Financial education is non-existent in American schools. I remember learning how to write a check and balance a checkbook in Home Ec, but there were no courses about mortgages, budgeting, taxes, or living within my means. Not at school, anyway.
My parents taught me about being frugal. There weren’t any overt lessons, just leading by example in their daily lives. They didn’t do anything extravagant—no big vacations, no fancy clothes, no new cars. In fact, my dad drove the same car throughout my entire childhood. He bought it brand new two years before I was born. I learned to drive on this vehicle, and it had something like 200,000 miles on it when it finally died.
With so little financial education readily available, it’s no surprise that few people know how to manage their finances. So how do some people kill it, while others struggle?
Here are 7 habits of financially successful people.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
The 7 Simple Habits of Financially Successful People
1. They check their statements every month.
Unless you’re completely off the grid, you get statements from your various accounts every month. Whether available online or actual paper statements, you have access to a monthly accounting of what’s going on in your finances. How often do you check them?
My husband starts each day with a quick peek at the statements. Bank, credit cards, stock investments, etc. He tracks everything going into and out of each account, every single day. While this may seem excessive, he feels uncomfortable when he doesn’t do it.
He discovered our credit card number was stolen a few years ago when a weird charge showed up. We were able to shut down that card quickly, before it turned into a big problem.
Keeping tabs on your accounts doesn’t have to be a daily thing. Weekly or even monthly is fine—but many people just don’t even bother to ever check it.
When was the last time you checked your monthly statements?
2. They plan their estate.
Nobody likes to think about dying. Planning your estate can be a depressing task, which makes it extremely easy to put off. Repeatedly. Like, forever.
But without a will, you have no control over what happens to your things. Your house, your car, even custody of your children all becomes subject to the intestacy laws of your state, which may not bear any resemblance to your wishes.
Don’t let this happen to you. Make a will so that your assets go where you want them to go. Even a handwritten holographic will will preserve your intentions.
Include custody directions if you have children or animals. The best course of action is to have a conversation with the person you are giving custody to — you don’t want it to come as a surprise to them.
Be as specific as you want in your will. You earned this wealth. You helped it grow. Direct your heirs on how to handle your possessions, so your legacy can continue.
3. They create (and stick to) a budget.
Financially savvy people have a plan for their money. Dave Ramsey calls it “giving every dollar a name.” You make a plan for how you are going to spend your money each month, rather than just hoping you’ll have enough to pay all the bills.
But say the word “budget,” and people freak out — it sounds like a restriction. Look at your budget as a tool. You don’t have to give up everything simply because you make one. Instead, you are creating a blueprint for how you want to spend your money.
4. They live below their means.
Spending every dime that comes into your pocket is one of the best paths to financial ruin. Having no cushion doesn’t allow you to roll with the punches that may come along. Lose your job or have an unexpected bill, and it could take you months or even years to recover.
Living below your means allows you to save and invest the difference between what you earn and what you spend. If life throws you a curve ball, you won’t get knocked off your feet.
Living below your means doesn’t mean that you are giving up everything fun. By using a budget to plan your spending, you can include money for entertainment, clothing, or even just a miscellaneous category to spend as you see fit.
But instead of spending $500 one month and $700 the next, you plan and stick to your budget, which allows you to save and invest.
5. They pay themselves first.
Paying yourself first means to set aside money to invest or save—BEFORE you spend any other money. All too often, people spend spend spend, then save or invest whatever is left over. If you have no budget, have no idea how you spend your money, and have a fly-by-the-seat-of-your-pants mentality, your leftovers are meager—if anything.
When you are creating that budget, create a line for investing. Make that the first thing you put money into every week or every month. Funnel any unexpected money—like a bonus or a refund—into this category, too.
6. They invest.
Financially intelligent people invest for their future. But say the word “invest,” and people panic.
You don’t have to be able to pick stocks like a pro to invest. In fact, investing heavily in individual stocks is a recipe for disaster.
Having a diversified portfolio is one of the best ways to spread out your risk. Index funds—a collection of funds designed to mimic a specific index—give you broad market exposure. An index fund is a passively managed fund, so the fees are significantly lower than traditional, actively managed mutual funds.
Real estate is another way to diversify your portfolio, and having a passive source of income through rental properties or even REITs (real estate investment trusts) is a great hedge against the ups and downs of the stock market.
Bonds also provide a low-risk investment option, but their return is also lower than what you can find through other investment vehicles.
7. They are money conscious.
I went out to dinner with friends one night. We went for sushi, but I don’t like the idea of eating raw fish. There are a lot of options at a sushi restaurant, and I ended up with cucumber and avocado sushi, which is significantly less expensive than the fancy dragon rolls and rainbow rolls that my dinner companions were eating.
At the end of the night, we split the bill evenly. I didn’t eat nearly the same amount of food, but enjoyed my time with my friends and was OK with splitting the bill evenly amongst all of us. It wasn’t going to break me financially, and it wasn’t something I did frequently.
It wasn’t something I did frequently, but it WAS something they did frequently.
At the time, I was married with no children. Both my husband and I worked and lived frugally, far below our means. But my friends were all single, living alone, and making far less than my husband and me.
They felt they “deserved” these meals out and went out at least once a week to equally lavish restaurants, spending similar amounts on their meal. Every. Single. Week.
They had no concept of their spending. They felt no compulsion to save any amount. They didn’t invest. They weren’t conscious of their spending.
So I didn’t talk to them about it.
Who wants to listen to someone lecturing them about money? They didn’t care about their finances, and me hopping up on a soapbox to try to sway them to my side wasn’t going to have the desired effect.
Being money conscious doesn’t mean you never spend any money. It doesn’t even mean you never spend frivolously. It means you are conscious of your spending, conscious of what things cost, and conscious of how your actions affect your future.
Being financially successful doesn’t mean you give up fun. It means you have a financial plan and you stick to it. You make saving for your future a priority, and you structure your life to reach your goals.
If you aren’t currently financially savvy, start with one of these steps. Then add another when you feel ready. Your very first step, the most difficult thing to grasp, is that you need to make a change.
[Editor’s Note: We are republishing this article to help out our newer members.]
What habits would you add to this list? How do you keep your finances on track?
Leave your comments below!