25 Good Financial Habits for Budgeting, Saving, and Building Wealth

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If you want to achieve financial freedom and security, you need to learn good money management skills, and that’s not possible if you don’t form some healthy financial habits to begin with. When it comes to personal finance, every decision you make, reinforces a financial habit. Your financial stability depends on whether those habits are good or bad. Habits can form without a person intending to develop them, but they can also be deliberately cultivated or eliminated — to better suit one’s personal goals. In this article, I’m going to cover 25 good financial habits that will help you improve your finances and build wealth.

25 Good Financial Habits to Improve Your Finances:

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1. Live well below your means

This one is the most important of all good financial habits. In fact, you can’t save money and build wealth until and unless you come to the point where you can live beneath your means. Living below your means is a pretty straight-forward concept: if you want to save money, you can’t spend it all.

Even though it’s a pretty simple concept, so many people fail to carry it out. Why? The answer is just as simple – impatience and envy. Don’t try to impress the wrong crowd. Don’t spend your hard-earned money trying to keep up with the Joneses’. Most of them are in debt up to their eyeballs and financially broke, and you sure don’t want that.

“There is no dignity quite so impressive, and no independence quite so important as living within your means.” ~ Calvin Coolidge

Living below your means is a badge of honor and humility. Wear it proudly by making it a habit. Financial stress comes about when your lifestyle doesn’t match up with your income. You begin to finance your expenses using some form of debt, like high-interest credit card, a personal loan, or a home equity line of credit. Some of you might even tap into your long-term savings or retirement funds to pay your current bills.

Without living below your means and without making the most of what you have, you can’t improve your finances. It doesn’t matter how much money you make if you are busy spending it all instead of saving some.

So, be content with what you have, and focus on what is truly important and meaningful in your life. Get rid of the things that neither serve any true purpose nor add value to your life. Be grateful in your current circumstances, but continually strive to make them better.

2. Get rid of debts and stay that way

If you want to save money, improve your finances, and build wealth, you have to make a decision to kick debt to the curb once and for all. Even if you don’t have the extra money to reduce the debt balances faster, you can significantly cut your interest expenses.

Consider options such as refinancing, doing a balance transfer at 0% interest, consolidating your debts, or changing payment plans on student loans to make debt more manageable.

3. Pay yourself first

If you have your financial priorities defined, such as saving for retirement, building emergency fund, saving for your kids’ college education, or buying a home, making your savings automatic can make that happen.

If you plan to save “whatever’s left over” after you spend the rest of your paycheck, you will never put anything away. You should be saving for your financial goals first, paying your bills, and and then consider spending the money you have leftover.

Whether you are building up emergency savings or putting money away for retirement, that money should come out first, ahead of the rest of your spending. So, pay yourself first. Allocate a certain percentage of your income, and set up an automatic transfer on paydays from your checking account to the savings account of your choice, and forget about it.

4. Give yourself a consistent raise each year

Important financial goals are more easily achieved if you can build progress into your savings and investment funding. You can do this gradually by increasing your savings payroll deduction one percentage point per year -whether it is for your retirement or some other long-term investment account.

I have done this with my husband’s company’s 401(k) plan that he participated in. Initially, we started with 6% of my husband’s pay in order to take advantage of the company’s 50% matching contribution. Then, each year, I increased our contribution by 1% until we reached 12% of our income. And now I’m doing the same thing with our IRA as well.

Plan on doing that each year, until you meet the maximum contribution you can afford or are allowed to make.

5. Review your finances on a regular basis

Reviewing your finances at least once in every six months is essential and it’s one of those good financial habits that allows you to track your progress. If you don’t know where you currently stand financially, how will you even make changes to improve your finances or reach your important financial goals?

You need to know – how much money can you spend? How long will it take you to pay down your debt? How much you need to save each month to reach a financial goal or can you even save some money and put that into savings each month?

If you don’t know the exact amount of money you have to work with at any given time, you are making the path to your financial goals much more difficult than it has to be.

6. Track your spending regularly

Many people are deluded into thinking that they are aware of where their money is going. But the reality is often the opposite. That’s why, you need to find out where your money is going, how you are spending your hard-earned money, whether you are over spending, and where you can cut back and save some money to meet your important financial goals to reduce stress. You might need to adjust your spending habits to meet a financial goal such as getting rid of debt, building an emergency fund, or saving for retirement.

By tracking your spending each month, you will be able to identify the areas of excess and save more money. Start tracking your spending now – you may be surprised to find where your money is actually going.

Related post: 20 Silly Things You Are Wasting Money On

7. Create a sustainable budget and stick with it

It is important to not only create a sustainable, realistic budget, but firmly stick to it. This goes a step farther than just tracking your expenses. Instead, you will have to think critically about how you are spending your money, and look for ways to cut corners on your outgoing cash.

