These habits can make a big difference to your financial situation.
The start of the year is when many consumers decide that they're going to get better with money, but that's a lot easier said than done. Without a solid game plan for how you'll improve your finances, you could fall back into the same old patterns.
That's why it's important to focus on building positive new habits. And there are several effective financial habits that can help you save more and spend less.
1. Set up automatic transfers to your savings after every paycheck
If you keep getting to the end of the month and discovering that you don't have any extra money to save, it could be because you're not making your savings a priority. When saving is the last item on the agenda, it's also the most likely to be pushed to one side.
The solution is to move saving money to the top of the list by making it the first thing you do after you get paid. And by setting up automatic transfers between your bank accounts, there's no risk of forgetting.
You don't need to save a lot if money's tight. Even a small amount is better than nothing, and once you start saving, you'll be more motivated to increase how much you save when you're able.
2. Use a rewards credit card for all your spending
When you have the option to pay by credit card, there's little reason to go with a debit card or cash. Rewards credit cards allow you to earn cash back or travel points on your spending. You won't get anything back by paying cash, and most debit cards don't earn purchase rewards, either.
That's a huge advantage, so it makes sense to use a rewards card on any purchases where credit card payments are accepted without a fee.
3. Set up savings targets for future expenses
You probably plan ahead and make sure you have enough money to pay all your monthly bills, such as rent, gas, and internet service. But what about those expenses that don't arrive on a monthly schedule? If you have a car, it's going to have maintenance and repair costs. If you want to go on a vacation, that's going to cost you some money.
It's important that you have money ready for these future expenses. The best way to do this is to estimate how much you'll need and when you'll need it. That's your savings target, and you can then break down how much you need to save per month to cover that expense.
4. Review your spending monthly
When you don't keep an eye on your expenses, it's easy to lose track of how much you're spending. You could end up spending much more than you realize on shopping, meals at restaurants, and other discretionary expenses. Another common occurrence is paying for all kinds of subscription services that you rarely use.
A monthly review of your credit card bills and banking statements is a good way to keep your spending in check. Here's what you should look for:
- Have you been doing too much unnecessary spending? Focus on reining that in next month.
- Are you paying for any services you don't need? Cancel them. Don't wait, because then it's more likely that you'll forget.
- Have the prices gone up on any monthly services you pay for? Call to see if you can negotiate a better deal or shop around for other providers.
5. Put at least 10% of your income towards your retirement
A large retirement nest egg is a must, and many Americans aren't saving nearly enough. Unless you want to work your entire life, you should set aside at least 10% of your income specifically for retirement. Note that 10% is just a minimum, and it's even better to save more, especially if you don't yet have much of a retirement fund.
Here's a smart way to look at it -- if you save too much for retirement, the worst-case scenario is that you can retire even earlier than expected. If you save too little, you'll need to work past the typical retirement age, go back to work after retiring, or struggle to get by on a limited amount.
Getting on the right track financially
You don't need to do anything complicated or time-consuming to attain financial security. All it takes is making these smart money habits a part of your everyday life.