Financial security is not something that is strictly reserved for the wealthy. It’s something that, with discipline, anyone can attain. And it doesn’t mean living a life of self-deprivation either; it’s about managing your money effectively to ensure that your future is financially stable. Not sure where to start? Here are eight healthy financial habits to start honing today:
People have a tendency to live above their means, and you probably already know that you need to reduce your living expenses – even live frugally. If you wrote down everything you spent in a month, you would find many areas in which you could save. Those Thursday after-work drinks session, for example, wouldn't cost nearly as much if you limited your drinks to just a few. At first your friends might accuse you of being a lightweight, but they might also wisen up when it's clear that you're the only with any money left to spend at the end of the month.
Budgeting is a vital skill if you are working towards financial security. Learn how to create a budget based on your earnings and expenses, and practice the self-discipline needed to stick to your plan. Make a list of expenses for a year, or even further into the future. Prioritise these and assign them to months, remembering that savings transfers should go off first. For detailed instructions on how to budget, read our article on budgeting.
Debt is something that has to be approached with caution and common sense. It’s foolish to use borrowed money to finance a lifestyle you can’t afford. Loans should be used to pay for emergencies (though this wouldn’t be necessary if you created an emergency fund) and expenses that will allow you to progress yourself (an asset that helps you in your work or a course or qualification that will help you upskill yourself and make you more valuable to an employer).
Your income is your greatest asset, and anything that you can do to increase your value to your current employer and prospective employers (or yourself if you are self-employed) is money well spent. Go on courses, buy and read books on topics relevant to your industry, and attend seminars and workshops – do whatever you can to increase your worth. As we mentioned above, when it comes to loans, taking one out for investments – including those in yourself and your future – is acceptable.
Saving for your and your family’s future is something you need to start doing today. But you also need to ensure that saving for your children’s education doesn’t come at a cost to your retirement savings. Although your children’s future is a priority, ensuring that you are financially stable in the retirement is even more important. There are many ways to find the money for your children’s education when the time comes – from full or partial scholarships to part-time work (let your children contribute). You can save for retirement and education in two different accounts, but don’t let saving for one compromise the other.
It can be difficult to keep up with repayments on mulitple loans, but it's very important that you make all your repayments on time. Paying late or missing payments can have a negative affect on your credit score, and that can make it harder to qualify for a home or vehicle loan and will almost certainly raise the interest rate of any loan you qualify for. If keeping on top of your repayments is a challenge, you can consolidate your debt. This would be reduce your repayments to one and give you the option of restructuring your debt. But consolidate only if you also intend to close those credit accounts. Otherwise, you could accrue even more debt.
The best way to ensure that you are saving every month is to automate transfers into your savings accounts once your salary comes in. That way, you’ll only spend what you have left after your savings have been deposited, making it less likely that you’ll spend the the money earmarked for savings. Of course, you don’t want to deposit any savings account, but rather one that will grow your money with an inflation-beating interest rate or rate of return.
Ideally, you’d keep the equivalent of three to six month’s living costs in an easily accessible savings account, otherwise known as an emergency fund. Obviously, it will take some time to build up such an amount, but the peace of mind that this financial safety net brings will be worth the sacrifices, as it negates the need for you to take out an loan for those inevitable emergencies that force many people into debt.
Much like with savings, by automating your payments as debit orders at the start of every month, you can ensure that your bills are paid for before you’re tempted to use that money elsewhere. This strategy eliminates the risk of late payment charges. This strategy also ensures that these costs are covered as your salary comes in, and gives you a better idea of what is left for the rest of the month to budget with.