While a big inheritance or a promotion to a higher-paying position in the workplace are both sure ways to improve your financial well-being, in most cases, neither is necessary to put your day-to-day finances in better order. In fact, if you’re like most consumers, developing better money-management skills and showing more financial discipline can bring big improvements to your financial health — and set you on a course to a brighter financial future.
If you’re looking to increase your financial wellness, consider developing these seven money-related habits that are common to those with good finances:
- Keep close track of your spending: To improve your spending habits, it’s critical to have a good grasp of where your money goes each month. And by keeping a close eye on your monthly spending, you can identify any non-essential areas where you may be regularly overspending, then make plans for cutting back on those purchases to generate savings. Typical targets for such cutbacks include dining out, entertainment, rarely used subscription services and easily eliminated luxuries like frequent visits to the coffee shop. And in the digital age, saving receipts to track your spending habits is no longer required — as a range of finance-related apps and software designed to help consumers track and evaluate expenses is now available. Popular examples here include Mint, Goodbudget and MoneyTrack.
- Build a monthly budget: Another essential part of good money management is building a household budget. This tool can be helpful in identifying the amount of flexible income you have to work with each month — which represents a recurring opportunity to pay down debts and/or build savings. To determine this figure, subtract your essential monthly expenses (such as your rent or mortgage payments, utility bills, debt payments, grocery costs, gas expenses, etc.) from your monthly household income. With the resulting figure — your discretionary income — in mind, you can then set realistic goals for what percentages of this money you’d like to devote each month to paying off debts and building up savings, then put your plan into action. (For step-by-step guidance on creating a household budget, check out this Arthur State Bank blog article.)
- Prioritize on-time bill payments: Your payment history makes up 35% of your FICO® credit score — making it the single biggest factor in this calculation used by many lenders to determine your creditworthiness. And when you miss a bill payment, the financial blemish can linger on your credit report for up to seven years. To avoid such damage to your credit score (and your financial wellness), make timely debt payments a high priority each month. Not only will consistently on-time payments help you raise your credit score, they’ll help you avoid any late fees, too. (For more details on how to improve your credit score, check out this Arthur State Bank blog article.)
- Check your credit reports: Your credit reports, which document tails about your financial history, are used to calculate your credit score. (And when you have a high credit score, it can deliver a wealth of finance-related benefits such as easier approval and reduced interest rates when applying for loans, lower insurance rates, waived security deposits, and more.)
While credit reports are typically reliable, they can sometimes contain score-impacting errors. So, by law, Americans who request them are entitled to get free copies of their credit reports annually from each of the nation’s three leading credit-reporting agencies — Equifax, Experian and TransUnion. To make a free online request for your credit report(s), visit annualcreditreport.com. And once you receive them, carefully review all the information contained in your credit report(s) for errors, then report any you discover to the applicable credit-reporting agency.
- Do away with debt: Ultimately, you’ll want to have a plan in place to eliminate all of your debts. But when starting out and facing multiple debts, it’s wise to prioritize paying off your highest-interest debts first. Begin by focusing on any credit card debts, loans and other outstanding debts that are carrying the highest interest rates, then put as much money as possible each month toward paying these down. By eliminating your interest-bearing debts, you’ll not only boost your financial wellness, but you can also save substantial amounts of money (especially over the long haul) by avoiding interest payments.
- Have an investment strategy: All of us have long term-financial goals we’d like to meet, such as saving for retirement, setting money aside for a child’s college education, and/or saving up to buy a or a second home. And typically, accomplishing these takes a substantial amount of time and financial discipline. To start taking steps toward meeting your long-term financial goals (and ensuring your future financial wellness), work toward building such savings as soon as possible. Especially with long-term investment vehicles such as 401(k) accounts, Roth IRAs and 529 college savings plans, even small contributions can build up to substantial savings over time — particularly when the power of compound interest is leveraged. (Want to see just how powerful compound interest can be? Consult this compound interest calculator at investor.gov.)
- Create purposeful accounts: For many of us, building up a substantial stockpile of savings can be much easier if we move any funds we’d like to devote to savings to an account that’s separate from the funds allotted to our day-to-day spending (often a checking account). So, by setting up a savings account, money market account or certificate of deposit and moving any savings-specific funds there as often as you can afford to, you can cut down on the temptation to spend the extra cash — and better build your savings.
Proudly serving South Carolina since 1933, Arthur State Bank offers accounts and services to meet a variety of financial needs. To help you achieve all your financial goals, the bank offers in-person service as well as a range of convenient digital solutions. To learn how Arthur State Bank can help you with banking needs ranging from checking and savings to retirement accounts, mortgages, other personal loans and more, visit arthurstatebank.com.