A budget helps you hold yourself accountable. Without a budget, even if you have a very good monthly income, instead of saving money, you will most likely overspend and end up being in debt. Because saving money has very little to do with the amount of money you earn. How you manage what goes through your fingers usually makes the difference. It needs you to develop some healthy financial habits. Creating a budget is one of them. Without a budget, you really can’t make your dollars stretch because you might not even know how much money you have to work with!

When you have a realistic budget, it’s easier to track your spending, cut unnecessary expenses, and live within your means. On a budget, you only buy things/services you can afford, and won’t add more to your debt. Start with a daily checkup. Review your budget every day to remind yourself how much money you are allowed to spend in each category. Then, take 30 minutes each week to do a larger budget review where you take the time to look at the big picture of where you’re spending your money, and check to see if you have been sticking to your plan.

8. Build an emergency fund

An emergency fund is a savings account meant to cover unexpected expenses and financial emergencies. Having an emergency fund will reduce your financial stress to a large extent. When you know that you have a cushion to fall back on in case of an emergency, a lot of your stress will go away, you will sleep better at night, and enjoy great peace of mind.

If you want to improve your financial situation, and set yourself up for success, you need an emergency fund big enough to pay at least 3 months of expenses; preferably 6 months. The more the better.

This is the real world, and it is full of things like job loss, sudden medical expenses, and family emergencies. Life happens, and in most cases, there is nothing you can do to prevent them. But you should prepare well to tackle them financially.

Start small. In the early days of saving, it’s all about consistency, not amount. Start putting something away now by trimming or cutting expenses like advanced meal planning, opting for generic brands, and cutting any monthly expenses you can live without, and build your fund over time. Whenever you receive a salary raise, tax refund, or bonus cash of any kind, use it to build up your emergency savings. You may also consider selling any unused items around the house to build up that cash as quickly as you can.

Once you have an emergency fund in place, take a look at it at least once each year, and determine if it is sufficient to cover at least 3 to 6 months of living expenses, based on your current necessities. If it isn’t, set up a plan to refresh it as needed. It’s hard to remain financially stable without a well-stocked emergency fund.

Related post: An Emergency Fund and Your Peace of Mind

9. Pay your bills on time

Paying your bills on time is one of the important financial habits for taking control of your financial life. Knowing when your bills are due and making a habit of paying them by the deadline can reduce your stress, save you money, boost your credit score, and enable you to get lower-interest rates on your major purchases in the future.

There are strategies to help you pay your bills on time without incurring late fees, including setting up automatic payments and consolidating your bills. Late fees of up to $35 per bill can add up quickly over time.

10. Don’t fall for sale or clearance

Buying something that’s on sale, does not save you money (unless you really need that item and you were ready to pay more for that). It just means that you bought something at a discounted price.

This idea that you are saving money by spending money is what makes people frequently fall for good sale or clearance, and most of us are guilty of it. The worst part is that it usually manifests in the form of frugality. Most people think by buying items on sale, they are actually saving money, even if they don’t need the items now. Just make sure when you purchase something on sale, it is for the right reason; not because of the sale itself.

11. Shop with cash only

This is one of the important financial habits if you want to avoid getting into debts. Not only will this keep you from running up your credit card balances, but if you have to use cash or your debit card to make your purchases, there is a very good chance you will spend less money than you would if you are shopping with a credit card, because you can’t just pay it off later at your convenience. It’s real money, and studies have shown that you spend less when you shop with cash. Researchers at MIT found people who were told to use a credit card instead of cash were willing to pay more for purchases.

Besides, when you shop with cash, not only will you spend less of your hard-earned money but also you will derive more pleasure from what you purchase. We have greater emotional attachment to purchases we make with cash than those for we put on credit, a study published in the Journal of Consumer research found. “Using cash or check seems to increase the psychological ‘pain’ or sacrifice of the act and creates more affinity with the product or brand,” the authors wrote.

12. Pay more than the minimum monthly payment on your credit cards

If you want to save money and become financially stable, you will need to get rid of your credit card balances – faster. If you have not been successful in paying off your credit cards in the past, then you should commit to paying more than the minimum payment due.

Pay attention to your credit card statements. They will often tell you how long it will take to pay off your balance if you only pay the minimum payment each month, and how long it will take if you pay a fixed amount a little higher than the minimum payment. Most of the time, you will notice a difference of several years between them.

13. Stay away from affordable payments

Many people end up spending more money than they need to, only because they find something easily affordable and buy it. In their minds they think that the monthly payments are small and that won’t break their bank, so they buy products they can live without. That is not from the good financial habits at all.

