Developing Good Financial Habits in 5 Easy Steps

good financial habits

In today's volatile economic climate, it's more important than ever to develop good financial habits.

There are many reasons for this, including the fact that you want to retire someday, and it would be nice to have some money set aside for your retirement.

Also, the faster you can pay off your debts, the less money you'll have to spend in interest.

Below I talk about 5 steps that my husband and I began incorporating into our lives last year to help us take control of our finances and to help us develop good financial habits that we will follow for the rest of lives.

Determine Your Budget

your budgetFirst, sit down with all of your bills and financial papers, and make a list of everything related to your money situation.

Determine your annual earnings, including supplementary income, to see for yourself exactly how much money you make in a year.

Then, look at your bills and receipts – everything from utilities to insurance of every type, even loan and credit card payments, to determine the amount you spend in a year.

Place these two totals against each other; if the amount you spend is greater than the amount you earn, it's no wonder you may be sliding into increased debt.

You'll never survive like this; it's time to make some adjustments.

Cut Down On Expenses

Take a look at the expenses that you have, and number them in order of necessity.

Once you do this, you'll see that things such as mortgage and loan payments, utility bills, and insurance payments are among the most important, followed of course by things like groceries and gas.

Related: 101 Frugal Tips to Help You Save Money

However, below that are the things that aren't as necessary, such as entertainment, fast food and restaurants – things that, if you were to cut them from your life, wouldn't kill you.

See just how far you can restrict spending on those areas, and determine just how much money that frees up in your budget.

Earn More Money

If you've cut down as much as you can, and you're still not coming out with enough at the end of the day to feel comfortable, there's more that you can do.

You might have to get a second job, or a different full-time job that pays more for your time than your current occupation.

It's entirely possible for you to look for more advanced positions at the company you work for, which would be a more secure way to go about it.

Talk to your employer about getting a raise, or see if there are any exciting new positions opening up in your company that you'd like to apply for.

In addition to that, you can start selling things that you have, but don't really need, at garage sales or thrift stores. Go through your closet or your garage and pick out stuff that you can sell.

Do whatever it takes to make more money, because a little goes a long way.

Plan a Timeframe

Let's say that you've done the impossible – you've cut down on your expenses and found a way to earn more income, and you've gotten to the point where you have money left over at the end of the month.

Once this happens you need to figure out what to do with the extra money, and start setting more concrete financial goals.

You could try to completely pay off your credit card balances or loans, or put more money in your retirement account.

No matter what you do, you have to formulate a plan in order to accomplish it.

Determine a specific time frame for completing this goal. If you don't set deadlines, you'll never get around to it.

Once you set the end date for your particular goal, divide that time interval into chunks; try to set miniature goals and phases to meet every month, so you know that you're making progress.

Allot your extra money toward this goal, being sure to use at least the amount required each month for your particular phase, if not more than that. Before you know it, you'll be debt–free, or have a great nest egg for retirement.

Re–adjust Accordingly

As you create your plan keep in mind that things in your life can change quickly and something may come up that you need to spend money on.

Also, what if you overestimate the amount of money that you can allot to your particular goal, or an emergency comes up?

If something like this happens and you are not able to meet the goals that you set for yourself, it's not the end of the world. All you have to do, and all you really can do, is change your plan.

Don't completely give up on your ultimate goal. Instead, adjust your timeframe in which you plan to accomplish it.

Put a little less money away for it, and set more realistic financial goals. You may have experienced a setback, but it doesn't have to completely derail your plans – as long as you can stay on target and do the best you can, getting your finances under control is well within your reach.

 


Comments

    • John S @ Frugal Rules

      John S @ Frugal Rules 01/25/2013 6:06 a.m. #

      Good tips Sicorra! I think budgeting and tracking expenses are vital to developing good habits. I love that you added making more money as often people only look at being more frugal...which will only take you so far.

