Strong Habits to Improve Your Personal Finances

Given we are still in January and new year goals and resolutions are still fresh in our minds, it’s important to review your current habits to make sure that these will help, not hinder your success in 2023. 

Habits across all aspects of your life (such as health and fitness, career, relationship or personal goals) should be reviewed and replaced if necessary to make sure you give yourself the best opportunity for personal success in 2023. . 

This is the same (perhaps even more so) with financial habits. The earlier in life you create quality financial habits, the sooner you will be able to hit your financial goals (and in the case of a less than desirable financial situation) turn this around. 

Look at where you are financially and ask yourself if you are happy with where you are? If you are happy and you’re in a good financial position, great, keep doing what you are doing. If not, what changes have you made to turn this around?

If you don’t make any changes to your habits or routines then it’s highly likely there won’t be any change to your finances and 2023 will be another wasted year. The good news is that healthy financial habits are easily adopted and with a little bit of work you will be on track for financial success in no time. 

The younger you are, the less entrenched you may be with habits or your routine and in most cases it’s easy. Also the younger you are the less commitments you are likely to have which should help your ability to mold new habits in the pursuit of your 2023 success

Below we go through financial habits to adopt to improve your financial situation.

1. Set savings and financial goals each year

This one is pretty simple, where do you want your financial situation to be long term? This covers areas such as income you wish to live on, job or career that you would love to be doing, investments you’d like to invest in, the house or property that you’d like to live in long term, etc. 

If you haven’t done this, set some time aside for this exercise and plan this out as best as you can. These will likely change as you get older and don’t be concerned if you aren’t currently in a financial position to fund these goals, this is long term and long term we are going to assume that your financial situation will improve substantially. 

Now from these long term goals, let’s set shorter goals for 2023. This could involve money you wish to save in 2023, debt you wish to repay in 2023 or investments you wish to make in 2023. For example a long term goal could involve financial independence earning a certain income  each month. 

To get to this place you will need an investment portfolio that will generate your required financial independence income which will likely take many years to build. These investments will be started through your savings which gets us back to 2023 financial goals. 

To build your savings to eventually start investing, your 2023 savings goal might be $25,000. Breaking this savings goal down even further this means that (roughly) each month you will be saving just over $2,000 per month. 

Test yourself by setting challenging financial goals however don’t set goals that you have no hope in achieving and will likely cause you to lose hope setting you back even further. Review your current situation, write down a goal you think you can achieve, add 10% to this as there is every chance you will surprise yourself then go out and do it!

2. Evaluate your existing relationships

Your past habits, relationships and way of life has led you to where you are now. If you want to change then you have to change what has led you to your current situation. This means reviewing all relationships in your life, both on a financial level and on a personal level. 

This could be painful (particularly when reviewing personal relationships) however the sooner you do this the quicker you will be on the path to success. 

On a relationship level (romantic, friends, family, even work colleagues) ask yourself some of the following questions: 

  • Am I generally happy when I’m with this person?
  • Can I be myself with this person or am I constantly being judged?
  • Do I like myself when I’m with this person?
  • Do I feel energized or wiped of energy when I’m with this person?
  • Is this person generally a positive person or are they always negative and complaining?
  • Does this person believe in me or treat me well or are they constantly putting me down?

There are other questions you can ask however if you are getting more nos than yes’ then it’s time to cut or significantly reduce the time you spend with this person. 

On a financial level, some of the relationships you should be reviewing include: 

  • What is your current relationship to money and spending?
  • When it comes to bills and debt, do you tackle this head on or do you put your head in the sand and ignore this?
  • When was the last time you reviewed your relationship with spending?
  • Your relationships with your current providers such as your bank, phone, internet or utilities companies? 

Other relationships to review (depending on where you are at and what you are wanting to achieve with your life) include your relationship with eating, spending, alcohol, drugs and gambling and finally, what is your relationship like with yourself? Do you genuinely love and believe in yourself or do you constantly put yourself down, talk negatively about yourself and hate looking at yourself in the mirror? 

One of the most important relationships you can have is with yourself. If this relationship is poor then most other relationships in your life will struggle.  Take the time to work on you and great things will come of it. 

3. Track your spending

If you aren’t in a great place financially, the clues can usually be found in how you spend your money. This could be living above your means, trying to keep up with friends or family even though you may not earn anywhere near them, or blowing money on unhealthy habits such as overspending, gambling or alcohol. 

