Many of the things we do each day are done out of habit, including the ways we choose to spend our money. And just like bad spending habits can get you into financial trouble, healthy financial habits can help you spend more wisely and save enough to reach your financial goals.
Here are four healthy financial habits you can start implementing immediately in the new year to help you spend more wisely, save for unexpected expenses, and invest for your future.
1. Reduce emotional spending
Especially during stressful times, it can be tempting to find joy in buying new things or spending money on fun experiences. Too much of this emotional spending can derail your budget and therefore create a larger problem.
The good news is there are a few habits you can implement to reduce emotional spending:
- Set a discretionary spending allowance. If your budget allows, set an amount to spend either weekly or monthly on items and experiences you don’t necessarily need but would enjoy. Setting a specific limit helps prevent you from going overboard.
- Shop with a list. Wandering aimlessly through aisles of a store can lead to buying items you don’t really need. Avoid this by creating a list ahead of any shopping trip and stick to buying only those items – unless additional items are being counted towards your discretionary spending allowance.
- Institute a “cool-off” spending period. If you find yourself exceeding your discretionary spending allowance during a period of time – during a vacation, the holidays, or while moving, for example – institute a “cool-off” period after those splurges during which you cut all discretionary spending and focus instead on saving.
2. Regularly review transactions and eliminate unnecessary expenses
Remember that “free trial” you signed up for months ago and forgot about? Charges for the service are probably showing up on your monthly bank statements. And you’re not alone. In 2022, the average monthly subscription spending was $219, more than 2.5 times what consumers thought they were paying. Take some time each month to review your account statements and transactions, which will help you identify subscriptions you don’t use or need, as well as other expenses that could have been avoided, such as overdraft or late fees.
3. Sell belongings you no longer need
We’re all guilty of accumulating belongings we no longer use, whether it be toys and clothing children have outgrown, tools used for an old renovation, or sporting goods from old hobbies. Like canceling unused subscriptions, selling belongings you no longer need can free up more space in your budget, and you won’t even miss having them! And with online marketplaces, consumer-to-consumer sales are easier than ever. Or you can go always old school and have a yard sale.
4. Pay yourself first using automated savings
An easy way to save a portion of your income for specific goals, such as buying a car or paying for a child’s college tuition, is to automate a monthly transfer from your checking account. You can set this transfer to occur right around or after the time you expect your paycheck to settle on your account; that way, before you spend it on anything else, you’ve set aside a portion for savings – effectively paying yourself first!
No matter where you are in your financial journey, there’s almost always room for improvement. Right now at the beginning of a new year, is the perfect time to start these healthy financial habits. While you’re working on improving your finances, don’t forget to occasionally review your financial goals, which could include paying off debt, saving enough for a down payment, buying a new car, or paying for college tuition. Reviewing your progress on your goals can motivate you to continue implementing healthy financial habits all year long.