Good money management is not a passive activity. It requires a proactive approach that helps you build wealth while keeping debt balances to a minimum. There are a number of simple steps you can take to keep your financial health in check and meet future needs by developing good financial habits. Here are 5 habits we’ve identified based on the behavior of our most successful readers and clients.
Don’t let credit card balances go beyond a month
The companies that issue credit cards could not exist if they didn’t charge interest. While that means profits for them, it also means more money is coming out of your pocket. Often, this is unnecessary.
Several studies have shown that when people only pay the minimum on credit cards, their payments stretch out for years and the items they purchase end up costing them much more than they paid.
Some financial experts suggest not using credit cards at all. Financial radio host, Dave Ramsey says; “You will spend more if you use credit cards. When you pay cash, you can feel the money leaving your hand.”
You should pay cash whenever feasible. Unless you are part of a credit card program that awards you points or cash back for using their card, you are better off paying in cash or using a debit card for everyday purchases.
One of many advantages to keeping your credit card balance zeroed out is that it can aid your FICO score. When you go for a loan, a higher FICO score may mean a lower interest rate. Get in the habit of paying off your credit card balances every month. That will provide more incentive to keep them manageable.
Decrease the term of your mortgage
If you are in a position to take on a larger mortgage payment, then you could shave thousands of dollars of interest off your mortgage balance. By converting a 30-year mortgage to a 15-year, it is possible to save more than $80,000 in interest.
For instance, in a recent comparison on Bankrate.com, a 30-year $200,000 loan required total interest, over the life of the loan, of $128,366, based on an interest rate of 3.625 percent. The same loan amount, repaid over a 15-year mortgage at 2.875 percent, had total interest of $46,451. That shortened loan period could increase the chance that you will own your home outright by the time you retire.
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If you haven’t maxed out your 401k plan, do it now
If you have several years to go before retiring, increasing your retirement plan contributions can mean a much larger nest egg at retirement. At the same time, it may reduce your current taxable income as well. Your tax-advantage savings accounts may be one of the best places to direct your funds, if you already have an emergency nest egg set aside.
Don’t try to keep up with the Joneses
Credit card debt may be some of the most expensive interest rate debt you can incur. Trying to outdo your friends and neighbors by owning the newest 80-inch TV or that $1200 drone may be a recipe for more debt and less savings. Most financial professionals agree that having a 6-month emergency savings is a good defense against unanticipated life events like a job loss or major car repair bill. Buying the latest and greatest can mean that savings suffer and debt grows.
So, whether you are trying to keep up with the Joneses or the Kardashians, your personal economics will suffer and your total wealth will decrease.
Read this blog and follow your advisor’s suggestions
In several studies of the country’s wealthiest people, it has been found that most of them read a lot. The old adage about engaging in a lifelong education is one of the pillars of wealth. There is always more that can be learned and much of it can help you make wise financial decisions.
In his book “Rich Habits: The Daily Success Habits of Wealthy Individuals,” author Thomas Corley says that 86 percent of wealthy people love to read. Eighty-eight percent said they read at least 30-minutes or more a day for self-improvement.
Revisit this blog and find tips that can help with your financial education. Beyond that, listen to the advice of your financial advisor for guidance on how to pursue a more financially-healthy life.