Self-improvement aimed at becoming a better you usually includes a goal you have in mind, like earning a college degree or losing weight. Achieving that goal takes time, focus and a plan.
The same is true of creating financial stability and freedom. Like a map that helps you get to a physical destination, an action plan lays out a route to follow. To arrive at your financial destination more effectively and efficiently, you’ll want to look at you what you do regularly (your habits).
Here are a few fundamental habits that can help you reach your biggest financial goals more quickly, and some you could eliminate to avoid speed bumps or roadblocks.
Good financial habits:
Spend wisely. This is much easier to do when you create a budget and stick to it. Monitoring your spending habits — think daily, weekly, monthly and periodic spending — goes a long way toward helping you achieve your financial goals.
Think about ratios. It’s important to live within your means, inclusive of all your expenses. For example, your combined monthly housing costs and personal debt payments (car loan payments, tuition loan repayments and personal loan obligation payments) should not exceed 36 percent or so of your gross monthly income.
Save well. Have an emergency fund of three to six months of non-discretionary expenses to help withstand a sudden financial disruption such as a layoff, an untimely death or a disability. Also consider contributing to investment vehicles that offer tax advantages, and automating your savings process so you don’t forget to do it on your own.
Bad habits to leave behind:
Spending without thinking. Giving in to impulsive wants is not a practical habit that serves your long-term financial goals. Those $15 lunches, weekly movie tickets and monthly concert tickets add up quickly. Less expensive options like bringing your own lunch to work and streaming entertainment services can help you save for something you may genuinely need, such as a new vehicle, or make more funds available for saving and investing.
Racking up credit card debt. The first step in eliminating credit card debt is to cut up your card. It’s simple: If the expenditure isn’t in the budget, and you don’t have the cash to cover it, don’t spend the money. Then, begin paying off your debt as quickly as you can.
Living in “tomorrowland.” If you think that you’ll start being practical with your spending or saving money tomorrow, or next week, or next month, that time may never come. The best time is now to start engaging in the habits that will serve you and your goals.
Research shows that practicing sound financial habits can positively affect your sense of well-being. According to the latest Morgan Stanley Investor Pulse Poll, the majority of investors say they feel confident about achieving both their short- and long-term goals.
Investors surveyed who reported being happiest overall also say they are less troubled by financial worries than their peers. So, they’re less concerned about having enough money for retirement, encountering unexpected medical expenses, balancing financial risks or maintaining a certain standard of living. Additionally, happy investors tend to practice habits like having a financial plan in place, meeting long- and short-term goals, and talking to significant others about finances.
With intentional focus, willpower and a sound plan, chances are that you, too, can reach your financial goals. Consider finding a qualified financial advisor who can help you identify the positive financial habits that work for you, and will hold you accountable in reaching your goals — one step at a time.
Kristen Fricks-Roman CFP®, CRPS®, is a financial advisor and senior vice president at Morgan Stanley Wealth Management, Atlanta. She can be reached at [email protected].
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor. Morgan Stanley Smith Barney, LLC, member SIPC.
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