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6 Financial Habits to Take Control of Your Money

Money can be a big cause of stress (Or maybe I should say a lack of money is the real cause of stress).  We’ve just come through some tough times both from an economic standpoint and a market perspective.  Debt levels continue to grow to record levels.  Unemployment rates are higher.  If you are looking to improve your financial life, what kinds of things can you do?

Short-term goals versus long-term habits

It’s that time of year when people make new years resolutions.  For a lot of people, resolutions are nothing more than short-term goals.  There’s nothing wrong with short-term goals but far too often resolutions are too temporary in nature.  We often see this in the health industry, where there is no shortage of ‘diets’ to help people lose weight.  The problem is that although many people can lose weight on diets, the weight loss is often not sustainable over the long term.  The only way to sustain weight loss over the long term is to change your lifestyle and develop good long-term healthy habits of eating right and exercising regularly.

Financial success is no different.  You can have short-term successes but unless you change your bad financial habits for good ones, those successes are often temporary.  For example, I’ve seen people’s credit card balance ‘yo-yo’ just like people’s weight.  They get focused “for a while” on paying down debts they should not have had in the first place, only to find that they ramp up spending and get into debt trouble again somewhere down the road.  Real success comes from changing your lifestyle or your habits of spending so that you do not fall into old patterns again.  Long-term success comes from permanently changing long-term habits.

Take control of your money

One of my popular workshops called “Take Control of Your Money” focuses on helping people develop good healthy financial habits.  For those of you who want to improve your finances but are not sure where to start, here are a few key habits that will put you on the path to financial freedom.

  1. Know your worth. If you don’t know how much you are worth, then how can you possibly know if you are moving in the right direction?  Develop a regular habit (at least once per year) of putting together your net worth statement.
  2. Manage your debt. Debt is a big cause of financial stress.  When debt becomes unmanageable, stress increases exponentially and affects all aspect of your life.  Manage your debt and you manage your stress.  Know the difference between good debt, bad debt and no debt.
  3. Live within your means. Because of access to debt, it is so easy to live beyond your means.  There is no magic pill in personal finance.  You can only spend what you make.  If you continue to spend more, you will be in trouble.  We live in a society that loves to spend. We live in a world of delayed consequence over delayed gratification and many are facing those consequences today.
  4. Know where your money is invested. I run into too many people that have no clue what they are invested in.  Many have financial advisors that look after their investments.  I don’t care if you have an advisor or not.  You have to know what you are invested in.  Managing your assets and your wealth is a big part of financial success.  Take some time to review your statements and learn about your investments.  Nobody cares about your money more than you!
  5. Peace of mind with three financial documents. Insurance is not the only way to protect your financial affairs.  It’s also important to review your will, power of attorney and personal directives.  These are three legal documents you cannot go without!   Together, they form the foundation of estate planning.
  6. Protect your financial life with insurance. Review your insurance and make sure you have protected yourself against certain risks.  Review your life insurance, disability insurance and other types of insurance coverage.

This list can create opportunities for anyone looking to improve their financial situation and may not know where to start.  Financial resolutions create the opportunity for change.  That change can be temporary or permanent.  Whatever your resolutions are, my hope is that the New Year helps you start the process of developing great long-term habits towards true financial independence.  Happy New Year and Good Luck!

Comments

  1. GetSmarterAboutMoney.ca

    Great post Jim! To build on your tips, there’s a great primer from Investor Education Fund (IEF) that explains how to take control of your money through creating financial goals to saving and investing.

    http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/brochures/Pages/default.aspx

    • WealthWebGuru

      Get Smarter about Money is a fantastic primer. Thanks for sharing that with everyone.
      Jim

  2. Richard Stooker

    Hi, Jim,

    Lots of good advice, and I’d like to make a few adjustments.

    1. Don’t care about what you’re “worth.” This puts a focus on assets. Put your focus on income. Seek to maximize THAT instead.

    Of course this goes for job and career.

    But it also goes for investing. Buy up assets that produce income — money market account for an emergency fund, bonds for interest and stocks for dividends.

    The higher your income from investing, the closer you are to true financial freedom.

    Today’s market value of your financial securities will change tomorrow. That’s not important. The income they generate can be used to live well in old age or (if you’re not retired yet) to reinvest to buy yet more income producing assets, thus compounding your portfolio without additional effort.

    If an asset isn’t generating income, it’s useless except for gathering dust.

    2. Don’t “manage” debt — pay it off. All personal debt is “bad,” in my book, even mortgages, though I don’t advise paying one off with your last dime.

    4. Don’t just know where your money is invested, make sure it’s in a diversified portfolio of income producing assets, so it will continue to grow even when the market goes down. What good is knowing you’ve made lousy investments if you do nothing about it?

    • WealthWebGuru

      Hey Richard, thanks for the detailed comment. I like the way you think. I also like income but I dont want people to ignore the net worth statement because thats where you put good assets that appreciate in value that do not necessarily produce income now.

      The term appreciating asset is still important (even if it does not produce income) because too many people put their money in things that depreciate and things that have no value.

      It’s important to know your worth just as important as it is to know your income and cashflow!

  3. Lainey

    This is really good advice. We need to break it down into manageable parts. Living within your means is a huge one, that in my opinion not a lot of people do.

    • WealthWebGuru

      You can’t go wrong with the advice “Live Within Your Means!”
      Thanks for the comment!

  4. krantcents

    Good ideas! Short term goals should be part of long term goals. For example, being conscious of what you spend helps you meet the long term goal of controlling your expenses and reducing debt.

    • WealthWebGuru

      I agree krantcents. If your short term goals can lead you to long term habits, you can’t help but become successful!
      Thanks for your cents!

  5. Barb Friedberg

    You targeted succinctly some key ways to achieve financial peace of mind. I believe net worth is a strong component of serenity. When you have the knowledge that a big bill will not push you over the edge, then your financial anxiety is diminished. This one’s going in my round up tomorrow.

    • WealthWebGuru

      Well said Barb! And thanks for including this in your round up!
      Jim

  6. LoveBeingRetired

    Thank you for the helpful points. A fellow blogger has a good way of looking at it – “live BENEATH your means”. In other words, have something left over at the end of the month. What a great way to think about how to budget and spend.

  7. Making Money Make Cents

    I was planning on saying that these are great tips and I read over the comments first – these are great tips and I LOVE the “live beneath you means” tip from LoveBeingRetired! It sounds so simple and obvious but something I never thought about in that way.

    Shawna @ Making Money Make Cents

  8. Anna

    I think that these comments are spot on. However, for someone already deep in debt, the manage your debt and live within your means tips may simply be, well, not that simple…For many canadians, credit has unfortunately become another source of ‘income’ using credit to pay bills. This practice is the easiest and quickest way for your debt to spiral out of control. Here is a great article about some warning signs that you’re own your way to financial disaster. If you fit into one of these categories, it may be time to take a closer look at tips 2 and 3…once you have your debt under control, the rest of your financial life will begin to fall into place.

  9. Janice

    It’s really hard to change your lifestyle, the adjustments was enough to give me mood swings. There are times that I go back to my old ways and then try to change it again. It was the hardest battle I fought. What I did? I armed my self with self-control. That is the secret of millionaire mind, if you’re really willing to change your bad habits then you will but it will be a rough road.

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