There are many benefits to living a healthy financial life. It is clear from some studies that many Americans are teetering on the brink of financial collapse. But improving your financial health doesn’t have to be complicated. And sticking too a budget doesn’t always mean you have to cut costs to the extreme. It is more about having a conscious plan and sticking to it. But how can you get started?
Here are 10 quick tips that we use to live a healthier financial life:
- Spend less than you earn. This may seem obvious but is something that does not happen for many people. In order to do the remaining items on this list and build up a large nest egg, you have to have something left over at the end of each month and year.
- Budget for things you enjoy. It seems like budgeting gets an unfair rap. Budgeting isn’t just about cutting costs, it’s about prioritizing where you spend your money. If you like travelling, budget for it. If you want a new car, budget for it.
- Buy nice things that will last forever and then keep them forever. When I was younger, I use to buy the cheapest of almost everything (clothes, shoes, household items, etc.). But when I first got into running I bought a nice pair of running shorts and shirt and they are still going strong 10 years later. This is after wearing them and sweating in them very often. Good quality items are expensive for a reason. Just be careful not to overpay just based on brand name alone.
- Pay yourself first. When you get your paycheck, savings should be the first thing that comes out, not the last. If you only save what you have left, you will likely save less than if you take your savings out first. Humans are very adaptable to their environment; if you have less available to spend, you will naturally spend less.
- Budget for the whole year. Some expenses happen throughout the year (groceries, mortgage, utilities, etc) while other expenses happen only a few times or even once per year (license tabs renewal, Christmas gifts, property tax payments, etc). If you budget for an entire year, you can ensure that money will be available for the one time expenses when they come up.
- Plan for large expenses. Building on the previous point, you should also plan for large expenses that come even less often than once per year. These are expenses like getting a new car and paying cash, home repairs, or college tuition for children. Planning for these in advance will help avoid going further into debt and also avoid financial stress. There are several ways to do this but I’ve found that having a 3-5 year plan for the larger expenses works well. This can be an adjustable plan since a lot can change over 5 years, but having some plan is better than no plan at all.
- Have financial goals to work towards in the short, medium, and long term. In addition to planning for large expenses in the coming years, you should also think about your future financial goals over the coming years as well. Where do you want to be financially in 5, 10, or even 20+ years. Examples of this could include things like taking a dream vacation in the next 3 years, being debt free by age 50, or retiring by age 60. Having a concrete goal to work toward will help keep you eye on the prize.
- Pay down debt and don’t take on any new debt. As mentioned in a previous post, we are focused on aggressively paying off debt. But even if you are not aggressively paying off debt but are doing it slowly, try to limit taking on new debt as much as possible. Seeing the total debt outstanding number go down month after month is very motivating!
- Automate as much as possible. Similar to paying yourself first, automate your savings and expenses as much as possible. If you contribute to a 401k or HSA through your employer, that money will never hit your bank account. Open an online savings account at a separate bank and contribute part of your paycheck there so it is harder to spend. Set your bills to automatically be paid before the due date and you will never have any late payment penalties. The more you automate, the less effort that is required each month.
- Enjoy yourself in retirement. We are far from this point but if you have lived responsibly for years and years and built up a large nest egg, you should enjoy it! This is what all the effort was for. Have fun!
What other tips do you have to live a healthy financial life?
