We all know that we should practice better money habits if we want to live a more financially independent life, but there’s a big difference between knowing and doing.
What Are Money Habits?
Put simply, money habits are behaviors we employ that are beneficial to our financial health and independence. They are small (yet significant!) decisions and actions we make daily to ensure that we are spending wisely – not frivolously – and maintaining a high level of self-control and discipline when it comes to our financials.
This could mean small actions like choosing not to buy coffee on your way to work, and instead, brewing your own to-go cup at home. Or, it could mean big actions like allocating a certain percentage of your paycheck to your savings or investment account each pay period.
When practiced regularly, we develop a habit that becomes second nature over time.
Our better money habits guide will demonstrate how you can transform your financial standing in small yet impactful ways so that you can make money work for you, and not the other way around.
The more habitual you become, the better.
Here are 11 better money habits you can start today.
If you can admit to having bad money habits, this guide is for you. It’s important to remember that habits are not just one-offs that you employ for a month then retreat back to your old ways. They’re life-long commitments!
1. Track Expenses
Ever take a look at your bank account or credit card statement and think “holy crap, I spent HOW MUCH last month?!”
I’ll be honest with you: you should never not know how much you spent in any given month. No, I’m not saying you should have it memorized down to the last penny, that’s near impossible and makes the tracking process too much of a burden. But, you should have a general idea of how much you spent.
Expense tracking can be a bit intimidating, and maybe even a bit disheartening. After all, the process requires that you be completely honest and transparent with yourself about your spending habits. But, the whole purpose is to avoid those “holy crap” moments. It’s MEANT to be a reality check.
Now, the thing about this financial habit is that you need to do it regularly. You may be tempted to collect and log all your expenses at the end of each month to see where you stand, but that would defeat the purpose. You want to track your spending daily so you know exactly where you stand all month. This way, if you reach your spending cap on week two or three, you’ll immediately know where adjustments need to be made.
It’s all about structure.
At the end of each day, make a list of your expenses, if any. Log what you bought, how much it cost, and what the purpose of the purchase was. This will help you understand “the needs” versus “the wants,” and is useful when you are trying to categorize your expenses in your budget at the end of each month (for example, $300 – food, $160 – gas, $100 – entertainment, etc.).
2. Stop Buying Non-Essentials
It’s simple: if you are on a tight budget, stop buying what you don’t need!
We are all guilty of spending money on things that are unnecessary from time to time, but it makes no sense to do it when you’re in debt or have little to no savings.
As you’re tracking your expenses, make a point to mark the purchases that you know, in your heart of hearts, weren’t needed. Things you could have done without. Things that were a splurge, not worth it, frivolous. There are so many things we can stop buying to save money – but it all starts with that good ole honesty.
3. Limit Credit Card Use
Credit cards can ruin the financial health and stability of anyone. Abusing these loans is a fast-track way to build up a lot of debt that can be incredibly difficult to pay down. While not all debt is bad, a large credit card balance is.
As of 2019, 55% of Americans have credit card debt, with about 10% carrying upwards of $5,000. When you consider APR, it’s easy to see that those with $5,000+ of credit card debt will actually pay far more than $5,000, especially if they only pay the minimum due each month (about $129/month). According to Experian, following the logic of minimum monthly payments, you’d stay in debt for approximately 15 years, paying close to $4,000 extra in interest.
Reducing credit card debt and limiting credit card use is one of the most important money habits anyone can take on. Rather than carrying your credit card everywhere you go, leave it at home and force yourself to only use cash or your debit card. You can’t and won’t spend what you don’t have if you don’t give yourself the option.
4. Create A Personal Budget… And Stick To It
Like expense tracking, creating a budget can be a bit daunting. However, it’s a prime tool in finding and maintaining financial stability.
I am a visual person. While I may think I know what’s on my to-do list, or when all my bills are due, or what to expect for my freelance and blogging income each month, I operate best when it’s all laid out in front of me. Being able to see a visual representation of my financial standing is incredibly important and useful for me, which is why Sam originally built our personal budget spreadsheet.
With a budget tool, you can keep track of all of the money coming in and out of your bank account, categorize your expenses, set budgetary caps within each category, and more. It’s such a useful and effective way to take control of your finances and create a habit out of tracking your money.
When creating your budget, it’s important that you are both conservative and realistic. You should always assume that your expenses will be a bit more than what you think; better to overestimate than underestimate, right? You should also leave room for unexpected occurrences, contributions to your emergency fund, and a little “fun money” to alleviate the burden of always being a stickler with your cashflow.
5. Plan Your Meals
Having recently moved to a major metropolitan area, we have had to take a hard look at how we spend money at the grocery store. It has been hard, considering we are foodies, own a food blog, and love to cook. But the cost of living is just so high that we now spend more time planning ahead and shopping smart.
Create a food calendar to map out what you are going to cook and when. Calculate how many meals you will get out of each grocery shop, what you will need to prepare each, and the approximate cost. Before heading to the grocery store, make a list of all your ingredients and STICK TO IT.
I mean it. Don’t wander aimlessly around the store, don’t diverge from your list (“ohhh, this snack looks so good, what’s one more item?”), and don’t spend more than what you’ve budgeted for the week or month. Planning your meals ahead of time, whether weekly or monthly, is an excellent way to save money on groceries as well as avoid the headache of figuring out what to cook in the middle of a busy week.
