The 9 Savvy Money Habits
By Melissa Tosetti
Success lies in good habits. If something is a habit, it’s routine and the repeat of that routine builds to success.
Over the years of working with clients to help them turn their day-to-day financial situation around, we’ve identified nine habits that are key to start living and sustaining a Savvy lifestyle.
While the majority of the habits you may be familiar with, in our work with clients we focus on how to actually put those habits into play. Knowledge is one thing, but acting on that knowledge is the key to achieving your goals.
The habits are:
1. Pay Yourself First
This is simply the habit of putting money toward your savings goals before spending a dime of it on anything else, including bills. A few examples of those savings vehicles are your 401k, an Emergency Fund or both, depending on your goals. It’s easy to implement this habit thanks to auto deductions and transfers.
2. Track Your Spending
Of all the habits, this is one of the most challenging to encourage clients to implement, which is understandable. It’s like counting calories. Most of us don’t want to know how much we consume and it takes effort. However, this is the number one tool for getting your arms wrapped around your finances. Funny thing – the clients who have resisted this habit the most are the ones that became the biggest advocates of it! I’ve come to the conclusion it’s because it’s the first time in their lives they feel in control of their money because of the awareness tracking gives them.
3. Set Financial Goals
There are things we may really want to do in the short and long term, but without defining those things and creating a deadline for them, the likelihood of achieving them diminishes. A goal without a deadline is just a wish.
4. Create a Spending Plan
Whether you call it a budget or a spending plan, creating a map for where you want your money to go is critical to funding the life you want to live.
5. Resist Gold Fish Syndrome
Goldfish Syndrome is the habit of increasing your cost of living with each pay raise. It has a tendency to happen without us even realizing it and is one of the reasons people making six figures or more and 10 years into their careers still live paycheck to paycheck.
6. Implement The 50/50 Rule
The way to resist Gold Fish Syndrome is to Implement the 50/50 Rule which is… as you receive pay raises, bonuses and other types of windfalls, take 50% of that money and put it to your retirement/wealth building accounts. The other 50% is yours to spend on whatever you please with one hard fast rule – you cannot spend it on anything that will create a bill. The goal is to increase your income as your cost of living stabilizes, if not actually decreases.
7. Pay Your Bills on Payday
Before spending a dime on anything else, sit down and pay your bills. If you’re living a little close to the edge, the next step of this habit is to then go to the store and purchase your groceries and then fill your car with gas or purchase your transit pass if it’s time. Because you’re already implementing Savvy Habit #1 and paying yourself first you’re saving money. You’ve also taken care of your financial obligations that are your bills as well as your financial needs in the form of food and transportation. Now you know how much money you have to spend on the things you want.
8. Know When to Invest and When to Bargain Shop
We have a tendency to spend money on autopilot and not think through our purchasing decisions. This habit is about becoming conscious of what it is you’re purchasing and thinking through how you’re going to use the item. For example, if you’re trying to be extra careful about your money, it’s possible that you automatically reach for the cheapest item whether it’s of the quality you really need or the color you really want. Unfortunately, cheaper quality items may not last as long as you need or if it’s in a color you don’t want, your satisfaction with it may be low. Be willing to think through each of your purchases so you can decide if you should invest or bargain shop.
9. Spend Money On The Things You Want
Right now, you may be thinking, well of course I spend money on the things I want. But, if you struggle getting through a store and sticking to your list, those weren’t things you walked into that store to buy – things you wanted. Those were things that distracted you. We are surrounded by our spending decisions. They define what we wear, what we bring into our home, what we eat and more. Be purposeful in those decisions so you can build the life you want.
Melissa Tosetti is a cash flow planning expert, founder of The Savvy Life and author of the international bestseller Living The Savvy Life.
For the past eight years, she’s worked with over 625 individuals and families to create Spending Plans.
To learn about the Spending Plan process, visit The Savvy Life’s Home Page. If you’d like to learn about how The Savvy Life works with financial advisors and their clients visit: The Savvy Life Advisor’s Page.