subject: Good Money Habits [print this page] Good Money Habits Good Money Habits
Building good money habit a step towards financial freedom
Year 2010 is coming to an end soon, are you ready to welcome a new exciting year 2011? The beginning of any new year is always a good time to reflect on what you have done for the past one year, especially the poor, long lasting financial habits and make some new resolutions. Let me share with you some of them.
1. Paying yourself first
An associated habit to budgeting is to adopt a disciplined approach to saving.
Every month after you have got your salary, you should allocate a certain percentage of your income to savings, insurance and investments to create or accumulate wealth, before paying for your other expenses (also known as "Guilt free shopping"). Increase this portion of slice when your income goes up upon pay increments or annual bonuses.
In order to increase the slice of saving, you should learn how to cut and control on your daily spending, for example to avoid impulse buying, dine out less, looking out for the best deals and whatever you can think of.
2. Manage your debts
It is always advisable to avoid using credit (especially instalment plan, which 0% interest is quite tempting) to pay for your expenses because it can easily get out of hand if not properly managed. Use cash instead, you will discover that you tend to spend less if using cash because of the physiological mentality.
Debt payments are the expenses that you need to pay on a monthly basis, such as your mortgage, car loans, personal loans or even credit card debts. You should always try to reduce on these debts and have a healthy debt servicing ratio (being derived from debt divided by income which should be 35% or less)
3. Leverage on the expertise of financial professional
You might want to find a competent financial professional that you can put in your trust and most importantly is you are comfortable. Work out a financial plan with this financial professional to have a good glimpse of your Net worth, Assets and Liabilities. Set realistic goals to improve and maintain your Net worth.
4. Invest in your future
Do not delay on planning for your retirement, you are never too young. If you start to invest young, you will have a longer investment horizon and thus has to set aside a lesser regular amount to reach the same target retirement goal as compared to someone much older. For those who procrastinate, they will tend to panic when reaching nearer to their retirement age and the most likely outcome is that they have to continue to work through their golden year. Do you want to be the earlier or later? The choice is yours.
5. Building up your emergency fund
You should build up your contingency fund to a level you are comfortable with in case of any rainy days, which you will not be caught unaware. The recommended cushion will be ranged from 3 to 6 months of your salary.
All of us can break free and enjoy a good financial life if you desire to. You just need to put in effort in developing and exercising good financial habits. Once you are in control over your finances, you will reap the rewards offinancial freedom.
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