Guest Contributor, Tina Roth
Developing ‘good habits’ has become an industry. From Charles Duhigg of The Power of Habit to Gretchen Rubin’s, Better Than Before: What I Learned About Making and Breaking Habits–to Sleep More, Quit Sugar, Procrastinate Less, and Generally Build a Happier Life, creating good habits is important across the spectrum or our lives. This article will show you how to be financially successful with a few good financial habits. Simple financial success is not rocket science. Start early, start small and with practice you can learn how to become financially successful.
Financial Success Definition
Simple financial success is defined as the achievement of your personal finance goals. There’s a reason that they’re called “personal” finance goals, and that’s because they’re defined by you, not by society.
The key to financial success is not reaching some arbitrary goal like achieve 1 net worth of $5,000,000 and retire by 40. That might in fact be your definition of financial success, but more than likely it’s not.
Most people don’t want to retire at 40. After all, what would you do for the next 45 years of your life?
Financial success for one person might be to own a home, have a $15,000 bank account balance, and a good job, another might strive for financial independence at age 50.
Before you can take the steps to financial freedom, you must take a minute and figure out what is financial success, for you.
What Does Monetary Success Mean for You?
Research shows that after you earn a certain amount of money, your happiness doesn’t increase much. So, realistically, you can have money and success without a boatload of cash. In fact, financial success is more about intangibles than it is a huge net worth.
Money Success and You
Simple financial success means a secure tomorrow. Financial success means that you have enough money to cover your basic living expenses and a few extras for a satisfying life today and tomorrow. The dollar amount will vary based on where you live and your lifestyle.
After you craft your priorities and picture of financial success, then you can develop sound financial habits. In fact, the steps to financial freedom are merely habits strung together over a period of time that will lead to your goal.
Financial success means that you have the basic necessities. This includes a home, transportation, food, and some extras. Again, depending on your lifestyle, financial success doesn’t need to cost a lot.
Financial success means that you have time to do what matters. No matter how much money you have, if you don’t have the time to enjoy life, then you can’t really enjoy financial success.
In order to craft your financial success with sound habits, you need to set your personal financial goals. Whether that includes buying a house or investing in real estate, writing down your goals, is the first step towards achieving them.
What are Financial Success Habits?
We don’t make our habits. Our habits make us. Getting rid of habits is a herculean task, or maybe it’s even more difficult because Hercules fought with external forces but the ‘habit fight’ is with yourself. Habits to help you achieve financial success and ultimately financial freedom are no more difficult than habits that lead you down the path of ruin.
Good financial habits are simply a string of wise money decisions added together and repeated.
If achieving financial freedom is your objective, then winning the fight is not an option. You must strangle the bad financial habits, the ones that make you spend extra, and replace them with good habits to help you obtain financial freedom.
How to win the fight and achieve financial freedom and success?
My advice is to create and practice good simple financial habits. I know the good and bad binary is a reductionist idea. But I have tried this myself and it worked. It can work for you too. Below, are the good habits that can build your financial discipline, success, and possibly lead to financial freedom.
5 Keys to Simple Financial Success
1. Earn More, Spend Less
Decide on a proportion of spending, saving, and investing. For example, if you are making $4,000 a month, don’t spend more than $2,000. Save and invest the rest.
Your friends might call you stingy, but who cares. Many people whose life stories resemble the rags-to-riches-esque fairy tales said they got habituated with the penniless lifestyle and continued to live frugally even after becoming millionaires. They were wise. They had the realization that to build a high net worth, the best strategy is to earn more and spend less.
The less you want, the happier you’ll be with what you have.
In the book, The Millionaire Next Door, Thomas J. Stanley and William D. Danko found that the majority of millionaires were indistinguishable from their less affluent neighbors. The reason, they lived simply and continued to earn more and more, while keeping spending in check.
Earning more and spending the same amount is one of the key drivers of monetary success. Learn tips to increase your income to help reach your long term goals.
Financial discipline requires good money habits and hard work. While bad financial habits, like spending extravagantly, will reduce the likelihood of financial success.
2. Don’t Wait to Invest
And let your hair become grey. Invest when you are young. You have an entire life ahead of you. Even if you fail, you can still get up and invest again. In the strong likelihood that you will succeed, you won’t have to look back.
