Are Your Money Habits Leaving You Broke?
One of the most frequent questions I get when I meet with new clients is figuring out how to get out of debt and save money. Many like to believe that if they just start making more income it will free up more money for them to apply to debt and towards savings and retirement plans. But in most cases, it is not how much money you make but how you think about and spend the money you have. If you do not have a good understanding and plan on what to with your money in a short amount of time you will end up in the same situation as you are today even after that raise, promotion, or that second or third new income.
Until you develop better spending and saving habits, getting your credit “fixed” or figuring out how to make more money will not completely fix your problem. If you want to lose weight and keep it off, you will need to change your eating habits and implement exercise into your daily routine. Otherwise you will more than likely gain that weight right back in time. Your money and debt will work the same way if you don’t change your habits on how you handle your resources.
Below are a few habits that you should think about implementing into your lifestyle to help you save better and spend less.
Habit 1: Pay Yourself First
I am sure you see this all the time when talking about saving money and building up for retirement. But are you really doing it? This is something that I discuss a lot with people who are small business owners. While many employed people apply money to employer sponsored programs such as 401(K)s to save for retirement, if you are self-employed you don’t have that luxury. All saving and retirement planning is up to you. Everyone should have a separate savings account or retirement plan from your regular checking account where you do all your spending. As a business owner, it can be hard to save money as almost all your money is tied up in building your business. But it is also very important to build up personal funds in case you have an emergency or just to have equity outside of your business. This is something that everyone should do even if you have a retirement plan. Of course, a good goal is to build up an account that will cover three to six months of expenses.
Habit 2: Develop a Budget… and Stick to it.
I am sure many of you have a budget plan that you have written done somewhere. But just like the habit of paying yourself first…are you implementing it? The important thing to understand is that your budget is really your goal of how you want to spend your money. If you are really tracking your budget on a regular basis you will know that life happens. While it is easy to write down the fixed expenses that don’t change from month to month and call that a budget, something unexpected seems to happen all the time that ends up costing you more than you “budgeted” which wreaks your plans. Something I have clients do is track all their expenses for a three to four-month period and use the monthly average of each expense as a better measure of what you might spend annually on it as opposed to having a month or two with no emergencies or unplanned expenses that could trip up your budget. If you stick to spending only the money you have budgeted for expenses and then putting the extra money that you did not have to spend on other expenses that did not happen that month into a reserve, you will be prepared for when those expenses do happen. So, don’t always buy that extra pair of shoes that are on sale if you already spent up your shopping budget for the month and have some money left over. Pay yourself first and put the money away the allocated resources for unexpected expenses. Then if you have money left over after that you should be fine.
Habit 3: Live Within Your Means…Ignore Your Peers.
The biggest obstacle I see with some clients when trying to help them erase debt and save money is that they have many fixed expenses that are too much for their income. In some cases, it is because one them now makes less money or is not working at all at the time which of course brings down the family’s overall income. But in a lot of cases they made purchases that take up much of their resources. The biggest are always things like houses and cars that are much more than what should have spent if they had looked at how those purchases would have affected their overall budget. I said to ignore your peers because sadly sometimes these purchases are made because we feel they need to impress or “try to keep up” with those around us. That should make no sense if you understand that most of those people that you are trying to be like are in more debt than you are. Which is why we find ourselves trying to make more money to pay for things we cannot afford. If you have the mindset of living above your means then it will never matter how much you make. The bad money habits will always have you in debt. These are just a few things you can do if you want to change how you spend and save your money on a regular basis. I am sure a few of these things are something you might have heard before. But as I said before it is very important to not just know something but to implement it into your everyday life.