Go back to basics and review where you spent your money over the last 12 months (if possible) or at a minimum the last 3 months. What patterns do you see emerge? Once you’ve reviewed this go back to point 1 and set your financial goals. 

After that, prepare a “limited frills” budget which covers the basics such as shelter, food, phone, transport, clothing (basic) and a small portion allocated to entertainment. The worse your financial situation, the leaner this budget should be however you do need to live and a very strict budget (like a strict diet) is hard to stick to long term so keep this in mind. 

This could also involve looking for discounts or specials when you are doing your weekly budget.  Also when you are shopping for big ticket items like a fridge, couch or new television obviously make sure you shop around and don’t be afraid to ask the salesperson if a discount is available on the current advertised price. You can even ask something like this is the best price you can offer on the item that you are in the market for. The worst thing they can say about your discount request is no!

4. Pay your bills on time and review your credit score

If you have a history of being behind on your bills or even missing repayments it’s likely your financial situation is as good as it could be nor is it likely that your credit score is going to be great. 

Get a copy of your credit score ASAP and see how good (or bad) it is and then you can make plans to improve this (if this is needed). Don’t pay for this report, find an organization that can provide a free copy of your credit score. 

To begin improving this, it’s time to start paying your bills on time. If you are going to take a couple of months to get on top of your bills and repayments then reach out to these companies and be honest with where you are financially. 

This could include negotiating with companies that you owe money to, to get more favorable repayment terms or potentially a reduction in interest rate. If you don’t ask you don’t get but at least get on the front foot and communicate with your debtors. 

Obviously the quicker you get on top of your bills and repayments the quicker you will be able to improve your credit score and eventually strengthen your financial situation. 

5. Automate your finances (where possible)

Automating your finances will put you on the fast track to financial success. The less you have to think about things and to manually do everything, the easier it will be to get financial success. 

We’ve discussed our personal automated hub in general, however the basic premise is that you have a central transaction account as your “hub” where all income is paid into and all direct debits come out of. 

Further to the above point, having an automated system will make sure that your bills are paid on time and will go towards improving your credit score. 

If possible add a small buffer to this account (in case of unforeseen debits) or wait until the buffer is built up and once this is up and running you can then add a higher interest savings account to this hub where your surplus is paid into. 

After your surplus has built up then it’s time to look at investing some of this into some quality assets.which we will touch on a little later in this article.

You may have your own plan that works if so stick to that however if you need some help then try out the above automation suggestion. When starting out this automation you’ll want to check in regularly for the first few weeks to make sure all bills are paid and everything is working as it should be but eventually you will be able to check in on a weekly or fortnightly basis. 

The quicker you automate everything the quicker your financial situation will improve. 

6. Live within your means and build an emergency fund

This one is pretty simple yet continues to be kryptonite for people’s finances. Life is hard enough before trying to keep up with others. Ask yourself why are you trying to keep up with people? 

This is likely causing you stress all for what? To be seen as cool amongst these people? If this is you and you can’t be honest about your financial situation do you want to be hanging around these people?

Focus on you and if these people can’t (or won’t) accept you for who you are then cut them out of your life and find people who do like and appreciate you (and your financial situation) for who you are. Don’t be someone you aren’t, live your life on your terms and only compete with yourself. 

As we touched on in the previous point, the initial aim after setting up your finance automation is to build up an emergency fund. As per the Money Smart website an emergency fund is money you save to cover urgent or unexpected costs. This could be car repairs, unexpected travel or an urgent medical bill.” 

An initial emergency fund goal can be for 3 months of your basic lifestyle expenses. Once you’ve got your automation system humming and earning a surplus each month you can eventually build this emergency fund up to 12 months worth of lifestyle expenses.  

Again, having access to cash gives you a lot of options and having a nice emergency fund also gives peace of mind.

7. Set time aside time every month to check in with your finances

Once you’ve got your automation working well, have one day per month where you have an in depth review of this as well as reviewing your financial goals and plans. This can also be a good time to review your investments as well as doing due diligence on any potential future investments. 

Use this time to investigate other options to better your financial situation such as better bank or credit card loyalty/rewards programs (if credit card use is applicable). This could also be a good time to use to build up your investment knowledge and ideas, something we touch on a little later in this article. 

