5 Healthy Financial Habits You Need to Practice This Year
The New Year brings with it many new promises. Some people use this time to make resolutions. The promise of a new beginning is a great way to embark on a journey that can make positive changes to your life. While most people think about making changes in their personal and professional lives, picking up better financial habits is also an excellent approach to begin the new year.
Here are 5 healthy financial habits that you need to practice this year:
1. Streamline your savings
Saving more and spending less usually makes it to the top of everyone’s list every New Year. But it is also a difficult habit to form. When you save more than you spend, you always have funds for unexpected financial emergencies. You also lead a better life with little to no financial stresses, knowing that you have enough money to cater to your needs and those of your loved ones. While saving more and spending less is not a new concept, this year it may help to dig a little deeper into this habit. Instead of only saving, try to streamline your savings as per your goals. For instance, if your goal is to build a retirement corpus, you can save in a retirement account, such as a Roth Individual Retirement Account (IRA), a 401(k) account, etc. If your goal is to save for a child’s higher education, you can save in a 529 education savings account. By streamlining your savings as per your unique needs, you enable your funds to grow in a more efficient manner. They gain from the power of compounding and remain untouched till you finally use them up for that specific need.
2. Switch from a credit card to a debit card
Credit cards do have many advantages, but they may not be a good fit for everyone. On the one hand, credit cards enable you to live the lifestyle that you aspire for. With credit cards, buying possessions that would otherwise be impossible with your salary is as easy as a few clicks on the website or a single swipe on the machine. The additional features, such as air miles, discounts, cash backs, etc., further add to their appeal. However, on the other hand, living on credit can be a tricky thing. A higher dependency on credit cards can negatively impact your credit score, create an imbalance in your cash inflow and outflow, and lead to financial anxiety. As opposed to credit cards, debit cards present a realistic view of your financial situation. You can spend depending on how much money you have at hand, and there is no additional burden of paying a high interest or penalties in case of delayed payments. Moreover, since more and more debit cards are now coming up with rewards, cash back offers, and discounts, making the shift to debit cards can be easier than you would expect.
3. Invest as much as you can
When you invest your money, you allow it to grow over time rather than having it sit idle. Investments can counter the effect of inflation and offer suitable rewards depending on the risk you are willing you take and the money you are ready to invest. The world of investing is often thought to be complex with market fluctuations, financial jargons, and expensive fees of financial managers. However, things have changed a lot in the present times. There are robo advisors that can help you pick out the right investments based on a simple questionnaire that helps them understand your risk appetite and financial goals. Traditional financial advisors are also easily accessible and can guide you in the right direction at competitive costs. You can start by simple, low risk instruments, such as bonds, mutual funds, exchange-traded funds (EFTs), and then move to stocks as and when you wish. Remember to keep a balanced portfolio with the right asset allocation of debt and equity and diversification to ward off potential risk.
4. Opt for automated payments
Whether it is a loan repayment, an electricity bill, or an investment premium, automated payments are a great way to ensure that you do not falter on any of these. They also eliminate the possibility of error or forgetting to pay a certain bill. This ensures better financial discipline. Moreover, you do not overspend your money elsewhere. All of your income gets clearly demarcated at the beginning of each month. After all payments have been made, the remaining money can then be used for your other needs. You can set up automated payments for a savings account, an insurance plan, or a mutual fund. It eases the process for you and offers you more time to spend on your personal or professional goals.
5. Improve your financial understanding
It always helps to know how the financial world works. The more you educate yourself, the better it is for you in the long run. You can start by reading financial journals and stay up to date with what happens in the market. Many online publications and libraries publish free articles that cover popular investment products, the effects of the economy on the market, the global market and foreign instruments that you can invest in and a lot more. With time, financial jargon seems less intimidating and your knowledge of where you need to invest your hard-earned money increases. This also eliminates any chance of being fooled or tricked by fraud schemes and policies. Moreover, you may save a lot of money too. You can take charge of your own investments instead of paying a broker or manager. Being financially aware also means that you can choose options that would result in lower tax liabilities. You can choose tax-advantaged retirement accounts and plan your estate efficiently to reduce your income and estate tax. This, in turn, reduces inheritance tax for your heirs. It also gives you more confidence and reduces your overall stress.
To sum it up
The New Year can be a good time to revisit the mistakes of the past and learn from them. You can use this time as an opportunity to start afresh and aim for better things in life. Whether it is your salary or a year-end bonus, make sure to put it to good use so that you benefit in the long run. These small but beneficial habits also help you achieve your goals as per the desired timeline.
You can reach out to a professional financial advisor in your area to draft a new financial plan that incorporates all the healthy changes you wish to make this year.