Build Smart Money Habits to Beat Debt

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Build Smart Money Habits to Beat Debt

Picture this: You went to college, you got the degree, you landed the job with the office, and things are going pretty well…you’re successfully “adulting.”

As you begin to feel at home in the professional world, (Hello, 401K! How you doin’, title change?) it’s important to check in with your finances. Are you living paycheck to paycheck? Are you funneling money into a savings account and hitting your financial goals? As your career picks up (and hopefully your paycheck does, too) it’s important to make sure that you maintain and solidify smart money habits, stay on top of your bills, and avoid unnecessary debt (we’re looking at you, Alaskan Cruise.)

Here are our 4 top tips to build smart money habits and, in turn, combat debt.

1. Know where you stand

If you’ve browsed our blogs, you know we’re advocates of creating and abiding by a budget, however, you can’t create an accurate budget without first understanding your financial situation. Take an inventory of your finances – both assets (what you own) and liabilities (what you owe) – to determine your net worth.

2. Create a budget

Next, (you guessed it) it’s time to create a budget. Learning to budget is a critical skill that will only help you as you grow your wealth. Now that you’ve taken an inventory of your finances and have a better understanding of where you stand, take a closer look at your month-to-month financial picture.

Start with your income. When taking your income into account, make sure to deduct Social Security, retirement, taxes, etc., so that you have an accurate picture of what your net income actually looks like.

Next, make a list of any fixed expenses (like rent, mortgage payments, and insurance) and variable expenses (like entertainment, food, and gas) to contrast how much money you’re bringing in, versus how much you’re spending.

Now it’s time to think about your financial goals. After your expenses, do you have enough leftover money to meet your goals? Maybe you’re saving up to make a down payment on a house, but you notice that you’re spending an enormous amount of your income on rent. Could you move into a less expensive apartment while you save? Each person’s financial goals are unique to them, so adjusting your budget might require some introspection.

3. Pay yourself first

Piggy-backing off of tip #2, an excellent way to train yourself to adhere to a budget is by “paying yourself first,” which essentially just means taking a set amount or a percentage off the top of each paycheck, putting it into a separate account, and not touching it.

With the remainder of your money, you can spend it as you please…paying bills and rent, buying groceries, subscribing to Netflix, getting a massage…even going on that Alaskan cruise if you can afford it.

When you set aside funds as soon as you receive them, you not only ensure that some money makes its way into your savings account, but you’re also forced to budget with what’s left.

Bonus tip: If you’re working to pay off debt, you can set up a similar system by automatically putting a set amount of each paycheck towards bills.

4. Live within your means

While this might seem obvious, it’s incredible how many people ignore this tip, taking out additional lines of credit to lead lavish lifestyles that might earn them “likes” but will cost them dearly in the long run. In the heyday of social media and over-sharing, it can be easy to feel like you’re the only one who isn’t going on your third international trip of the year, or who doesn’t have a rooftop pool with a skyline view, or even simply who doesn’t go out to a trendy restaurant three nights a week.

But let us fill you in on a little secret. Living above your means will only stunt your growth when it comes to building wealth. Live in the apartment you can afford when you’re 25, and maybe by the time you’re 35, the dream apartment you said no to will actually fit within your budget. Are your credit card bills stacking up? Turn down that destination wedding and put the money you would have spent towards those bills. Smart habits set you up for lifelong success and stability. And who doesn’t want to feel secure in their finances?

At the Humphreys Group, we partner with our clients to help them create the life they want, but we will be the first to tell you that sometimes it takes time and patience to build. Are you ready to grab the hammer and nails? Reach out to our team.