How Can I Improve My Money Habits?

Mother and daughter comparing coins

Managing money comes down to some simple math. You'll want to make sure the amount of money you have coming in is greater than the amount going out: No quantum physics required. Developing the habits you need to make this happen, however, can be a bigger challenge. It takes some discipline, but it's possible to start improving your money habits immediately, any time, by laying the groundwork with just three positive steps.

3 Positive Money Habits You Can Start Today

Financial health begins with these three habits: controlling your cash flow, building good credit and saving for emergencies and the future. Taking the steps to lay this foundation will make managing your money easier and more intentional going forward.

  1. Create a budget and stick to it. Understanding how your money comes and goes is the key to better financial management. It's worth learning how to create a real working budget, but even knowing these four things can help clarify your financial situation:
    • Your monthly income after taxes.
    • Essential expenses, such as rent or mortgage, basic utilities, food, car payments and insurance.
    • The amount of savings you regularly set aside for your emergency fund, retirement, or other financial goals such as a down payment on a home.
    • What you spend on everything else, including dining out, entertainment, your phone plan and travel.

    Once you understand your income and outflow, take a moment to review. Can you reduce your essential expenses by canceling services or shopping for cheaper insurance? Can you fine-tune your discretionary spending? Finally, make sure you continue to track your income and expenses regularly so you know when you're on track or veering off course. A budget will do you no good unless you follow the spending and saving goals set within it. Remember, though, a budgeted lifestyle doesn't have to be a joyless one. Set aside room in your budget for discretionary spending or "fun money" so you can still enjoy yourself without worrying you'll break the bank.

  2. Stay up to date on credit scores and reports. Good credit helps you keep your financial options open. You'll need it to get the best interest rates and terms on things like credit cards, auto loans, home loans and personal loans. Learning how to build and maintain good credit gives you a financial edge. Because it's always better to know where you stand, monitoring your credit score and report is a helpful habit. You'll know what your credit options are at any time. You'll also be able to spot—and correct—anything driving down your scores. You can download your credit report and score for free; you can also sign up for free credit monitoring, which provides credit score tracking, credit report updates, customized alerts and even a personal finance tool to help you budget.
  3. Set up automatic transfers to savings and investment accounts. Saving and investing often get shortchanged in a person's budget. When you spend a little too much on dining out or make a purchase you can't afford, priorities can easily shift and compromise your savings budget. To help prevent this from happening, automate your savings and investing. If your employer offers automatic contributions to a retirement plan, consider taking advantage—even more so if your employer matches your 401(k) or 403(b) contribution. Many banks and credit unions allow you to set up regular automatic transfers from your checking account to savings. Additionally, apps like Acorns and Qapital help you turn your everyday transactions into savings opportunities by rounding up your purchases to the nearest dollar and saving or investing the difference automatically. These probably aren't a substitute for setting aside some of your income each paycheck, but they can supplement your regular savings with very little effort.

Common Bad Money Habits to Break

Creating a budget, staying up to date on your credit and automating your savings can build a foundation for better money management. But, in truth, breaking some of the most common bad money habits is also critical. Here are three to keep in mind:

Overspending on credit cards. Any overspending is a potential problem, but overspending on credit cards tends to compound the issue. It's easy to overspend on credit cards, and your balance will only get harder to tackle once interest starts to accrue. Before you know it, you've used up a large portion of your available credit, lowered your credit score and created a mountain of debt that will be difficult to overcome. If possible, bring your credit card balances down to zero before the end of your billing period to prevent debt from spiraling out of control. Only charge what you know you can afford or have a plan for paying off over time.

Flying blind. You can't stick to a budget if you don't have one. Set spending targets, track your transactions, and review ongoing expenses like insurance and phone plans to see whether you have opportunities to save. Though you may not think of these options often, consolidating credit card debt or refinancing your home could save you money.

Neglecting to save. While it's important for you to stick to a budget, it's also good to remember that life has a way of throwing you off your game. Unexpected life events, financial setbacks, broken appliances, the dream of retirement—they all point to the value of saving. Don't neglect to set money aside for these things; you'll be glad you did when the time comes that you need it.

How to Practice Healthy Credit Habits

Good credit habits and good money habits go hand in hand. Spend a little time learning how credit works—and how you can make it work for you. In the meantime, follow these four simple rules for maintaining your best credit score and keeping your credit report in top shape:

  1. Pay bills on time. Every bill. Every time.
  2. Keep your credit utilization low.
  3. Check your credit regularly.
  4. Apply for new credit only when necessary.

How to Spend Less and Start Saving More Money

There are many ways to spend less and save more. Only you know where you can best cut back. For many of us, it's not a matter of sweeping change: It's the accumulation of small efforts. To get your thinking started, consider these incremental changes:

Spend cash, not credit. Budget out cash monthly or every payday to help limit your spending. When the cash is gone, your spending is done. Do you make a lot of online purchases? Use your debit card or load your budgeted amount onto a reloadable prepaid card. Your spending will end when your money runs out.

Try your hand at DIY. Cook at home. Be your own barista. Mix your own cocktails. Take a stab at home repairs instead of calling a contractor. Even if you replace half of your expensive restaurant outings with home-cooked meals, you're likely to come out ahead.

Be patient. Disable your automatic renewals. Ditch your unwanted subscriptions and memberships. Contemplating a large purchase? Make it a policy to leave the store or walk away from your computer for an hour before you complete your transaction to avoid impulse decisions. And don't spend money to save money: A sale is not an urgent event.

Managing Wisely Through Whatever Life Brings

Budgeting, saving and spending wisely won't make your life more predictable. You may still encounter an occasional flat tire, job loss or irresistible spending opportunity—in fact, this is practically guaranteed to happen. Again and again. The best thing about cultivating good money habits is that they serve you well over time, through whatever life brings, and you can put them into practice any time. Even starting now.