By cultivating better habits and a healthier mindset, you can take control of your finances and finally achieve financial freedom. The journey starts today by identifying the money habits that will keep you poor forever unless you make a change. With conscious effort and perseverance, you can retrain yourself to build the wealth you desire.
Spending more money than you earn is one of the surest ways to remain in a state of perpetual financial struggle.
• Track your income and expenses. The only way to know if you're overspending is to have a clear picture of your cash flow. Note all sources of income as well as living expenses, debt payments, and discretionary spending. If your expenses exceed your income, you'll need to make some changes.
• Create a budget and spending plan.
Once you see where your money is going each month, make a budget that allocates your income to essential expenses first before discretionary items. Look for expenses you can reduce or eliminate. A good rule of thumb is to keep discretionary spending to no more than 50% of your take-home pay.
• Pay off high-interest debts.
Personal loans, and other debts can cost you lots and lots of money per year. Make paying off high-interest debts a priority in your budget. Once paid off, continue making payments to yourself to build your savings.
• Limit the use of loans.
Only spend what you can afford to pay off each month. Interest charges on unpaid loan balances can quickly spiral out of control. Use loan only when needed, not to finance a lifestyle you can't afford.
• Increase your income.
If your expenses outweigh your income, look for ways to generate additional income. You might ask for a raise at your job, develop a side gig, or acquire skills that qualify you for a higher-paying position. Adding even an extra buck every month can help turn the tables in your financial favor.
With discipline and commitment to spending less than you earn, you can break the cycle of overspending and poverty. Monitoring your cash flow, creating a realistic budget, reducing debt, limiting loans, and increasing your income are all strategies that can help build financial stability over time.
NOT HAVING A BUDGET
Not having a budget is one of the worst money habits that keeps many people in a perpetual state of financial struggle. To gain control of your finances, you must implement a realistic budget.
A budget helps you understand your income and expenses, allowing you to make adjustments to avoid overspending. When you don’t budget, you have no idea how much you’re earning or where your money is going each month. This often leads to spending more than you make and racking up debt.
To create a budget, list all your income sources and expenses. Track everything for a few months to determine averages. Then allocate your income to essential expenses like housing, food, and transportation first. Be sure to include savings and debt payments. Look for expenses you can reduce or eliminate.
Once you have a budget, review it regularly and make changes as needed. Hold yourself accountable by checking in on your progress each week. If you go over budget, look for ways to cut back the next week or month. A budget only works if you work the budget.
Not budgeting is a habit that leads to financial trouble. Take control of your money by creating a realistic budget and sticking to it. Monitor your progress and make adjustments to ensure your expenses don’t exceed your income. Developing good financial habits like budgeting can help you escape poverty and build wealth over time.
NOT SAVING FOR EMERGENCIES
Not having an emergency fund set aside in case of unexpected expenses is one of the worst money habits that will keep you in a state of perpetual financial instability.
No Safety Net
Without an emergency fund, you have no safety net to fall back on when life throws you a financial curveball. Emergencies like job loss, medical issues, home or vehicle repairs can strike at any time. If you have no savings set aside, you'll have no choice but to take on debt to pay for these unforeseen costs. This cycle of accumulating debt and paying expensive interest charges month after month will severely limit your ability to get ahead financially.
Living Paycheck to Paycheck
If you're living paycheck to paycheck with no emergency fund, you're always at risk of falling behind on important payments like rent, utilities, and other bills if there's any interruption to your income. The stress and anxiety of constantly struggling to keep up with expenses and never getting ahead will take a major toll on your wellbeing over time. Make building an emergency fund a top priority to gain more financial security and stability.
How to Start an Emergency Fund
To establish an emergency fund, for example, set a goal to save N5000 to N10000 to start and have the money automatically transferred to a savings account each month. Look for any expenses you can reduce or eliminate to put more towards your emergency fund. As your balance grows over time, aim for saving enough to cover 3 to 6 months of essential expenses in case of job loss or other emergencies.
Having an emergency fund gives you a financial safety net so you can avoid going into debt whenever unexpected costs arise. Make consistent contributions to your emergency fund each month a habit to ensure you have enough set aside for life's unforeseen events and gain the peace of mind that comes with greater financial security. Eliminating the money habit of not saving for emergencies can help ensure you escape the cycle of living paycheck to paycheck and gain more control over your financial situation.
PAYING HIGH INTEREST ON DEBT
Paying high interest rates on debt is one of the surest ways to stay in a cycle of poverty. The more you owe and the higher the interest, the harder it is to make progress paying off what you owe.
Personal Loans
Personal loans usually charge some of the highest interest rates, often over 15-30% APR. If you only make minimum payments each month, much of it goes toward interest and little reduces your principal balance. Only borrow what you can afford to pay back and try to pay more than the minimum to reduce the total interest paid. Look for the lowest rate you can qualify for from a reputable lender.
High-Interest Savings Accounts
Some people keep money in high-interest savings accounts, but the interest earned rarely outpaces inflation. You end up losing money over time. Only keep emergency funds and short-term savings in these accounts. Move other funds to investment accounts where your money can grow faster.
Rent-to-Own Agreements
Rent-to-own agreements charge exorbitant markups, sometimes 100% or more of the retail price. You end up paying far more for the item than if you saved up and purchased outright. Avoid rent-to-own at all costs. Save money until you can buy essential items at regular retail prices.
The key to avoiding high interest debt is spending less than you earn, budgeting well, and saving money so you can pay for expenses in cash instead of financing them. Pay off any existing high-interest debts as fast as possible to avoid paying thousands more in interest charges. Develop better financial habits and your money will go further, allowing you to build wealth over time instead of staying in debt.
NOT INVESTING YOUR MONEY
Not investing your money is one of the worst financial habits that will keep you in a state of perpetual poverty.
To build wealth, you need to put your money to work for you through the power of compound interest. Compound interest is when the interest you earn also earns interest, and this exponential growth is key to long-term financial success. If you simply save money in a low-interest savings account, your money will not keep up with inflation and your purchasing power will decrease over time.
Invest in the stock market. The stock market has historically returned 7% annually after inflation. Investing in a low-cost stock index fund is one of the best ways for your money to grow substantially over decades.
Consider consulting a financial advisor. If investing seems complicated, consider working with a fiduciary financial advisor. They can help you create an investment plan tailored to your financial goals and risk tolerance. Their guidance may help you make more money in the long run than what you pay them in fees.
Not investing is one of the biggest mistakes you can make that will severely limit your ability to build wealth over your lifetime. Make investing a priority, start as early as possible, increase contributions regularly, and stay invested for the long haul. Your future self will thank you.
CONCLUSION
In conclusion, you must break the cycle of poor money habits if you want to build wealth. Examine your daily spending and see where you can cut costs. Pay off high-interest debts and avoid taking on new ones. Set financial goals and a realistic budget to achieve them. Start saving automatically from each paycheck, even if it's a small amount, and look for ways to increase your income over time. Building good money habits and financial discipline is challenging, but with time and practice, you can overcome bad habits, pay off debt, and start accumulating wealth. Make the choice today to take control of your finances and secure a better financial future.
Very true.
