If you’re looking for the key to financial success, then we have the answer: financial habits ? good financial habits to be exact. Financial habits are the values, standards, routine practices, and rules people rely on to handle their day-to-day financial lives. They help you manage your money properly and respond quickly to financial decisions or issues.
If you want to know how to manage your finances more wisely, read on to find five good financial habits to build in 2022.
1. Review and update a financial plan regularly
The first thing to consider when building good financial habits is a financial plan. It’s a document that contains information on an individual’s present financial situation, long-term monetary goals, as well as strategies to achieve those goals.
Your financial plan helps you assess, plan, and improve your present and future financial situations. It provides a snapshot of your present finance and your goals to develop an action plan that you can use to navigate financial decisions with ease.
Creating a financial plan, though, isn’t enough. It’s fairly important, if not more important, to evaluate and update your plan on a regular basis.
A regular check at least once a month is a must to make the most out of your plan and enhance the chances of reaching your goals. It’s also recommended to update any important information at least every three to six months. It’s also important to update your plan when a major life event occurs, such as buying a new house, getting married, or finding a new job.
2. Set financial goals
The most crucial step toward financial success is to set goals. You will not be able to measure your progress unless you have goals. When forming goals, it’s recommended to follow the “S.M.A.R.T” goals strategy: specific, measurable, achievable, relevant, and time-bound.
Here are a few examples of SMART financial goals:
- Pay off $20,000 of debt in 6 months
- Create a $15,000 saving account this year
- Buy a $100,000 property in 7 years
As you can see, these examples closely follow SMART principles, with each goal being measurable and time-bound. As a result, you can easily keep track of your progress and be able to reach your goals within the expected time. The SMART principle is specifically useful for making a goal as it points out any relevant factors associated with your goals. For example, a SMART goal “Pay off $20,000 of debt in 6 months” is definitely more powerful than a vague goal such as “pay off debt soon.”
3. Create a budget
Making a budget is another good financial habit to build because it ensures you’ll be spending money efficiently and not spending more than you can afford. A personal budget lets you know how much money is going in and coming out of your account every month. Without it, you may be spending more than you make — leading to a paycheck-to-paycheck lifestyle.
When making your budget, keep in mind to include the amount of money you bring in every month from your paycheck, the money you typically spend on “needs” such as living expenses and groceries, and the expenses you allocate for “wants” like eating out, travel and shopping.
If you’re not sure where to start, consider these budgeting tips to help you get started.
4. Utilize an expense tracking app
A budget lets you know how much money you’ll get and spend each month. An expense tracking app, on the other hand, allows you to compare if the amount of money you expected to use is lower, higher or equal to what you actually spend.
Expense tracking apps are becoming more popular and are likely to completely replace manual expense tracking. It’s because by using an expense tracking app, you can improve productivity and reduce paper waste. Moreover, with expense tracking apps, you can scan and store your receipts on the cloud, which is more secure than keeping them in the physical form.
If this sounds like just what you need, start using an expense tracking app now! Shoeboxed is an expense tracking app that lets you turn your receipts into data and then organize, make reports and analyze your current financial position at any time and anywhere. It’s an ideal tool for individuals and businesses. Check out Shoeboxed and start your free trial today!
5. Build an emergency fund
In contrast to fixed expenses that recur every month with an amount you can anticipate and set aside, there are also unexpected expenses. This type of expense sometimes is impossible to foresee. For example, a leaking roof, a broken dishwasher, or even a surgery for your pet are situations when you have to let your money come out of your pocket without planning for it.
That’s why you have to build an emergency fund. An emergency fund is a safety net that ensures you don’t have to delve into other cash set aside for everyday needs. If you don’t have one, chances are you’ll have to “touch” the money set aside for credit cards or other bills to cover the emergency expense.
Experts recommend creating an emergency fund that covers three to six months of living expenses. This is especially true if you only have one source of income.
If you haven’t started working towards this financial habit, start putting money aside for emergencies, even if it’s just a tiny amount from each paycheck. You’ll be grateful in the long run!
The bottom line
There are many good financial habits you can start adopting this year. Some can be easy — like reviewing and updating your financial plan regularly while others are more demanding. And if you’re new to working towards these habits, it can be a little time-consuming and laborious. But it’ll pay off in the long run.
If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on the Shoeboxed Blog. Shoeboxed is a cloud-based software that helps individuals and businesses turn their massive paper receipts into digital data. With Shoeboxed, you can accomplish a variety of tasks: scan, store and organize receipts, manage expenses, store business cards and even track mileage for business travelers. It’s simple to install and easy to use. Try Shoeboxed today!