Money Girl has 8 micro money habits to help you take control of your finances, feel secure, and reach any realistic financial goal you desire.
You've probably noticed that the small things you do (or don't do) every day add up. In many cases, your micro habits make the difference between success and failure in different areas of your life, such as health, relationships, career, and finances.
Today's episode will review eight micro money habits to help you take control of your finances, feel secure, and know that you can reach any realistic financial goal you want.
Keep reading for the details on how to use these eight habits to create massive financial success:
Money Habit #1: Review your financial priorities frequently
It doesn't matter if you're a college graduate who's just starting a career, a parent who wants to pay for college, or a pre-retiree dreaming of traveling the world, you need to identify your unique financial priorities. Your money goals don't have to be complicated, but they do require an action plan for breaking them down into manageable smaller targets.
For example, if you want to save $60,000 for a house downpayment over the next five years, you'll need to put aside $12,000 a year or $1,000 a month. If you want to retire in 30 years with $1 million, you'll need to invest approximately $800 a month.
Knowing what you're working and saving for helps you stay focused on the long-term -- and tolerate short-term sacrifices you need to make. One trick to achieving your goals is remembering them. If you don't frequently review your financial priorities goals, it's easy to forget them.
One trick to achieving goals is remembering them. If you don't frequently review your financial priorities goals, it's easy to forget them.
A wise micro habit is setting a daily or weekly calendar reminder to review your goals. Getting clear about what you want to accomplish with your money is the first step to success.
A simple tool I created to help you monitor your goals and financial progress is the Personal Financial Statement (PFS). It tracks your net worth, which is a crucial indicator of your financial health. You can download my PFS workbook and get started today.
And if you're not sure what your financial priorities should be, I have lots of ideas! The first box to check is an emergency fund that keeps you safe, no matter what.
Money Habit #2: Automate your money goals
Since it's easy to forget about your financial priorities or lose motivation, I recommend outsmarting yourself by creating systems that help you keep up good behaviors. Financially healthy people protect their goals by using the micro habit of automation.
Here are some ways to put your money goals on autopilot:
- Participate in a retirement plan at work, such as a 401(k), which takes your elected contributions from your paycheck before you get the chance to spend them.
- Set up recurring transfers from your bank account to a savings or retirement account, such as an IRA or SEP-IRA (for the self-employed).
- Have a portion of each paycheck or a tax refund sent to savings so you can quickly build your emergency fund.
- Contribute to a 529 college savings plan to pay future college expenses for you, a child, or other family members.
The sooner you automate saving and investing, the more financial security you and your family will have.
And speaking of family, did you know that there's no age restriction for contributing to a traditional or Roth IRA? Even teenagers who get their first job can have a retirement account and put it on autopilot.
Investing even small amounts pays off when you start early and make automation a micro habit.
Let's say your teenager earns $3,000 working a summer job. That qualifies them (or you on their behalf) to contribute up to $3,000 to an IRA. Consider this: If your 15-year-old child invested $3,000 per year, or $250 per month, until age 65, with an average moderate 6% return, they'd have $1 million to spend in retirement.
Investing even small amounts pays off when you start early and make automation a micro habit.
Money Habit #3: Increase your savings rate slowly
Another micro money habit that won't disrupt your lifestyle but give you a considerable return is boosting your savings rate each year slowly. For instance, if you're saving 1% of your income to build an emergency fund, make a goal to save 2% next year.
Or, if you're contributing 5% to a retirement account at work, enroll in your plan's auto-escalation feature. Most plans allow you to schedule when, and by how much your elected contributions will increase, such as every January 1, you contribute 1% more than the prior year.
The idea is to slowly increase your retirement contributions until you hit the maximum amount allowed. For 2021, you can put up to $19,500, or $26,000 if you're over age 50, to a plan at work. With IRAs, you can contribute up to $6,000 or $7,000 after your 50th birthday.
If you're self-employed, you can use an IRA or other retirement accounts that come with higher annual contribution limits, such as a solo 401(k) or a SEP-IRA.
Money Habit #4: Check your credit regularly
Checking your credit is a micro money habit that only takes a few minutes. You can use the official credit reporting site, AnnualCreditReport.com, or other tools, such as Credit Karma and Credit Sesame.
