Below are some money habits that we've been following as well as other habits that experts recommend. In order to accomplish a successful personal finance journey, more important than earning more is making smart money decisions. I believe the below concepts have helped us not only get out of debt but also grow assets and build wealth.
1) Not Letting Lifestyle Creep Up
One of the main reasons why some high earners have fewer assets than lower earners is due to a phenomenon called Lifestyle Creep. In this concept, as one earns more, discretionary spending increases. For example, they start to buy larger homes, nicer fixtures, fancier cars and eat out more.
We try to avoid lifestyle creep by keeping our lifestyle as consistent as possible when we get a raise from work. As we feel that we have an adequate level of our needs met, there is no need to increase our housing spending or increase any of our budgets. In the current inflation hike, we are working towards spending less, conserving more, or buying in bulk.
Note: Improving your standard of living is different than increasing spending on consumable goods.
2) Paying Bills on Time
The amount of interest you pay on outstanding credit card bills or paying late fees on other bills are all valuable resources that you could put toward savings and investments.
Similar to the above lifestyle creep concept, we avoid purchasing things that we can't afford and have to pay a high amount of interest.
I also check my bank accounts every day to ensure I am not charged any erroneous or duplicate payments and that I am within my monthly budget.
3) Don't Impulse Buy
Many people are in debt and one of the common reasons is buying on impulse due to caving on instant gratification.
(pro-tip: purchase big ticket items and other wants when you get an unbudgeted income like a bonus or request it as a gift)
4) Follow Financial Content
If you invest time into anything, you naturally learn and improve. Similarly reading up on financial content like blogs, books, and financial YouTubers will provide strategies and tips to improve your financial situation.
Something I have learned recently is to be comfortable with myself and not let others set expectations on what I should do. We were planning to move to an expensive home, but I realized it was a lifestyle creep influencing my decision and I quickly decided to aim for a modest home that I can comfortably aim to pay off completely.
5) Have an Investing or Savings Plan
Having a plan allows you to work towards something and get better over time. This investment can also include investing in your passion and things you enjoy doing in your free time to turn them into an additional income stream.
We are currently building wealth by acquiring rental property every three years by using proceeds from one property to pay off the next one at a faster rate (read: How to Buy an Investment Property every 3 Years).
6) Auto-Investing into Our Retirement
Having an auto deduction from your payroll each month before you see the paycheck helps ensure you stay committed and avoid skipping on investing in yourself.
The auto deductions we have set up through our employers are Health Savings Account, Rental Property Payments, and the 529 College Savings Plan.
7) You Talk About Money
The habit of talking about money with a support group or like-minded people can help you learn from each other on your wealth-building journey and share different ideas, and support each other. This blog has helped me not only organize my thoughts, but I have also learned from others and researched new personal finance topics that I want to work towards and improve on.
Similarly, having an open transparent money conversation with your partner helps to set goals together and work towards them together to achieve them easier. Talking about money can be stressful or terrifying and we may not always be on the same page but oftentimes, one of us comes around to the idea after thinking more about it.
8) Saving Over 50% Each Month
This one seems excessive and out of reach for some people, but through years of lowering expenses while keeping your lifestyle the same, this can be possible.
Like many people, we have had to pay down our debt and barely saved or invested in our twenties. But once we created a habit to spend less and save more, we have continuously increased our savings and investing from 5% to 10% and so on and now we have reached a 50% rate. As we have tried to keep our lifestyle the same, this doesn't seem restricting on our lifestyle (read: Pie Chart of Our Expenses and Spending per Month).
9) Tracking Expenses Each Month
I believe tracking expenses and setting a budget is one of the most fundament and critical steps towards growing assets and building wealth. When you have a leaking hole in your budget from not knowing how much your spending is, no matter how much money you make, you'll never be able to save. I know setting up a budget is a tedious task, but this is the only way to truly build wealth (read: Create a Budget, Track Everything).
10) Content Being Frugal
"Live like no one else, so you can later live like no one else"
-Dave Ramsey
Similar to lifestyle creep, oftentimes people want to show others that they are doing well. However, this is a big money trap and a sure way to never build any wealth. Like the quote by Dave Ramsey, by living for yourself now and being frugal, you will reap the benefit later and be able to live freely like no one else.
Little things that we try to be frugal about include:
Driving less to conserve gas,
Being mindful of our energy usage and turning it off when we leave,
Making bigger portions and eating multiple meals,
Cooking more to save on going out to restaurants,
Using travel hacks to save money on vacations.
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