These six money micro-habits can make the difference between becoming financially independent or struggling to stay ahead. Self-made millionaires are doing all six, with smiles on their faces and pep in their steps, and they started these habits when they had no money at all.
Always be saving for the shorter term
Ask yourself: "If I needed money for an emergency, a repair or home improvement, would I have it?"
Having savings is the key to staying out of debt. When something comes up (and it always does), savings let you pay for it without borrowing money. It's why many financial educators prescribe starting up a savings habit at the same time as paying off expensive balances. Learning to save helps break overspending habits, permanently.
In practice, this is a simple weekly or biweekly transfer of money into a high-interest savings account you don't have access to via debit tap. Even saving $25 a week starts to build a kitty of money for the what-ifs and must-haves. As your financial flexibility grows — or you come into more money, say through a holiday bonus or gift — top up this account. Over time, you'll build enough to cover a couple of months' worth of expenses and any upcoming big-ticket purchases.
Consistent investing contributions
Ask yourself: "Will my future self have enough money?"
One of the classic personal finance books, "Start Late, Finish Rich," by David Bach, drives home the point that regular contributions in quality investments over your working career are precisely how to ensure you'll have enough money for retirement. You can't rely on an inheritance, winning the lottery or coming into some magical windfall of money in your late 60s. If you're a bit late starting, that's OK. But don't ruminate over how late you are; get going.
The key is to land on a sum of money that can be invested regularly, in tax-advantaged accounts like RRSPs and TFSAs. If a pension plan is available through work and has a matching component, participate in that too. Stay invested for the long run and keep contributing. even during leaner financial times.
Taking the right investment risk at the right age
Ask yourself: "Am I comfortable with the investments I own, and do I understand them?"
When you're young, you have time on your side to recover from potential losses your investments may take as a result of a high-growth strategy. When you're near retirement, you just can't take that risk and need to be more conservative and income focused. So, grow your money according to your age and risk comfort level. This means taking on the right level of investment risk at the right time and lowering it as you age.
I use a five-point risk scale (five is high risk). Shift down a point every decade and you’ll protect yourself from unnecessary market risk. In your 20s a five (aggressive growth); 30s a four (growth); 40s a three (balanced); 50s a two (moderate) and 60s a one (conservative).
Saying no to the add-ons and extras
Ask yourself: "Do I really need this?"
Saying no to add-ons and extras takes a bit more preparation and work. But if bringing your own towel and mat to the gym saves you $6 each time you workout, that's hundreds of dollars over the course of a year, if you're going two to three times a week. Packing your own lunch takes some planning but can save you thousands in a year and keep your nutrition goals on track.
Getting the best value for money
Ask yourself: "Am I maximizing my money with this purchase?"
It requires a bit of research, but price comparing and deal hunting can often shave 20-30% off grocery bills, school supplies, clothes and even bigger ticket items like cars and computers. Consider a second-hand purchase to save even greater sums and reduce consumer waste.
Budgeting
Ask yourself: "Do I know exactly what's coming in and going out of my bank account and credit cards?"
If you learn to spend within your means, you'll see the balance in your bank account grow. Millionaires use budgets to help ensure their outflows are lower than their inflows. They're regularly reviewing their expenses, reducing or eliminating what's not necessary, and keeping a close eye on their income.
The mistake I see often in my community is thinking that a budget will solve bad habits. It won't. A budget will, however, reveal clues into the habits that are holding you back.
This article was written by Lesley-Anne Scorgie contributing columnist from The Toronto Star and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
