Tuesday, January 18, 2011

Use The New Year To Establish Strong Financial Habits

“We are what we repeatedly do. Excellence, then, is not an act but a habit.” Aristotle. This quote has profound meaning for your financial life.  Even if your savings are up not to scratch or if your debt level is extremely high you can change the course of your financial future by changing your financial habits.
The secret is to start implementing small changes into your life and work them into your routine. Repetition will help to make them your new habits and you can then start reaping the rewards of healthy financial practices. Take a look at these 4 financial habits you should strive to adopt.

1. Start Budgeting Now
Creating a budget is not difficult. All you need to do is to identify your sources of income on one side and then list your fixed and variable expenses on the other. It is recommended to keep your fixed and variable expenses separate so it is easier to highlight possible areas for cutbacks. If you are not sure of where your money is spent you may need to do a little ground work to draw up your first budget. Start by making an effort to write down every time you spend money and start keeping your receipts. At the end of the month you can categorize your spending and then fill in your budget.

2. Use Goal Setting to Improve Your Financial Scorecard
Goal setting is important for improving your finances because this act gives saving direction and purpose and thereby makes it easier to part with your money now, for some reward in the future. For instance, it may feel like punishment to tuck away $1,000 a month just because it is important to save; but if you were to attach a goal to this figure it would become logical. So you might rationalize that you need to put $500 towards an emergency fund while $500 should go towards your next vacation. All of a sudden, putting away $1,000 is easier.

3. Save for Retirement
Everyone needs to plan for their golden years. If you haven’t yet started up some form of retirement savings, there is no time like the present. You should also note that it is never too early to start. You can check how much you are allowed to save tax-free and at least make sure you are maximizing this amount. If your employer gives a match for retirement savings, always take advantage of this.  If you don’t, you are basically throwing away free money.

4. Keep Your Debt Under Control
If you have a problem with keeping your debt under control you should make this a priority. Start implementing measures to pay down outstanding debt, especially if that debt comes with extremely high interest rates. Allowing interest to accumulate even more interest is a sure-fire way to end up moving in the opposite direction of financial prosperity. To get a handle on your debt situation, make sure you have a strategic plan for pumping your available funds into making debt payments.

Bad habits form in good economies; and good habits form in bad economies. If you are wise, you will form good habits and keep them!  It is never too late to implement some good financial habits. All it takes is the desire to change and the dedication to stay the course.