For something to be truly affordable, you must be able to pay for it in full. If you can’t, then don’t buy it unless it’s a true necessity.

14. Negotiate your bills

Don’t underestimate the power of negotiation. Negotiate any bills that you can to help reduce your monthly expenditures and your debt so you can put more money into your long-term investments to build wealth. We have tried this several times in the past, and it saved us some good money over the years.

Most companies do not want to lose you as a customer to their competitors if you are with them for sometime, say: a year or more, they are often likely to work with you to get your monthly bill down to a more reasonable amount.

15. Say “no” to yourself

One of the best financial habits you can adopt, is saying “no” to yourself. This is important when you are shopping, or just out there in the mall for fun. This is really about getting control of impulse buying. Many people spend far too much of their hard earned money buying things at the last minute, without any prior plan. This impulse buying can be difficult to overcome. You are out somewhere, and you see some item you like, and you buy it because it doesn’t cost “that much”. Even worse is the ability to purchase things online nowadays and have it delivered straight to your doorstep in just a few days. If you do that several times a month, the spending can add up quickly.

Making just 10 impulse purchases per month at an average of “only” $10, adds up to $100 spent on random stuff you really don’t need. That’s $100×12=$1200 each year that could otherwise be saved in your retirement fund or emergency fund, or spent on some meaningful pursuits.

16. Learn to say “no” to your kids more often

If you have children, learning to say “no” to them is equally important if not more. I know it’s hard for parents, myself included, to say “no” to our own kids. But, it’s necessary if you want to keep more money in your bank for your and your family’s financial well-being. Since they are just kids and don’t understand the value of money, they always want something. And that something tends to get more expensive as they get older. By saying “no” to them, you can save a significant amount of money over the years.

If they need something, of course, you should buy that. But the random things they don’t need but feel like they can’t live without shouldn’t be bought spending your hard-earned money, especially if you are on a tight budget or drowning in debt.

Also, how you spend your money shows your kids what you truly value. And it has important implications for the attitude your kids will have toward money when they grow up. Though saying “no” can bring some discomforts, it’s a way of teaching them an important financial lesson. Saying “no” prepares your kids for the real world. It teaches your kids responsibility, and how to prioritize, budget, and deal with disappointment. They also learn that they can’t have everything they want. They need to prioritize, and make healthy choices. Therefore, you will be doing your child and your wallet a favor when you say “no” to extra spending.

17. Save for specific goals

Having specific savings goals will help you to begin saving money efficiently. Many people understand the importance of saving money in an emergency fund and for retirement. But they don’t realize that they may need to save for some other specific goals, too, such as saving money for your kids’ college education, for a down payment on your home, for a dream vacation, or to pay for your next car, or to make major repairs on your home.

When you are just putting money into the bank on a regular basis without any specific goals, it can be easier to withdraw it for various reasons. You can easily overspend and use the money which you could save for those important goals. When you know what you are saving for, savings become easier.

Knowing what you want your money to do for you gives your goals a better chance of being reached. Once you know your goals, then you have to determine how much you need in order to reach each goal.

18. Read at least one financial book each year

If you want to become financially stable, you will have to seek knowledge and advice from the financial gurus. Don’t ever stop educating yourself, especially when it comes to personal finance. Understanding your finances is important, and responsible money management needs you to educate yourself about how to budget, save, and build wealth.

Many people simply don’t have the financial education that is needed to make sound financial decisions. These people don’t think that learning about money management or personal finance is just as important as any other subjects. So, they end up making many big mistakes while handling their money, and jeopardize their financial health. Improving your financial habits is something you may want to tweak from time to time. There may be new thoughts on personal finance, and ultimately opportunities to make more money.

The following books have been extremely helpful to me as well as millions of other people worldwide in shaping their financial future. I highly recommend checking them out below.

19. Set SMART financial goals

Setting SMART financial goals is essential. Part of good financial habits is simplifying your goals that will add clarity. Smart goals are specific, measurable, achievable, relevant, and time bound. They are also significant, meaningful, action-oriented, rewarding, and trackable. When you take the time to set SMART goals that align with your values and priorities, you will be more likely to achieve those.

For example, instead of having “to save more money this year” as a goal, it’s more powerful to use the SMART goal “To have saved $3,000 in emergency fund by December 31, 2021.” Obviously, this will only be attainable if other necessary preparation has been completed beforehand!

