It sounds obvious, right? To maintain or grow your wealth, you can’t spend more than you have in your bank account. Yet, eight in ten Americans are in debt (1) and the average household with credit card debt has a balance of $15,654. (2) So, even if we know this golden rule, many of us aren’t following it.
Particularly after the holiday season, many of us may find out wallets are stretched thin. When we’re shopping for presents for our children, friends, or loved ones, it’s easy to charge it on your credit card. And before you know it, your credit card balance is more than you can afford to pay off. The start of a new year is a great time to refocus on your spending and follow some helpful money habits to build your wealth. Here are a few financial habits that can help you keep your wallet and bank accounts happier.
1. Live Within Your Means
If you want to build your wealth quickly, you need to spend significantly less than you earn. Living frugally means spending your money on needs, not wants. Take a detailed look at the money you have coming in and what is going out. What are you spending your money on and what costs can you reduce or completely eliminate? Start cutting back on unnecessary expenses and monitor your spending every week. Eventually, spending less will become second nature.
2. Start Budgeting
A budget helps you establish parameters for operating your household, understand if your goals are achievable in your desired timeframe, and may contribute to reducing stress in the event of an unexpected incident, such as the loss of a job or an injury.
If you’re struggling determining how to set limits within your budget, consider starting with the 50/30/20 budget, which provides a simple guideline for helping you determine where you should allocate your money and what takes priority. As the name implies, your income is distributed into three categories:
- 50% goes toward the essentials, including your mortgage, insurance, and any other fixed expenses.
- 30% goes toward personal spending and lifestyle expenses, such as eating out at restaurants, taking vacations, and shopping.
- 20% toward savings or toward other bills.
3. Be Money Conscious
Avoid settling when it comes to bills and service payments. As you work toward your financial goals, find opportunities to speed up your savings. Are there any loans you can pay off faster or refinance? Can you forgo cable television or find a less expensive Internet provider? Are you using your gym membership enough to justify the price, or can you instead take advantage of the great outdoors?
Once or twice a year, review your subscriptions, memberships, and recurring bills. You may find subscriptions to magazines you no longer read or memberships to services you don’t need. You’d be surprised just how much you can save every month by cutting down on recurring services.
4. Avoid Debt Like the Plague
An important step in building your wealth is reducing your debt. Many of us face some form of debt, whether it’s student loans, car payments, or a mortgage. Make a list of all of your debts, including loans and credit cards. Include the interest rates and balance for each loan. As you look at your list of all of your debts, compare the interest rates and balances.
If you have a loan with a significantly higher interest rate than the others, you may want to work on paying off that one faster than the others. Or, if you’re feeling overwhelmed by debt, try paying off the loan with the smallest balance first, no matter the interest rate, to gain some momentum. Along with paying off debt, avoid accumulating additional debt. Stick to a minimum number of credit cards and, as shared earlier, spend on your needs, not wants.
5. Work with a Financial Advisor
It’s easy to slack on adhering to your budget or slip up on following your goals when you don’t have someone holding you accountable. An advisor not only helps you stay on track, but also can provide knowledgeable advice, tips, and answers to your greatest financial questions, including:
- Should I start investing or pay down debts?
- How much risk should I take?
- How much should I be contributing to my company’s 401(k) plan?
- Do I need to be on a budget?
Get Started Now
While it takes patience and time, you can you can work toward your goals by following a few helpful financial habits. At Mason & Associates, we seek to work together with you to plan for all stages of your financial life.
If you are looking for a partner to help you implement habits that will improve your finances, contact our office today by calling (323) 254-3072.
About Mason & Associates, Inc.
Mason & Associates, Inc. was founded in 1989, specializing in Life Planning for individuals, families and small businesses. Life Planning places a person’s core life values at the heart of the advice process and focuses on the human aspects of financial planning.
As a client, your personal story is key to our planning process. That is why we strive to build a close relationship that will encompass every aspect of your life. Together with our team of professionals, we guide you through the process of identifying what is important to you, your goals, your dreams. We then put into place a financial road map to set you on your way towards achieving your objectives.
Our responsibility does not end there. As you encounter bumps in the road, changes in goals or any other roadblocks, we are there to offer advice and guidance. We are there to celebrate your successes and cope with your challenges. We work alongside your other professionals such as your attorney and your CPA to be sure all of your legal and financial needs are aligned.