Finance habits everyone should know

To enhance your financial wellbeing, there are key measures to be taken, these steps are tailored toward making better financial resources available to execute future projects. There are about 50 personal finance habits, some of which are enumerated below.

 Spending less than you earn every month

Spending less than you earn is one of the most important financial concepts to understand and live by. If you don’t live on less than you earn, you will never get ahead. Spending less than you earn may take some initial life changes, but the longer you do it, the easier it is to continue doing it. To spend less than you earn, you need to:

If you are in debt, set up an emergency fund, then pay it down before sending all your money to investments. Your emergency fund can help keep you out of debt. Reducing your debt will also lower your monthly payments and hopefully increase your monthly cash flow – making it easier to spend less than you earn.

Budget making

Once you know where your money is going, you can make a budget. You should have a good idea of your recurring expenses and a decent idea of how much money you spend on variable costs such as gas, groceries, travel, entertainment, etc. Use your budget as a guide to control your spending. As you refine your budget, you should be able to free up some cash flow every month. If not, you will need to make extra money.

Ryan Guina in his Money Management piece titled “Spending less than you earn is the key to building wealth”

Some people have habits of spending lavishly on material and immaterial things, which leaves them empty shortly after receiving their salary. Also some entrepreneurs after paying themselves from their income, lavish such funds, hoping to either dip into the working capital or the next month’s pay.

However, some people have the good personal finance habits too, which ensures that not all or more of what is earned every month is spent.

Avoid impulsive buying

One of the best ways to help prevent this is to make a shopping list and then stick to it.

Shop Owners try to ambush consumers into varieties of products that you believe it was deducted a lot from its original price. What you need to do when you see this ‘lovely’ sales is to think, is it really that low-priced? So think again because even though you might get a half-priced bargain; it will still be costly. Even though it is illegal, people to still trap consumers by this illegal proposition.

 Faithfully following your budget: It’s one thing to create a budget, but if you don’t have the discipline to put it into action, why bother?

Avoiding the use of payday loans to cover temporary financial shortfalls

Eliminate monthly shortfalls by following a budget and maintaining an emergency fund.

Payday lenders typically offer 28-day loans at annualised percentage rates topping 4,000 per cent. Applications are generally quick and simple with money often handed over the same day. However, payday lenders argue that because the loans are designed to be repaid quickly.

Resisting the urge accumulate bills, credit before payday

Many people have developed the habit of accumulating huge bills before the pay day, which mean that as soon that the monthly pay arrives, it may not even cover outstanding bills.

If you have bad credit, a lender who doesn’t do credit checks may be appealing, but this type of loan usually has high interest and hefty fees. Be prepared to spend much more than the initial loan amount on repayments, otherwise, it’s best not to borrow the money in the first place. Today, faster bank processing makes this practice much more risky than it used to be.

Properly maintaining your car

By following your car’s maintenance schedule and paying a little up front, one will end up reducing the risk of encountering more costly major issues down the road.

Failing to service your vehicle each year to save a few pounds really is a false economy. Regular servicing can help to identify issues early on that could later become costly and expensive to rectify.

Take engine oil for example, it’s needed to lubricate and protect the moving parts inside your engine. Without it, your engine could seize up costing thousands to repair or replace. All service schedules include checking the engine oil and, if needed, replacing this with fresh oil specifically designed for cars to keep your engine running smoothly.

Regular servicing can also save motorists money at the petrol pump. New oil and air filters make for a smoother running engine and a more fuel efficient car, while addressing issues such as under inflated tyres will reduce rolling resistance and improve fuel consumption.

Furthermore, not servicing your car timely increases your chances of suffering a breakdown – which is both costly and inconvenient if you subsequently become reliant on hire cars or public transport whilst your vehicle is fixed.

Buying a new car — or better yet, a newer used car — and keeping it for at least ten years Buying new cars is costly because they can lose upwards of half their value by the time they are three years old.

Philip Reed in his piece “compare he cost of buying a new car and used car” counselled that while buying new car is enticing, one should take a cold, hard look at how much to be saved over time by buying used car instead.

According to Reed, the average person in US, owns 13 cars in a lifetime, each costing an average of $30,000, according to a report by the National Automobile Dealers Association. If each of those cars was 3 years old, instead of new, you could save nearly $130,000 during your lifetime.

Reel said that “The real money-saver in buying a used car is wrapped up in a sinister-sounding financial word: depreciation”

 Regularly checking your credit report and account statements

Constantly checking credit report, bank deductions for errors, and signs of fraud will help to identify theft and fraudulent deductions. You’re entitled to a monthly account statements from your, for properly planning, you need to read your account statements and report of any unauthorized deductions and charges you did not sign for.

 Treating your household like a business

By taking an active role in managing your finances — and looking at ways to maximize your income, you will ensure a brighter financial future for you and your family.

 Ted Jenkins in his comment on “how to run your family like a business” published by Wall Street journal said that “Whether or not you accept the role, you are the CEO of your family finances”

According to him, many seasoned managers and vice presidents do an excellent job at work managing the profit and loss (P&L) for their divisions. However, most don’t apply the astute management techniques they learn at work to their family finances.

Why not?  The fact, according to Jenkins, is that even if you have a college degree or an M.B.A., nobody ever really teaches a personal-finance course on how to run your family finances like a business.

 The two metrics that most business owners review in their business are the income statement (P&L) and the balance sheet.

He said that running the family income statement or P&L statement, efficiently to maximize your cash flow is Part I.  The cash flow then drives the balance sheet or net worth, which is Part 2.  Net worth is what will ultimately create your overall family financial security.

The balance sheet is simply everything you own vs. everything you owe–or what some people call your net worth.  This includes assets like real estate, collectibles, furnishings, and all of your liquid cash/investment assets. You subtract all of your liabilities including mortgages, student loans, automobile debt, and any other consumer debt to figure out what your net worth is today.

He pointed that the P&L is essentially everything you bring in from both waged income and passive income, and subtracting everything you spend to see if you have free cash flow to save.

Bonny Amadi