When creating resolutions, we all tend to focus on the basics: lose weight, pay off debt, and save money. But very few people actually focus on the small habits that can jump start you into success in your routines; especially when it comes to our finances. By implementing the following five habits into your daily life, you will be able to set yourself up for financial success for the long term. Even though we’re into the second month of the new year, it’s never too late to start making changes that can drastically improve your future.
If you haven’t seen it, I recently published a post about 7 money habits you should break in 2020. It’s always easier to replace a habit with a new one than it is to simply quit without a replacement. If you haven’t seen that post yet, check it out here.
1. Plan Your Purchases
The best way to combat impulse shopping is by planning your purchases. Many people tend to have a general example of what they need when going to the store. However, if you don’t have each item written down, you are more likely to add other things into your cart. For example, when it comes to groceries; how many of you have looked in the fridge to see what you need, but don’t actually write it down? I know I have been guilty of this in the past. The result: more money spent than planned.
A solution if you are an impulse shopper like I am: start a wish list. Before, if I saw something I wanted, I purchased it immediately. Not only did this hurt my financial plan, I often forgot about the item in a week. I have recently started implementing a wish list. When I see something I might like to have, I add it to a wish list. Often times, you will find that you forget about the things on your wish list after a while. This shows that if you had purchased it, it was only out of impulse, and you didn’t really want it. However, if after a month you still want the item, make a plan for it in your budget. Planning for purchases allows you to still say yes to opportunities and material items; but not at the expense of your budget.
2. Create Multiple Streams of Income
Generating multiple (two or more) sources of income can drastically change your financial future. If you can start a side hustle, or pick up a part time job that earns you even an extra $500 per month can make a huge difference. The key is to use this ‘extra’ money to better your financial situation. Do you have debt you’re working to pay off? Do you need to jump start your savings, or create an emergency fund? Are you saving for a house? The money from your second stream of income should be used for these purposes only – not as spending money.
For example, I personally have four sources of income. My regular job is as a teacher. However, on the side I tutor, teach for VIPKID, and work at a local paint store as a colour consultant one day per week. Do I need to work four jobs? No. I choose to do it for the time being to better myself financially for the future. It is completely unnecessary for you to take on an extra three jobs like I have, but it can only help your financial future if you choose to do so.
Keep in mind, if you search for ‘ways to make extra money’ online, you will often see several MLM opportunities. While these do work for a select few people, they tend to cost you more to start than you will ever earn from them. Remember to be smart, and don’t get sucked into the idea of “quitting your full time job to make money from your smart phone”; these will not help you in your financial future. If something seems too good to be true, it usually is. Do your own research.
3. Invest Your Money Monthly
A lot of people are unfortunately in the mindset of they can’t invest because they don’t have enough money to do so. It is really important to focus on building the habit of investing your money, more so than focusing on how much you are investing. With compound interest, even your small amount invested will grow to a large sum over time. When you eventually get a raise, or start a side hustle, you will have more money to continue to put towards your investments. But the key is to start, regardless of how small of an amount you start with.
4. Live Below Your Means
The concept of living below your means seems obvious to most people, however, not everyone follows this rule. Living below your means is simply spending less than you earn each month. This may involve cutting your monthly expenses, moving to a cheaper apartment or home, and sticking to a budget so you know where every dollar goes. By living below your means, it will leave you with a sum of money left over. This money should be saved, invested, or used to pay off debt. If you spend everything (or more) than you make, it will be nearly impossible to set yourself up for financial security in the future.
5. Purchase Things that Hold Their Value (or grow in value)
When we purchase items, some of them can grow in value (appreciate). However, most things we purchase go down in value (depreciate). The larger the purchase is, the more important it is to become aware of the depreciation value. A good example of this is a new vehicle. If you buy a brand new vehicle, on average, it will depreciate by 60% in the first five years. A new car will also depreciate approximately 11% the second you drive it off the lot – you didn’t even make it a kilometer down the road!
If you purchased a new car for $30,000, it will only be worth $27,000 by the time you make it out of the dealership lot. After the first year, it would only be worth approximately $24,000. After five years it would be worth approximately $12,530.
A good way to find out what items depreciate and which ones hold their value is to look at the resale market value. Look on Kijiji (Craigslist), FaceBook market place, and yard sales to get a better idea of how much you would be able to sell it for in the future. If you see things that when they were first purchased would be expensive, but are now being sold for a fraction of it’s original price, it likely means that item does not hold it’s value very well. If after realizing how much an item depreciates you still want it, consider purchasing it second hand. Purchasing it second hand ensures that a large part of it’s depreciation has already occurred, and you won’t be the one taking the financial hit.
What are some of your financial habits that you have already included into your daily living? What are some you would like to include?
Let me know in the comments below. I would love to hear some habits that have worked for you and implement them in my own life!