5 Great Financial Habits To Adopt
Encouraging financial management and establishing great financial habits from a young age, can set you & your children up well for life. It’s something we’re often asked about: What tips could you pass on to your children to try & get them to a better place financially? Think of your son or daughter starting work for the first time, how do they get on the right track? How do they build great financial habits? Here’s some tips that might help them.
Considerations For Establishing Great Financial Habits
1. Don’t just drift along – have goals
Money is not something that arrives in your bank account, for you to then just withdraw and spend. It is a valuable resource that can have a very significant impact on your lifestyle and indeed your quality of life. So it needs careful management and wise decisions. To start with, you need goals to give you direction, otherwise you meander along, forever lost in the ‘earn it/spend it’ cycle. So have goals – it might be a new coat next month, a car in 12 months or the deposit for a house in 5 years. But aim towards something, work out how much it will cost and how you will achieve it (taking account of the final point below!).
2. Great Financial Habits – Think long-term as well as short-term
I know, it can be very hard to get a twenty-something to think past next weekend! And also if you can’t have lots of carefree nights out and holidays in your twenties, well when can you? These are great, within reason, and a typical use of cash early in life. But if these become the only use of your money, you’ll pay a price down the road. Short-term spending is fine, but if you wish to build great financial habits, it needs to be balanced with a longer-term view too – or else you will simply never afford the bigger ticket items in life such as a house etc.
3. Pay yourself first
Having goals is great, but goals without
action are just dreams. There’s no point saying every month, “I must start saving for a house”. Just do it. To make it happen, we strongly suggest you pay yourself first every month. By this we mean that you identify how much you want to save each month, and then transfer this amount out of your current account on the day you are paid each month. This way, your saving comes first. The alternative is to plan to save at the end of each month. However what usually happens then is that your spending gathers pace and there’s nothing left to save come the end of the month.
4. Don’t take bets
In the last 12 months, one of our clients bought some bitcoin (she lived to tell the tale this time), bought Tesla stock (don’t ask…) and also bought Gamestop (just don’t go there…). Her head is turned by every supposed “sure thing” for a quick buck and investment fad. If she keeps this up, she has a lifetime of financial misery on a rollercoaster ahead. Investing is not a game and there are no quick routes to success without extreme luck. Yes, you’ll get lucky breaks from time to time, but wise investing is based on a diversified asset approach, time in the market as opposed to market timing and having a long-term perspective. Betting on individual stocks, at least without very rigorous analysis and expertise is only one notch above placing it all on the 3.30 at Fairyhouse.
5. Be very careful with debt
A big one for younger adults. Debt makes sense for houses, where you simply cannot save enough first to buy for cash. And also mortgage interest rates are typically low. Alongside using savings, some debt is ok for the likes of cars, where you at least have an asset to show. However debt should never be used to fund your lifestyle – this is a disaster in the making, particularly if high-cost debt (such as credit cards) is used. In this situation, you are simply enjoying today, but having to pay a very high price tomorrow.