Why Financial Habits is Crucial to Success and Fulfilling Life
The role of financial habits in our life’s success
Success in life is determined by the choices that we make. John C. Maxwell, the American speaker, and author, said a thoughtful thing about choices:
“Life is a matter of choices, and every choice you make makes you.”
The above thought forms the basis of our discussion. Why? The following statistics deduced by PwC’s 8th annual Employee Financial Wellness Survey will help you understand:
- 71% of millennials in the US said that their stress related to their finances has increased substantially by the last 12 months.
- 65% of men and 52% of men said that their financial matters cause them the greatest concern.
Statistics such as these prove that improving our financial habits is the urgent need of the hour. Poor financial habits not only cause stress but can lead to serious lifestyle consequences as well. Getting neck-deep in unwanted debt is not related to your earning, but your spending. Good financial habits begin with controlling your spending and end up in incremental savings.
A better outcome is a result of smart choices, and our article will help you understand 3 important reasons why financial habits are a must, and how you can successfully implement them.
Our first reason begins with the reason why we need to have financial habits.
#1: Financial habits keep you within your means
The basic principle of being financially sound in mind is to live lesser than what you earn. Life is a product of our choices, but not all choices are within our reach. We are limited by our personal financial condition, and hence we reach a point where we need to curb our choices. While this may be difficult, following this advice is a wise course and the basic scripture of the financial bible.
For many people, this thought brings feelings of restrictions. For them, the motto of life is to live life on their own terms. This thought can ruin a person financially, and living within your means doesn’t restrict you, but helps you grow financially. How? Due to the following 3 main reasons:
- They keep you from buying things that you cannot afford
- They help you think and decide for the longer term
- They save you from falling in the trap of unnecessary credit
How to make a practical application?
Identify your current sources of income and your expenses
Good financial habits don’t start with earning more money, but with managing your existing money. According to a study, it is more about learning how to get what you want and protect what you got. This thought forces us to assess all our sources of income to know how much money is flowing in.
Design a budget that keeps you aware of your financial condition
The basic principle behind designing a budget is to manage your income and spending, in order to effectively utilize your available resources for achieving your goals. A budget not only helps you keep a stock of your funds, but lets you plan your finances in times of financial crisis.
A practical way to design a budget is to use the excellent platform named Spendee that lets you track your cash flow by connecting your bank accounts, including your crypto wallet and E-wallets. This method lets you have a bird-eye-view of your finances.
Conduct a regular budget monitoring exercise
Monitoring a budget is as important as creating a budget. When you take time to re-look at your budget, you can see your spending patterns and understand where adjustments are necessary. What should you do if you realize that your budget is not working as you expected? Let Stephen Covey answer this:
“Change! If you keep doing what you’re doing, you’ll keep getting what you’re getting!”
If you ensure that you are living within your means, you will get satisfaction from your income. Now let’s understand another way that good financial habits help you – they help you when everything else fails in life.
#2: Financial habits help you manage and control risks and unforeseen occurrences
Life is made of the good small things and the mighty unexpected ones. Sometimes, these unexpected things can completely change our life. Out of the many things that can help us remain afloat during these days are our will-power and careful use of finances. If we spend money on buying things that we don’t need, we may end up penniless when we need it the most.
The best time to save money is when we already have some, and not when we actually have lost it. Many come to this bitter realization of saving money when they fall into unexpected problems and have no savings. Is this problem that bad? It seems so.
According to a survey by Bankrate.com, one out of five Americans doesn’t make any savings from their yearly income for their retirement or emergencies. Interestingly, the reason why these people don’t save is not that they are in debt, but because most of their income goes towards their expenses.
How do good financial habits help?
- Good financial habits allow you to save for risks
- You tend to invest more than you spend, thus having a risk fund to tap into
- They help you re-evaluate your future needs and decide accordingly
To help you start these habits, our Habitify platform, as always, will help you keep track of your financial habits and will motivate you to start more on the way.
How to make a practical application?
Invest your money in Insurance and other contingency funds
The main purpose of having good financial habits is to not just make our future secure, but keep our lifestyle up to our expectations. At the same time, we also need to ensure that our lifestyle is not disturbed when we meet with some uncertainties, and our family should not face an uncertain future in our absence.
Investing money in insurance plans is the best option to have an emergency fund. Financial analysts suggest that it is always better to save at least six months’ worth of income as an emergency fund that can be tapped into.
Manage your debts
We, humans, have a tendency to borrow quickly and repay slowly. We really don’t intend to build up debt, but somehow we end up with it. A good financial habit is to pay off all debts in time. However, you need to first start with those bills that attract fines for non- payments and thus may increase your total debt. Seth Godin said about debts:
“Debt creates stress; stress creates behaviors that don’t lead to happiness.”
The seriousness of having debts can be seen from the fact that in the US, student debt accumulated to about $1.56 trillion in 2019 itself and over 11.4% defaulted on their loans. This means that the importance of debt management should be learned from a young age itself.
What can help you do this? The money manager app Spendee, about which we discussed in the previous point, can help you achieve this seamlessly. If you look closely at some of its plans, you will see that it offers automatic categorization, and gives you a detailed overview of your income and expenses. You can use some of these features to list down your debts and keep a track of it.
Now let’s move on to the final, but the most crucial aspect of the need for financial habits.
#3: Financial habits help you generate returns even after you stop earning
The greatest benefit that a financial habit gives us is a source of income even when we are not earning anymore. We cannot keep earning for our whole life, and hence our accumulated money you earned should be making more money. Let’s understand the difference between making money and earning money.
When we say that we are ‘earning money’, we are actually trading our energy, time, and talent in exchange for money. Since our energy, time, and talent are finite, hence a time comes when our capacity to earn money slows down and stops finally. Hence, early on in life, we need to inculcate the financial habit of ‘making money’ along with ‘earning money’. What does it mean?
Making money means putting a one-time effort to invest money, which will in turn keep earning more money, without your need to invest time and effort. When you are earning money, you are in someone else’s control. However, when you are making money, you are in full control of how you want your money to act. How can we make money?
Consider expanding your savings portfolio by including stocks, mutual funds, etc
Saving your money in the regular savings accounts will yield regular income, but investing in stocks, bonds, especially the dividend stocks will help you get regular and increased returns over a period of time. The best option is to research all the interest and income bearing financial instruments and take a careful and informed decision.
The important aspect to remember at this point is the quality of patience. Financial habits don’t believe in quick fixes, and hence we should all remember that it takes time for money to make money.
Start your retirement plans and other future family plans
The best way to use your money is to start a retirement plan. It is never too early to begin for retirement planning, and as George Foreman said, “The question isn’t at what age I want to retire, it’s at what income.” Regular Income plays an important role after retirement as it’s impossible to earn money at that point. It’s the beginning of a new journey, and you don’t want to live a life dependent on anyone else for your financial needs.
The money manager app Spendee will help you save money for any need that you have, including retirement plans, by giving you’re their best feature known as ‘smart budgets’. Read here about how people across the work are making the best use of Spendee.
The road to success begins with good choices. Being financially independent is based on the type of financial choices that you make and when you make it. Starting financial habits early on will save you from a lot of troubles later on in life. The main motto of the Spendee app gives us a beautiful lesson in life – keep your money into shape.
The important thing to remember while developing financial habits is to have strong control over ourselves and our money. It’s our hope that these useful habits become the core of your life, and define your entire being.