Fifteen Timeless Financial Habits You Should Follow
You have heard these time-tested financial tips before, but are you may not be following them. Don’t dismiss them out of hand, review the list and select a few areas where you can make some improvements to your financial situation. Follow the habits listed below to get on the path toward financial independence.
- Set Financial Goals – Establish long term goals and action plans to guide your spending, saving and investing decisions
- Understand Where You Are and Create a Budget – Calculate your monthly income and expenses and establish a spending plan to meet your goals. Calculate your net worth by totaling all your assets less any outstanding debts to understand where you stand.
- Live Below Your Means – Avoid increasing expenses in lock step with increases in income. Manage your expenses to live below your income and save to meet your financial goals.
- Save at least 10% of your Gross Income – Always save at least 10% of your income, if you are getting a late start, it may be necessary to save 20% to 30% of your income.
- Maintain an Emergency fund – Maintain an emergency fund of at least 4 months of expenses. This should be higher if your income is uncertain.
- Pay-off High Interest Debt – Payoff credit cards and high interest debt and pay the full amount on your credit cards every month.
- Pay Yourself First with Systematic Investments – Make systematic contributions to your retirement plan and savings to maximize your retirement plan and save for the future.
- Maintain a Diversified Portfolio – Establish and rebalance your portfolio annually to maintain a diversified mix of stock mutual funds and interest earning investments.
- Don’t Time the Market – It’s impossible to effectively time the market. Stick to your plan and avoid emotional reactions to short term market volatility.
- Don’t spend to impress others – Prioritize your discretionary spending on what’s important to you not to keep up with your friends and neighbors.
- Educate yourself about money – Learn the fundamentals of money management.
- Invest in Your Career – To effectively save and invest you need to proactively manage your career to maximize your earning ability.
- Consider Tax Implications of Investment Decisions – Contribute to tax advantaged retirement and medical savings plans and manage income and taxable distributions to minimize taxes. Place tax efficient funds, with low turnover and minimal dividends, in taxable accounts and less efficient funds in tax advantaged funds.
- Shop and Compare – If you are buying a car, furniture, an insurance policy or an airplane ticket, the internet makes it easy to shop around to get the best value for your money.