Self-control at the grocery store is hard. Trust me, I know. But this money habit is a true game-changer.
6. Pack Your Meals
In the same vein as planning your meals… pack them!
I will be the first to admit that it is so much more convenient to just walk to the cafe next to my office and buy breakfast or lunch. But think about the cost associated with that!
A good salad in a metropolitan area can easily cost $10-15. You can make several salads for the week at home for that same cost. A coffee at Starbucks can cost you $3.99, whereas 20oz of ground coffee at the grocery store can cost you $9.99 and last you a month – making a single coffee cost mere cents.
Eating out when you are at work can add up very quickly. What was once a “just this time splurge” can transform into, “what’s the big deal, I only treat myself once a week.” Next thing you know, you suddenly have “no time” to pack your meals at home and are always dining out.
To put it into perspective, make a spreadsheet of what it costs to buy breakfast, lunch, and/or snacks from a nearby store or restaurant. Multiply that by the number of times you do it each week. Multiply that by 52 weeks. Guarantee you will be shocked by what you’re spending. You may have a $1,500-$2,500 habit. We pay for convenience, and laziness cannot be used as a justification for this bad money habit when you’ve got a budget to consider.
7. Reward Yourself
This may sound counterintuitive but hear me out.
Whenever you think about making a small, unnecessary purchase and practice restraint, drop the cost of that item into a money jar or savings envelope. For example, if you thought about buying a bottle of wine on your way home from work and decided against it, take that $10-15 and save it. Though you’re saving, you’re indirectly rewarding yourself for employing a good money habit (discipline; not spending money on something that may not fit into your budget).
This is especially useful for those who struggle to save money. You’ll be surprised how quickly that jar fills!
8. Shop Around Before Spending
When you have a big-ticket item in your future, take some time to shop around at different companies and compare prices. It is very easy to jump the gun and pull the trigger when you find something you love, but there is almost always a better, more affordable option out there.
When we moved to our new apartment I wanted to buy all the things. All of ’em. Whereas Sam said we should compare stores and space out our spending. After all, why do we need to furnish our entire place the moment we move in? I relented and we waited on buying a rug that I found and fell in love with – which I really, really wanted to get early on. Glad we did because a few months later we found something comparable in design and quality for one-third of the price!
This is a huge way to save money on expensive purchases.
9. Go on Auto-Save
We often tailor our minds to assume that we can’t afford to pay ourselves because of bills and other financial obligations. It can be hard to put money into your savings when you’ve got expenses on your mind. But there is always room to save, even if it’s just a little bit here and there.
Many banks have auto-withdrawal options that allow you to set up an online banking transfer from your checking account to your savings account each month. All you have to do is take a look at your budget, calculate what you can afford to put aside each month, and assign a date and total for your automatic transfer. Then, each month, you can count on X-amount being deposited into a savings account that will accrue interest over time.
Alternatively, apps like Digit help you save money without even thinking about it. All you have to do is set savings goals and the app will gauge what you can afford to put aside, making automatic deductions throughout the month.
10. Ignore Advertisements
I know, sounds impossible! We are constantly bombarded with ads – everywhere we go, we are slapped across the noggin with a new sale, items we must buy before time runs out!
But do you know what I’ve learned? There will always be another sale. It’s just about practicing discipline and letting that oh-so-tempting bargain roll off your shoulders.
Here’s another apartment shopping story: we were in the market for a new couch, and when I signed up for West Elm’s email list, I got notification of a major 20% store-wide blowout sale. 20% off a brand new couch! Heck yea, let’s do it. Well, being the adults that we are trying to be, we took a pass on this one. Just a week later, I got another email – 30% off ALL furniture, including couches! Say what? Another sale already? This went on week after week, and continues to, demonstrating that if I want to make a significant purchase, all I have to do is wait a little bit and there will inevitably be another sale.
Additionally, TV commercials and online advertisements bury you in content that makes you feel like you need something you didn’t need just seconds ago. Retailers create marketing campaigns that will envoke a sense of urgency in you; make you feel like if you don’t take advantage now, you’ll be forced to spend more later; make you feel like you NEED those ridiculous infomercial items that you never would have thought of buying prior to seeing the ad.
There will always be another opportunity to save money – you just have to ignore the ads and only pay attention when you are actually in the market for something.
11. Use Coupons and Shop Sales
For some odd reason that we will never understand, there is a small not-so-positive stigma attached to people who coupon. Umm, WHY?
Let’s keep it short and sweet: if you can save money with a code or a tiny piece of paper… WHY WOULDN’T YOU? You’re going to buy it anyway, you might as well save some moolah!
There are coupons available in the circulars and in the mail regularly. Rather than grazing over them, take a peek at what’s on sale or will be discounted with a coupon, and keep that in mind when you do your shopping – especially with your groceries.
When you’re shopping online, keep an eye out for sales and online codes that can be inputted at checkout. I literally never make an online purchase without doing a quick search for a coupon code. More often than not, I find one and save cash I otherwise wouldn’t.
We are a firm believer that everyone can practice better money habits, even the most financially healthy individuals. What’s your favorite way to practice discipline when it comes to your finances? Comment below!