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Developing Healthy Financial Habits

Managing money is like managing your health—if you develop good habits, you won’t have to constantly worry about money, or your health. If you develop bad habits, you’ll struggle with both. A starting point is to understand financial terms. When you encounter terms you don’t understand, turn to the financial glossary on pages 310–313 in this chapter. Also cultivate the following healthy financial habits:

  1. Know your income. How much money do you make in a week? Being aware of your overall or gross pay per week (or hour) is important, but also note your take-home pay per week. If you work on a less regular basis, try to figure out your average take-home pay per week.
  2. Know your expenses. How much money do you spend in a week? What do you buy every week? What do you buy occasionally? What are you hoping to eventually buy? Think about where your money goes.
  3. Make a budget. Connect your income and expenses. Plan how to pay for everything you need. Save an amount of money each week for future purchases, unexpected or planned.
  4. Live within your means. The surest way to avoid debt is to spend only what you earn. The only way to ensure you don’t run out of money is to spend less than what you earn.
  5. Research your purchase options. Which option is the least expensive? Which has the best features? Which has the best reviews? Which option is the most popular? Which fits what you actually need? Understand all the options before you buy anything.
  6. Think critically about choices. Buying one thing means you won’t have the money to spend on something else. Do you need the thing enough to spend your money for it? Are you buying it only because everyone else is or because the commercial for it is funny? Think about your purchases and avoid impulse buying.
  7. Plan for the future. What do you want to be doing in 5 years? In 10? In 20? How much money will you need? What kind of job or career will provide that kind of money? Planning can help you realize the future you want instead of settling for whatever comes along.
  8. Save for the future. Set aside a little money each time you get paid. By gradually building up your savings, you’ll have the best chance of controlling your financial destiny.
 

Your Turn Rate your performance on the habits above. Choose two habits to improve upon and look for ways to do so by paging through the rest of this chapter.

Never

1

Occasionally

2

Usually

3

Always

4

 
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