Written by Janet Gershen-Siegel

Do You Know the Financial Habits You Should Develop?

Have you been thinking about the financial habits you should develop? We put together a list of good financial habits, and anyone can cultivate them.

Good financial habits can help us for any number of reasons. Here are five financial habits you should develop – and how.

5. Save for Retirement

Most people don’t consider how much they really need to save for retirement. It’s easy, particularly when you’re young, to think of it as being remote. But that time has a way of sneaking up on you.

At work, contact either Payroll or Human Resources. So this depends on who handles such things in your company. And sign up for their retirement plan, whatever it is.

Lots of companies provide a percentage match. Look at the maximum you can save, and seriously consider saving that. But don’t beat yourself up if you can’t.

It’s better to consistently save 5% of your income and fulfill the next four financial habits, than it is to save 25% and slack off on the other four.

More Ways to Save for Retirement

Seriously consider a personal savings account if you don’t already have one. And put your change into it. Did you pay for an $18.24 item with a $20 bill? Then you’ve got $1.76 in change. Bank it. Got an unexpected bit of cash, like a bank error in your favor? Then bank that, too.

And consider plowing your raises right back into your retirement. If you get a raise of, say, $1,000 per year, and you were able to live within your means before, then the extra $1,000 can probably become additional retirement savings.

Most importantly, it works even better than saving your pennies in a jar. This is because your retirement plan is before taxes. So at a tax rate of 10%, you’re only getting $990 of that. And you are often getting less, due to other expenses. But with a retirement fund, 100% of it goes toward your golden years.

And don’t just do this with raises. If you laterally move to another company and you make more money, then toss the difference into retirement. This can even work if you don’t make more money, but work is closer. Whatever you save on gas or public transportation can become retirement fodder, too.

4. Live Within Your Means

This may feel difficult, particularly when you are at the lower end of the salary range in an expensive area. So you need to consider how to cut your expenses.

This may mean not getting Starbucks or the latest iPhone. It can also mean taking your shoes to a shoemaker, rather than buy new ones.

It might mean one more year with your clunker car or sharing an apartment. You might consider dropping your gym membership if you only rarely go.  You can substitute mall walking or the park.

What You Really Don’t Need

Consider your discretionary expenses. What can you eliminate completely? What can you cut? Can you substitute something else? So consider what happens when, for example, you bring in creamer from home and just get black coffee instead of the super-fancy stuff. Classic clothes take longer to go out of style, too. Those dollars add up.

And consider the expenses that don’t seem quite so easy to cut, like rent or utilities. Are you really watching all of the premium channels in your cable package? And are you really using all of your phone minutes?

So maybe you can start reading your newspapers and magazines online. Or you might be able to from home one day a week. Maybe you can sometimes take public transportation rather than your car. So get creative!

3. Pay Your Bills Early or at Least on Time

We say this about building business credit all the time. But it is true for your personal financial life as well. The biggest reason for doing so is that it will quite literally save you money. The faster you pay any bill, the less interest you will have to pay.

This includes your mortgage. But make sure there are no prepayment penalties. If you can pay a 30 year mortgage in 25 years, then you will save more than 1/6 of your interest, due to compounding.

One effective way of doing this is by paying your mortgage 13 times per year instead of 12. If you want to lop off the full five years from a 30 year mortgage, make sure to pay 14 times per year instead of 12. And also assure your extra payments are going to your principal only.

2. Cut Out Impulse Buying

It’s those candy bars at the grocery checkout. Or it’s the ratchet set at the end of the aisle at the home goods store. Or your kids want something.

Don’t do it. Do not buy that stuff. You don’t need it.

Now, there is nothing wrong with occasionally treating yourself or your loved ones. And maybe you really do need that eyeglass repair kit or those adhesive-backed hooks. That’s a different story.

So what I really mean is: always know what you are buying. Not every purchase decision has to take a week, but if it is only taking a few seconds, pull back and think. A good healthy ‘no’ can work wonders.

Saying ‘No’ Is Healthy

Once you start to say no to yourself, you might be able to say no to others. Of course you do your job, and there are some things that are just plain not negotiable.

But other things are. You can bow out of yet another committee. Or forego a company gathering if you just don’t feel comfortable. Learning how to gracefully and tactfully say no is a valuable skill to have.

1. Leave Your Credit Cards at Home

Let’s say you’ve gone to the big box store and you have a shopping list and $300 in cash. You have maybe $275 worth of goods in your cart and the remainder in your pocket will cover taxes.

Although you’ll clean out your wallet, that’s okay. Your plan is to hit up the ATM after shopping.

But then you see a $50 item. It does not matter if it’s clothes or food or whatever. You want it. And you might even need it.

Here are your choices, in order from the most financially responsible to the least:

1. Leave it but make a mental note to return some other day
2. Put some other stuff back in order to get it
3. Or just whip out your plastic

Be Sensible About This

Dovetailing with cutting out impulse buying, your best bet is to consider the purchase. Does the need for that single $50 item outweigh a comparable amount of goods already in your cart? Maybe it does, so choice #2 is viable.

Or maybe it’s necessary but you can wait. So then #1 will be viable. Maybe you decide you don’t need it after all. All of these are financially responsible options. You’re thinking about your purchase. You’re doing what you can to live within your means. Hurray!

Taking out your credit card and figuring you’ll just pay later somehow is a recipe for more debt and not much else. Unless you’re buying something you absolutely can’t live without, and there are no substitutes and you need it now, put it back. You’ll live without it.

Bonus! The Barter System

Now, this will not work for everyone. But if you can make it work, then it can be another way to save money.

When we think of the barter system, normally we think of it as being a substitute for cash. And that’s a part of it but not everything. See, this is the bartering of services rather than goods.

For example, what if you need new tar on your driveway? Maybe you don’t have the time. Or maybe you get overcome by the fumes. But what if your neighbor can take care of that for you? So in return, maybe you can help your neighbor with putting up wallpaper.

It’s Not Just for Homeowners

This can work for apartment dwellers as well. Can you do something really well? In particular, this should be something others would find time-consuming or burdensome.

Maybe you can do alterations, or you’re good at organizing closets. Your neighbor or friend might be good at installing new hard drives or has the time to get your car its inspection sticker. Consider a swap.

The biggest bonus is not just saving money. It is also in cultivating a community. And that can be particularly difficult to do in a city. So why not try a little service swapping?

Takeaways for Financial Habits You Should Develop

When it comes to financial habits you should develop, a lot of it comes down to impulse control. It also comes down to a look at the big picture. Your future matters!

So keep your eyes on the prize. And that’s a debt-free/debt-minimal life, a good retirement, and minimal money worries. All of these are priceless. Share this and tell your friends what you think of how to live your best financial life.