Words: SA BAL
Photo: arthon meekodong
Have you been trying to keep a better tab on your finances and have been looking for ways to mend your ways in 2021? Well, you are in the right place, as this post will help you turn your financial habits upside down and make the most of your incoming money.
In order to make amends to your financial habits, you must familiarize yourself with the basics of financial literacy. Here are five critical elements of financial literacy that everyone must try to master.
- Learning about the basics of budgeting is the foundation for building healthy financial habits.
- Understanding the interest rates and how they affect your money
- Prioritizing your savings
- Escaping the credit & debt cycle or avoiding the trap altogether
- Identify any risk and applying safety measures to ensure your financial freedom.
Some financial challenges may be overwhelming during the pandemic, but a little bit of financial planning can help you cope with these circumstances. Financial literacy is all about empowering you to adopt good financial habits.
So let us dive right in and discover some of the most basic and beneficial financial habits you can adopt in 2021.
11 Beneficial Financial Habits to Adopt in 2021
If you wish to be financially independent or improve your current financial management skills, here are eleven ways to do it.
- Minimalism is the Way Forward
2020 has probably been the most challenging year in our lives, and it has almost forced most of us to survive on what is truly essential. Therefore, it is time that you realize that “less is more.” You do not have to live like a monk, but you must first identify all the extravagant frivolity you have been surrounding yourself with and get rid of it.
It is time to embrace minimalism and be realistic about what your actual necessities are.
2. Eliminating Your Debts
The debt load is one of the biggest reasons most people struggle, especially when trying to meet their basic needs. In current circumstances, when the entire economy is struggling, it is becoming challenging to become debt-free.
However, you must strive to eliminate your debts by setting up automatic payments. Prioritize your debts and get rid of the loans and credit cards with higher interest rates. Put your auto insurance, home insurance, and mortgage on automatic direct debit payments, so they go out first before spending your money on anything else.
3. Budgeting Everything
With the current financial climate, everyone is at risk of redundancy. Therefore, you must make a budget. This is probably one of the most essential components of improving your finances, no matter which walks of life you belong to.
You may want to pick up that notepad and pen and start jotting down all your incoming money against what goes out every month. Some of you may feel comfortable using spreadsheets to create a more elaborate budget sheet.
If your smartphone is an extension of your being, then you can install a budgeting app and link your bank accounts and credit cards to it. Moreover, you can set a spending limit. The app will notify you if you exceed your monthly quota.
4. Tracking What You Spend
If you really wish to master your finances, start tracking where all your money goes. Do you find yourself confused about where your money went every month? This is an indicator that it is finally time for you to track down those expenses you have long forgotten.
Take out your bank and credit card statements and look for where each payment has gone. Weed out any expenditure that you barely make use of or do not utilize at all. Typically, these include gym memberships, subscriptions, etc.
Moreover, keep an elaborated calendar about occasional spending such as birthdays, anniversaries, upcoming vacation trips, seasonal holiday, etc
5. Set Personal Financial Goals
Set specific financial goals when it comes to saving. This will give you motivation when you know that saving money will help you achieve something. Moreover, with planning, you are more likely to improve your financial situations than being spontaneous.
6. Budgeting Ahead
It would be best if you always kept something on the side for unforeseen household expenses. Therefore, it would be ideal for you to budget at least a month ahead. Doing so will allow you to accumulate emergency funds for instances such as late bill payments and declined credit card payments (which also cost you additional money due to penalties by the bank).
7. Ditch the Credit Cards
Do you live on credit cards? Well, it is time to ditch this addiction. Buying stuff on a credit card and paying it later means you are spending the money you do not have and may not have in the future in case things go sideways at work.
Ideally, you must cancel all credit cards and keep one for emergency funds (tag it with the “emergency funds” sticker). If it is impossible for you to do away with credit cards, then at least try to use them responsibly.
Only spend the amount equivalent to what you have in your account. Do not utilize more than 30 percent of your credit limit and pay off the balance in full on each billing cycle. Making minimum payments do not help because you spend more due to the hefty interest rates. You think it helps, but it really does not.
8. Say No to Monthly Installment Plans
Do not fall for the classic trap of getting things on monthly installment plans. Yes, it is very tempting to have that massive LED TV for a small monthly payment, but these plans are a way to lure you into spending more money. Do not forget that you will end up paying a higher price due to interest rates.
Instead, if you really want a new LED, set it as a personal financial goal (step 5) and treat yourself once you have accumulated the money. This will help you create a habit, learn to save, and enjoy the sense of achievement when you buy it for an actual price from the money you saved.
9. Learn About Money Management
Whether you are a novice to money management or have mastered it, continue to educate yourself about the new techniques and trends. You can learn from a variety of personal finance books or listen to free financial podcasts.
10. Meal Planning
Meal planning can be one of the most effective habits to cut down your monthly grocery expenses. Always make a list of things before you go grocery shopping because you will most likely overspend when you buy spontaneously. Make meal plans and stick to the grocery items pertaining to those meals only.
11. Make More Money
This is more about creating a passive income stream than a financial habit. The idea is to earn more than you spend to give you financial freedom. One of the best ways to achieve this would be to look for freelance work and part-time gigs. If you are good at something, try to find out if you can make a living out of it.
For example, if you are a good musician, you can try to sell your art on online portals. There is a huge market where companies and content creators are looking for music tracks.
If mastering your financial habits is your new year’s revolution, 2021 could be your year to turn your finances for good. Simply adopt and implement the above-mentioned financial habits and see your finances improve. You can also seek advice from a financial expert for complex money matters.