      • Sicorra

        Sicorra 01/25/2013 11:08 a.m. #

        I know, we have cut our expenses to the minimum amount possible and are working had on increasing our income to get us back in the black. Truthfully, I don't want to live a frugal lifestyle forever, but at least be in better control.

    • DC @  Young Adult Money

      DC @ Young Adult Money 01/25/2013 7:07 a.m. #

      I always like these kinds of posts, because so many people (myself included) have a long way to go to getting their finances in order, and it's always beneficial to re-evaluate where you are at and where you hope to go. I think my biggest one will be to make more money, whether it's from my current job or diversified income streams.

      • Sicorra

        Sicorra 01/25/2013 11:10 a.m. #

        You are well on your way to having diversified streams of income with your side hustle of doing Excel work and your new rental property. Very exciting!

    • KK @ Student Debt Survivor

      KK @ Student Debt Survivor 01/25/2013 7:22 a.m. #

      I think a lot of people forget about your "earning more money" tip. It's amazing to me how many people are "broke" and complaining that their finances are a mess, while they sit at home. I'm always looking for side gigs and new revenue streams.

      • Sicorra

        Sicorra 01/25/2013 11:11 a.m. #

        Me too! It just makes life easier.

    • Pauline

      Pauline 01/25/2013 10:31 a.m. #

      Nice and simple recipe to financial success! I agree with KK, if you have other sources of income, then expenses won't be a problem anymore.

      • Sicorra

        Sicorra 01/25/2013 11:14 a.m. #

        Absolutely Pauline! And that is what we are all working on for sure.

    • Shannon @ The Heavy Purse

      Shannon @ The Heavy Purse 01/25/2013 10:34 a.m. #

      Great tips! So many people balk at figuring out where they are today because they are scared. I understand their fear, but how can fix what you don't know? Frankly, I think it's far less scary to know where you stand - good and bad - then not knowing. Cutting back can be hard, especially at first. We get use to a lifestyle even if we can't afford it. :D I find that making saving a game, can make it easier for everyone (kids included).

      • Sicorra

        Sicorra 01/25/2013 11:17 a.m. #

        It is very scary, but like you, I urge everyone to just do it! Once I added everything up and got over the shock I felt so much better because now we were in control. Now we can see exactly how each month is going to pan out and we can quickly make adjustments versus just worrying about it, and hoping it would sort itself out.

    • krantcents

      krantcents 01/25/2013 11:57 a.m. #

      Good points! Whenever you plan, you must remain flexible, but keep your goal in mind.

    • Debt Roundup

      Debt Roundup 01/25/2013 noon #

      These tips are spot on as usual Sicorra. Nice work and I hope you have a great weekend.

      • Sicorra

        Sicorra 01/25/2013 4:38 p.m. #

        Thanks! You too!

    • Corina Ramos

      Corina Ramos 01/25/2013 2:04 p.m. #

      Awesome advice Sicorra!

      I agree you have to track your finances. I have a spreadsheet I use religiously to track who I owe, amount and I can look back and see how my spending habits are and where I'm spending money most.

      One of the things I did to bring in some extra money was online surveys. I was already sitting in front of the computer filling out applications and job searching, so I thought why not.

      I know a lot of people still have misconceptions about them and rightfully so since there are some scams out there. But I was able to make $100-$200 a month doing surveys and I was even trying household items like bath tissue and laundry detergent plus getting paid for completing the survey so it was a win-win for me especially since we were in a budget crunch at the time and who can't use free bath tissue LOL :)

      Great post Sicorra, thanks for sharing your experiences with us.

      • Sicorra

        Sicorra 01/25/2013 4:40 p.m. #

        Thanks Corina! I did try doing surveys online but they would all pop up and say "Canadians not allowed".

        In regard to free stuff, there are a couple of coupons sites that send out free samples of products about 4 times a year along with new coupons. That is kinda fun.