When you review your credit report, look for errors that could be hurting your scores or indicate you're a victim of identity theft. That includes incorrect payment information (such as showing a late payment when you paid on time), errors in account balances, available credit limits, or accounts that aren't yours.
Correcting mistakes can quickly increase your credit scores, helping you pay less for credit cards, various loans, insurance (in most states), certain utilities, and more. Make a habit of reviewing your credit reports at least once a year, and ideally more regularly, such as once a month or quarter.
Money Habit #5: Spend money consciously
Most people have limited financial resources which means that every cent is valuable and how you spend them matters. If I reviewed your spending over the past 30 days, I could tell you precisely what you value, such as clothes, dining out, or saving money. Values are the things you believe are most important, and they influence how you live, work, and relate to other people.
Identify your values and closely align your financial life with them by making conscious spending a daily micro habit.
Every action you take, including your spending, either builds up or breaks down your values. So, identify your values and closely align your financial life with them by making conscious spending a daily micro habit.
In other words, cut back in areas that don't give you lasting fulfillment. That will leave you with more money to achieve your most meaningful goals.
Also, if you're a compulsive shopper or tend to make impulse purchases, be aware of your triggers. Financially healthy people have counterproductive impulses too, but they're more aware of them and resist them.
Here are some effective strategies to control impulse spending:
- Create a spending plan that accounts for your expenses and financial goals.
- Don't shop in person or online for entertainment (unless you can genuinely afford it).
- Unsubscribe from retail newsletters that offer promotions and sales you can't resist.
- Wait at least 24 hours before buying anything over a certain amount, such as $50 or $100, so your impulse settles down, and you can clearly decide if you really need the item.
- Go on a spending freeze, where you don't buy anything except dire necessities for a period, such as a week or a month.
- Calculate what an item costs you in time. For instance, if you earn $25 an hour after taxes, buying a $250 pair of shoes costs ten hours of work. Only you can know if an item is worth a long workday.
- Shop secondhand sites such as ThredUp, TheRealReal, eBay, and Craigslist to find new or slightly used items at massive discounts.
Money Habit #6: Observe your money mindset
Your ability to build wealth and have financial success doesn't depend on your education or earning power. You've heard about pop stars and fashion models who end up bankrupt even though they've made millions.
Focusing on your money mindset might seem frivolous. However, it's a critical micro habit to develop because it's the precursor to your behavior. None of your actions or behaviors happen in a vacuum; they spring from your mindset.
If you make a big financial mistake (and who hasn't!), learn from it and never let it happen again. Failure can teach us important lessons if we allow it. If you stay focused on what's most important, you can set yourself up for a rewarding and secure financial future.
Money Habit #7: Ignore the financial markets
For most investors, what's happening in the financial markets, such as the Dow or the NASDAQ, is irrelevant. Daily or weekly changes only matter if you need to sell or liquidate your investments in the short term.
Make a micro habit of ignoring the financial markets and owning a diversified portfolio for long-term growth.
That's why you should never invest money that you might need in the next few years. The value could plummet at the precise moment you need to spend it.
Instead, make a micro habit of ignoring the financial markets and owning a diversified portfolio for long-term growth. Diversification means you own various investments that don't all move in tandem. That allows you to reduce investment risk because when some investments lose value, others may go up.
The easiest way to diversify your investments is to own one or more low-cost funds, such as a mutual fund, index fund, or exchange-traded fund (ETF). They're made up of hundreds or thousands of underlying assets, such as stocks, bonds, real estate, currencies, and cash, giving you instant diversification.
Money Habit #8: Leverage the right money pros
The last micro money habit to adopt is to be sure to use the right financial professionals. Consulting with experts can help you make giant leaps forward in your financial life.
Depending on your personal and business situations, you might benefit from hiring an expert. That might include a financial advisor, tax accountant, attorney, or estate specialist who can help you navigate hardships, answer questions, and manage complex life events you're facing.
For instance, if you want to get all the tax benefits you're entitled to, hire a Certified Public Accountant (CPA). If you don't have the best insurance for your family or business, seek an independent insurance broker who can help you get the best coverage at the lowest price.
And if you have retirement questions, many investment firms offer free advice. So, take advantage of it and take control of your financial future.