Although, investment involves risk, not investing when you’re young is riskier. Loosing those early years in which your money has the time to grow and compound is the riskiest path of all. The younger you are, the more time your money has to make up any early losses. Investors who’ve stayed in the market through ups and downs and not pulled their money out, haven’t lost investment dollars during any 20 year period.
The easiest ways to start investing are to participate in your 401k plan at work. Have as much as you can transferred from your paycheck into tor 401k or Roth 401k and strive to save the maximum allowed by law. The maximum allowed by law in 2021 is $19,500. If that’s not possible, set it as a goal and save as much as you can. Many employers even match your contributions, so that’s “free money”.
As you age, you have families to look after and growing financial obligations. Getting started early gets you in the habit of putting yourself and your financial future first.
By starting earlier, you can invest less to build significant wealth.
M1 Finance is one of our favorite platforms for new investors. M1 offers zero minimums, pre-made portfolios, and stock and fund trading. As an added bonus, the company manages your investments, for free.
3. Love Your Job
When passion and profession go hand in hand, attaining success becomes easy. Loving your job may not be easy for you but when you love doing what you are doing, you step onto the first stair of financial success. You take the work seriously, face minimal work pressure, and don’t complain about being neck-deep in work.
In short, you dedicate more time to your work. It may not lead to earning money instantaneously, but you develop skill and over the time, you become good at what you are doing. This leads to financial success. You don’t have to be an investment banker or a rocket scientist. Whatever you are doing, make sure you love doing it.
Why not create a money-making side hustle as well? Many individuals who have reached their money goals, have done so with multiple streams of income. With apps like upwork, task rabbit, and Uber it’s easy to latch on to a platform and sell your skills. Use that extra cash to make your financial success goals arrive faster.
Easiest side gig ever – sign up for InBox Dollars.
4. Budget and Manage Money Right
Saving money is the prerequisite to financial success. True, a few lucky people realize overnight success, but the percentage of such people is so small that they need not be considered. An average person cannot be financially free if she doesn’t make a budget.
For the simplest budget, and my favorite is to automate your saving and investing. That means have your investing automatically transferred from your paycheck into your 401(k), investment account and/or IRA. Have a bit transferred into an emergency savings account.
Then, spend what’s left!
Or, you can keep track of income and spending and even use an investing and budgeting app to make things easier.
Budgeting is especially important when you are in your 30s and 40s. If you start stashing money away earlier, you’ll need fewer actual dollars to realize your retirement dreams. Unless there’s a system preventing the cash outflow, your financial situation can never be better. Budgeting is a part of money management.
To turn money management into a habit, track all your spending. Use your online resources and best financial planning apps to save money. When you make a budget, cover your needs first; saving, investing, rent, food and the necessities. Your wants and desires come last.
Quicken offers various levels of service and a 10% discount for new subscribers. Barb has used Quicken for decades.
5. Avoid Borrowing Money
Sometimes, a debt is unavoidable. A student loan qualifies as the type of debt that may be necessary. In many cases, if you don’t take out a student loan, you won’t be able to continue your studies. But not all debts are like this. Credit card debts are almost always unnecessary.
In fact, you can live debt free. You’ll find that most individuals who have built up long term wealth, lack significant debt.
There’s a remedy that you can follow in order to stop credit card debt. The remedy is spending only 10% of the credit limit. If your credit limit is $5,000, don’t spend more than $500. Make this a habit. It might be difficult if you are a shopaholic, but with time, you’ll get accustomed to it.
And pay off your credit card bill in full every month! If you can’t afford to pay for something, then in most cases, you don’t really need it.
If you have an auto loan, pay it down as quickly as possible. If you haven’t started paying off your debts, now is the time to begin.
While paying off debt, it sometimes makes sense to consolidate the debt and lower your interest rate. Just make sure to continue to payoff the debt as quickly as possible.
Now is a perfect time to ask yourself, which path you want to follow: Keep up with the Jones or live your dreams? You can’t do both!
Practice these money habits to attain financial success. Although it’s not easy to start, the results will spur you on to greater money success.
Money Can’t Buy Happiness, But….
Written by, Tina Roth from Pro Finance Blog
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t personally believe is valuable.