20. Choose quality over quantity

Choosing quality over quantity when you are making purchases is the best way to prevent yourself from experiencing buyer’s remorse. When you do so, you look to buy the best value for the money. You neither by the cheapest goods, nor the most expensive ones. Sometimes it’s worth it to spend a few dollars more for a product you know will last, rather than paying bottom-dollar for low-quality merchandise you will have to constantly replace. You don’t want to waste your money on a cheap item only to have to spend more money to replace it.

Personally, I consider most of my purchases to be investments. If I know I will use an item frequently, or will have it for a long time, then I’m more willing to invest some money in it and choose the best, most durable option that will add value to my life. This can include clothes, furniture, electronics, appliances, food, car, and home.

21. Comparison shop for any major purchase

Research shows that prices can vary for all types of products, so it’s always in your benefit to do some research and make comparisons before making any purchases. Comparison shopping is especially beneficial when buying expensive items, items you purchase often, or items where the product quality or prices vary greatly. Make sure to do your research by comparing prices on different websites, especially before making a major purchase.

The bigger and more expensive the purchase, the more important it is to spend time researching your available options. Not only will this save you money, it will also help you make a better-educated decision when it comes to purchasing the item and avoid buyer’s remorse.

To start comparison shopping, choose the item that you need to buy and look at the item’s listing on at least three different retail websites. And then, choose the best deal, and go for it. You can do comparison shopping for big kitchen appliances, cars, furniture as well as vacation rental properties, insurance rates and credit cards.

22. Plan your meals

Dining out in restaurants has become so common these days that many hardly even notice how many times they are eating out instead of eating at home. But if you find yourself eating out frequently like three, four or more times per week, your restaurant habit has become a major expense without you even realizing it.

Cooking more meals at home is good for your health and your wallet. With a little planning, you can fit it into even the busiest week. The goal is to make the most of the time you spend in the kitchen. Start by listing your meals for the week ahead, and be specific.

You could even make a basic outline for each week: chicken noodle soup on Monday, friend salmon and vegetable-rice on Tuesday, roasted vegetables and garlic bread on Wednesday, pasta on Thursday, and beef biriyani & salad on Friday… It can make planning easier, and some people, especially kids, like knowing what to expect.

You can save a lot of money by taking time every Sunday to do advanced meal planning for the entire weekdays and nights. Each Sunday, go through your schedule for the week and identify how many meals you will need to prepare or cook.

Then, see where you can save by eating leftovers for lunch from the dinner before, or buying one ingredient to use in two different meals. Look up the ingredients you need and find the best deals on them so you can prepare healthy, yummy, and inexpensive meals at home.

23. Drive your car for a few more years

The longer you drive your car after the loan is paid off, the less expensive your auto expense will be. That’s another of those good financial habits that will point you in the right direction, and bring you to financial stability easily. Also, get in the habit of buying gently used reliable transportation to save you lots of money as your vehicle price depreciates quickly.

Take good care of your car and drive until it dies, or at least for 10 years you should be able to drive it so you can save enough money to buy another one without any debt. The average age of a car in the US is now almost 12 years. That’s a good news, isn’t it?

24. Learn to love the house you live in even if it’s not your dream home

It’s important that you learn to love your home even if it’s not anything like your dream home. Some people make it a practice to trade up on their home every time they get a big promotion or interest rate goes down and higher mortgage becomes more affordable. If you want to become financially stable, it’s essential that you learn to live below your means and love your home even if you can afford a fancier one.

If you keep your house payment stable and easily manageable while your income increases, you can redirect the additional income into long-term investments or other important savings instead of accumulating more debt. That will reduce your financial stress by improving your financial situation a lot more quickly and efficiently.

25. Live like a secret rich person

Finally, when you are able to save and build a significant amount of wealth, live like a secret rich person without showing off or letting the world know about your financial worth. Though for some people, when they imagine a millionaire, they have the visions of huge mansions and shiny Rolls Royce or Mercedes Benz cars. But in reality, most millionaires don’t live large like that, and the people who do, are mostly financially broke because they live beyond their means – as I came to know first by reading the book “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” in 2004, and I was so blown away with this new found truth that I still give that reminder to myself and my kids often.

Most millionaires tend to live well below their means and religiously save more money than what they spend. The book reveals that much of the wealth in America is more often the result of hard work, diligent savings, and living below one’s means. So, learn to live simply and humbly, and don’t waste your money by having a flashy display of your wealth. This is one of the healthy financial habits you can try to form to stay on track.

Parting words

Of course, all these money habits require a little work on your end. You have to be consistent in your efforts to ensure that you become and stay financially healthy. Make sure that you review your finances on a regular basis, and pay careful attention to your income and expenses.

If you live below your means and religiously save, you will be able to accrue wealth over time. It’s up to you how aggressive you want to be in building your wealth. But adopting these good habits will help you feel like a financial pro in no time.