Here is a scary statistic for you. 67% of older millennials (those between age 25 and 34) have less than $1,000 in their savings accounts, and 33% have nothing at all. Only 15% have over $10,000. Yikes! Ask yourself, where do you fit in with these stats and is there something you can do better? Here are 8 simple financial habits that everyone can and should implement now to get their finances back on track.
1. Set financial goals
It all starts with a goal. Do you want to be debt free? Do you want to increase your savings? Do you want to stop living pay cheque to pay cheque? Define your goal and write it down! Our financial goal when we first got married was to have all our student debt paid off within 2 years. We documented that date in our calendar for motivation and loved seeing the months pass by and our debt decrease. Our goal now is to invest 30% of our income each month. But while a goal is a great starting place, your goal needs a plan which brings me to habit number 2.
2. Create a budget
How can anyone plan their finances accordingly if they don’t have a budget? When we created our first budget it really helped us to identify what we could cut out of our lives to help us achieve our goal. We got cheaper cell phone plans, cut out weekly date nights, stuck to free entertainment and only ate out on special occasions. Any now we have a budget for almost everything including vacations and shopping. Seriously consider where you can cut back and save. There are so many FREE budgeting templates on line to help you get started. But most importantly, a budget only works as long as you stick to it.
3. Know your expenses and when they are due
A budget is the perfect tool to help you know what money is going in and out of your bank account and when. If you don’t anticipate when your expenses are due, you may end up with some unexpected bills that can cause financial stress, and may even lead to taking on debt in order to cover those expenses. My accountant (or husband) marks the date of when all our expenses are due in our calendar to make sure we always pay in full and on time.
4. Get out of debt
Get out of debt and get out fast! Did you know that two-thirds of millennials have at least one source of long-term debt outstanding and 30% have more than one? Debt is such a heavy weight to carry and can have serious implications on your financial future. If you are struggling with debt read my post on how we paid of $40,000 of student debt in 16 months and follow our 3 easy steps. I’m telling you it works! Don’t be a part of this statistic!
5. Start saving
Sadly, the majority of Canadians feel like they can’t afford to retire because they haven’t saved enough money. According to financial advisors, you should be saving 15-20% of your income each year starting in your 20’s. The general rule of thumb is that you want to replace 80% of your income. However, this completely depends on what kind of lifestyle you plan on having when you retire. I recommend reading Arielle O’Shea’s 5 steps towards figuring out how much to save for retirement. But while saving for retirement is extremely important, creating an emergency fund is equally as important. You never know what life is going to throw at you and an emergency fund can significantly reduce financial stress that comes with life’s obstacles. The experts say that you should have 3 to 6 months of expenses saved. This number of course is dependent on many things so I recommend using an emergency fund calculator like this one to see how much you should be putting towards your emergency fund.
6. Stop living off credit cards
My goal is for credit card companies to hate me. I never want to give them the satisfaction that they are getting rich off the interest I owe. With the average credit card charging around 20% interest, you can kiss your hard earned money good bye if you carry a balance. Credit cards are great for balancing out expenses by putting off payments and collecting rewards points but if you can’t afford it don’t buy it!!! Credit cards should not be seen as “extra cash”, but rather a tool for managing your money. One trick that we use to make sure we never live off our credit cards is to pay off our cards as soon as we make a purchase. This ensures that our card is always paid on time, we never carry a balance, and that we will never flush our money down the drain by paying interest.
7. Avoid unnecessary expenses
Do you really need to buy a coffee every morning? Do you need the expensive cable package? Do you need the latest and greatest iphone? No. This is where creating a budget comes in very handy. Once you have identified your financial goal and created a budget you can identify those unnecessary expenses and cut them out!
8. Just because you can afford it, doesn’t mean you should buy it
This comes down to plain old financial wisdom. Just because you can afford something, doesn’t mean it’s a wise purchase. Most things in life we want to buy depreciate in value, so why not instead invest in something that will increase in value and make us money (and no I am not talking about lottery tickets). We live in a world consumed with having more “stuff” that we too quickly lose our appreciation for. I love this trick that my mom taught me. Walk away from the purchase and if you still think about it a week later than consider going back for the item. 9 times out of 10 I completely forget about the item I wanted to buy.
And that my friend is the beautiful thing about finances. You can start making little or big changes today that can make such a huge impact. Comment below with any of your financial habits, I would love to learn from you!