    • Daisy

      Daisy 01/26/2013 9:03 a.m. #

      I love the thought of developing a time frame to meet our financial goals within. Too often, people will make a goal to get out of debt or build up savings with no timeline in mind.

      • Sicorra

        Sicorra 01/27/2013 10:12 a.m. #

        I think setting time frames and then meeting them gives you a sense of accomplishment which hopefully encourages a person to do more.

    • Edgar @ Degrees and Debt

      Edgar @ Degrees and Debt 01/26/2013 11:58 a.m. #

      Planning is huge. Planning your purchases, planning your budget, etc. I am trying very hard to put off any and all impulse buys. Those can add up really fast.

      • Sicorra

        Sicorra 01/27/2013 10:13 a.m. #

        We use to be huge impulse shoppers as well and never worried about how much it was adding up to. Lesson learned :-)

    • Laurie

      Laurie 01/27/2013 7:24 a.m. #

      My fave tip here is the one about re-adjusting your plan if necessary. I think that's a crucial part of a successful plan that people sometimes try and veer away from. Circumstances change, therefore we must be open to changing our plan if we are to be successful budgeters. Thanks, Sicorra, for the great post!

      • Sicorra

        Sicorra 01/27/2013 10:15 a.m. #

        I think we have to remember that life happens, things change, but as long as a person identifies that upfront they can get themselves back on track. Sometimes when life interrupts our plans people simply give up.

    • Mayura

      Mayura 01/30/2013 2:17 a.m. #

      Hi Sicorra,

      Wonderful post with very helpful tips up here :)

      I've been much focused on saving and cutting cost for me as I'm not yet a person with a reliable income dear :) I'm starting with online services and made some money out of it but yet I have to do more to feel much comfortable with my financial status.

      Well, I'm not paying for food, no rent to pay and not much troubled with financial status. But yet I have to earn, to go for my goals and for my family too. So "Earning more money" is one thing I'm much focused in this year.

      I don't believe in loans or so as they get more troubles whan confidance for us. Yet I have no debts and I don't wanna have any either.

      I feel I'm good with re-adjusting. You know, sometimes we can't foresee some troubles and but if we can't prevent 'em, then we have to through and adopt with the situation :) I think a visionary money saving plan can save us there without deviating us from primary goals and stuff to work on.

      Cheers...

      • Sicorra

        Sicorra 01/30/2013 11:06 a.m. #

        Hi Mayura,

        Thanks so much for stopping by! It is great that you are working on increasing your income and savings. I agree that we never know when trouble will strike and it is good to have a cushion of money to fall back on. Wishing you a much success on achieving your goals.

    • David

      David 01/31/2013 7:52 p.m. #

      First of all, developing good financial habits is necessary. This is a good post.Planning,determining your budget and earning enough money are things that we should all learn. Modifying our plans may also be needed at certain times.

      • Sicorra

        Sicorra 02/26/2013 11:05 a.m. #

        It is amazing how some of us (meaning me) only truly learned all this stuff out of absolute necessity. Better late than never...

    • Don Antle

      Don Antle 02/26/2013 10:32 a.m. #

      Great post!

      Determining your budget and cutting down on expenses are key to developing good financial habits. Being in the debt consolidation side of the house, you couldn't imagine how many potential clients come to us for help that have no plan. And whether its to stay out of debt, get out of debt or even file bankruptcy (eek) you must have a plan and stay to that plan. S secondary source of minimal income is always helpful. Dont work too hard make sure you have time for your family, but a few hundred dollars a month can help with so many things. I can't agree with you enough when re-adjusting, to maybe develop an emergency account. You never know, anything can happen.

      Thanks for the post Sicorra!

      • Sicorra

        Sicorra 02/26/2013 11:11 a.m. #

        Thank you for stopping by today! I absolutely believe you when you say that many people have no plan. For many years we didn't either. I keep asking myself why we didn't and the only answer that comes up is "uneducated as to what we should have been doing, and figuring everything would just sort itself out eventually". Was I crazy, or what??

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