stay sufficiently prepared for unexpected events. Most financial experts suggest having at least six months’ worth of your salary in an emergency account, which naturally sounds unachievable at first. The trick is to consistently contribute to your fund—to regularly plant the seeds until you have enough to keep you on track toward financial recovery when the time calls for it.
Future-Proofing Your Finances
Lastly, you should use the coming year as an opportunity to explore your options to future-proof your wealth. It’s easy to focus on the now, but a few decades down the line, you might regret not building your financial foundation when you still had the time. This year, don’t forget to factor in matters such as retirement when it comes to your finances. Apart from beefing up your savings for retirement purposes, you can explore options for generating passive income, such as putting your money into investments.
New Year, Better Habits
One of the most common qualms about making yearly resolutions is the inability to continue once the latter months arrive. That shouldn’t be the case with your financial goals this time around. As another year begins, don’t forget to reevaluate which money management habits work for you and which don’t. In the end, it’s habits like the ones mentioned above that create opportunities to make each year more prosperous than the last.