8. Be wary of debt, avoid private debt where possible and definitely no long term credit card debt

Excess debt (and the corresponding interest payments is probably the biggest killer of most people’s financial plans and severely impedes a person’s ability to grow their financial situation. 

A recent article on The Hill discussed credit card debt and noted “Multiple polls show American consumers sinking deeper and deeper into credit-card debt. A new survey from Bankrate, the consumer finance company, found that 46 percent of card holders carrying credit-card balances from month to month up from 39 percent a year ago.” 

According to the same article “Card balances are rising at a time when consumers may find it harder than ever to pay them down. Credit-card interest rates hit 20 percent in late 2022, according to the Federal Reserve, the highest level in nearly 30 years of tracking.”

20% interest! If you have $50,000 of credit card debt, at 20% that’s an annual interest payment of $10,000! No wonder people are struggling to survive with this recent cost of living crisis! 

Unless you are diligent with your finances and always clear any credit card debt at the end of the month or cycle, stay away from these. Build solid savings habits by sticking to your budget, automating your finances and using cash or a debit card for any bills or expenses that can’t be automated. 

The same can be said for personal loans or loans linked to cars, computers and appliances or even leases. Again in the right circumstances car loans and leases can be useful however where possible pay cash for purchases and if you do need to borrow for a large purchase such as a car then get the best deal you can and try to pay this off as soon as you can. 

Now not all debt is “bad” or “evil”.  Investment debt or “tax deductible” debt can be very useful when used correctly. When used to purchase investments that will grow your financial situation, tax deductible debt is a great tool to implement. Debt to purchase a property to live in is also beneficial providing you aren’t borrowing too much and that the property is a good investment in a good area and will appreciate in value. 

As we’ll touch on a bit later in this article, when borrowing to invest (and with any investment) make sure you do extensive due diligence with any potential investment, make sure your financial situation is on track and won’t be significantly affected if this investment doesn’t work out.  

As the saying goes, cash is king and having cash gives you options so where possible avoid taking on personal debt and only take on investment debt in the right scenario. 

9. Invest a good portion of your surplus/savings and invest regularly

Once you’ve automated your personal finances, allocated any surplus to a high interest savings account and have built up your emergency fund, now it’s time to look to allocate some of these savings to investments. 

For most people their goal is financial independence (using investment income to cover all living expenses) and getting to this level will involve building quality investments that produce income to replace that of your current job. 

So where do you start? For most people it’s usually in an area that they have some investment experience with and this usually comes down to property or shares. That’s not necessarily a bad thing however don’t neglect other investment opportunities just because your knowledge in that area isn’t huge. 

When looking at investments, do a lot of due diligence and if you are just starting then start small. Don’t be afraid to reach out to successful investors in this area and try and pick their brains for investment tips that you can take on board. Invest for the long term, make sure each investment is a stand alone investment and if it doesn’t perform won’t significantly affect your portfolio nor should it force you to sell an investment at an inopportune time. 

Look to build up a network of experts for your investments. This could be real estate agents, advisers, brokers, lawyers and accountants, the bigger your investment portfolio the bigger your network should be. 

Also look for diversification for your investments following the old adage of “not putting all your eggs in one basket”. If one sector of your investments is underperforming this could be offset by good performance of another investment you have in another sector. 

10. Keep learning and improving your financial knowledge

The further along you get in your investment journey, the more knowledge you should be absorbing and looking to pick up. Look at famous investors such as Warren Buffett and see if there are any strategies, tips or habits that you can pick up and use in your financial situation. 

There may also be investment courses that you can enroll in, either online or in person that will hopefully provide some investment tips or ideas that you can use for your situation. Learn to read or understand balance sheets or profit and loss statements and understand how non traditional investments such as fixed interest bonds or commodities work. 

Don’t just limit yourself to shares or property. There could be small business opportunities that could offer a rate of return better than property or shares and this could include investing in online businesses or websites. 

Whatever your investment preferences, have an open mind as to what you can invest in and expand your investment horizons with continual improvement of your knowledge. 

Taking up most or all of the above habits will put you in good stead to hit your financial goals. There may also be some other habits not on this list that you believe will help you on your financial journey and if they work, keep following them. Remember that everyone is on their own financial journey and your pace is your pace. If you are later to this than others, don’t be put off, continually put in the work and keep believing in yourself.