In young age people do not care much about developing good money habits.
Eventually people grow-up only with incorrect money habits.
The ultimate casualty of incorrect habits is ones personal finance.
Ideally, one must start developing good money habits right from 25 years of age.
In this article we will discuss some good habits that can help young people earn, save, spend and invest money wisely.
Good money habits is not something that can be developed in a day.
It takes time hence people must start implementing them early in life.
Learning process becomes faster and more meaningful when learning and implementing goes hand-in-hand.
It is also worth mentioning here that people who are serious to about developing good money habits will face stiff resistance.
This world is full of people who carry only bad money habits.
Those people are in majority, as a result their incorrect habits may seem like the right thing.
So it is essential to stick to the right money habits irrespective of fact that others may not agree with it.
This article aims to share such good habits which are neither trending nor considered cool by majority.
#1. Create Memorisable Banking Passwords
It is common to see people finance in disarray just because they cannot memorise their user id’s and passwords.
I once asked my elderly uncle that why he does not use online banking.
His casual answer prompted me to write this article.
He said he doesn’t seem to memorise the user id and passwords of his banking accounts.
In today’s online world, use of online banking is very useful.
But if our memory is becoming a hindrance, I will suggest to start developing a patter for all passwords.
Patterns are very useful when person tries to recall their passwords.
Suppose one has two bank accounts, one in Bank of America & other is Barclays Bank.
The password can be like: BOA@20101985 & Barclays@20101985.
Here the first word is the name of bank followed by @.
The last digits are a sequence of number that one can memorise easily.
These numbers can be like date of date etc.
This will create an easy to memorize pattern for all types of password.
Regarding user ID’s one we can write them in personal phone & laptops, pocket diary etc.
Initially this exercise may look useless & cumbersome but in times to come, it will be an invaluable asset.
Imagine a situation where you are no longer wasting time searching for that right password…
#2. Use Personal Finance Mobile App
I am using one personal finance app since long.
Now I cannot imagine managing my money matters without referring to it.
That app has become an extension of my bank account.
One day I asked my elderly uncle to start using one.
But after few weeks he gave up.
He said its too cumbersome for him to keep tracking his finances on a mobile phone.
Probably he is too old to use this new technology.
My suggestion will be to start the habit of using personal finance apps early in life.
Otherwise when people ‘get used to’ bypassing budgeting & expense tracking, its becomes an up-hill task to start late in life.
Spending money is so easy that it becomes part of ones life if left alone.
It is essential to keep check on ones money spending habits.
Personal finance apps are best tool to budget, record and track spending’s.
Once implemented consistently, it allows people to identify needless expense and eliminate it completely.
#3. Generate a Side Earning
It’s not important how much you are making initially from your side business.
Developing ways and means to kick start a ‘consistent side earning’ is more important.
Generally people do not cross this hurdle and get demotivated by the low volume of side earnings.
A small business like running a blog face this difficulty very severely in the initial years.
For first 24 months in a row this blog was making less than $1 a month.
No matter what is a business, focus should be on ‘consistent earnings’ and not on ‘level of earnings’.
I have a friend who started a side business related to the field of ‘industrial electronics’.
His struggle days continued for 5 years in a row.
But today he is more than thankful to himself that he survived those tough 5 years.
Today he is an entrepreneur and his finances are in Top Order.
We all can take a motivation from here and start a side business.
The objective should be on enhancing the ‘customers experience’.
In times to come money making with happen as a byproduct.
#4. Categorise Cash Before Using
We have three types of cash parked in our savings account.
First is that cash that we will use within next 3 months.
This cash can be allowed to idle in savings account.
Second is that cash that we know will be required in periods beyond three months (refer your budget).
Such cash should be immediately put in Fixed Deposit / Recurring Deposits.
Thirdly there are some cash that is free-cash (end use not finalized).
Such cash must be invested in equity or if you have a home loan, use it to make prepayments of principal.
Not allowing the free cash to idle will guarantee that they don’t get spent of needless things.
For common men one of the best ways to use free cash is home loan prepayment.
#5. Budget next 15 Years Expenses
Most of the budgeting apps available on internet allows us to budget our monthly expense. This is good.
But it is also essential to see a bigger picture.
Young college graduates will find it easy to budget their monthly expense.
But when they sit down to budget expense of next 15 years on an excel sheet, they will find it very tough.
But preparing a 15 year budget has huge advantages.
Budgeting expenses today for next 15 years may not be as accurate initially.
But just allowing your mind to think that far makes lot of sense.
Thinking that far today is like living those next 15 years in your head.
Young graduates will know that in coming 15 years they will need:
- A bike, car,
- Early retirement etc.
All of these activities demands huge finance.
Identifying the needs and starting to save from early-days is one of the best money habits one can develop in early age.
Keep visiting 15 year budget once every three months. Make necessary changes.
I can assure you, by the time you are 45 years of age, your finances will be better than 99% of world’s population.
#6. Budget Free Cash
When we prepare a budget, we should not only budget expense but we must also plan for free cash.
This free cash is that cash that we will not require for anything in times to come. This cash is free of all obligations.
One of the good money habits is to keep growing ones ‘free cash’ as fast as possible.
This free cash has potential to make one rich every day.
Invest this free cash regularly. Do not let it idle more than one month in a row.
I personally use my free cash to make prepayments of my home loan.
The level of savings that can be made by prepaying home loans is phenomenal.
If one does not not have a property, buy small one immediately. Some people abhor bank loans.
Do not fall in this trap.
You are not taking loan to remain this burden for lifetime.
You are taking home loan to prepay it as early as possible using your free cash.
Our objective should be, by the time we retire, we must have one property for self occupation and others which generates sufficient rental income to support our post-retirement expenses.
#7. Pay Minimum Income Tax Possible
Paying income tax is good. But government also allow us to save income tax.
The fronts where government gives provisions for us to save income tax are those areas where they encourage us to save money.
Government wants us to save money instead of just spending it needlessly.
We must use ‘all’ provisions provided by the government to save income tax.
When you are budgeting your expenses, make sure that tax saving options are included in your budget.
Tax once paid is like money leaving hand forever.
That money never comes back to us.
There is also a reason why government allows income tax savings options.
Either one must save or pay heavy tax.
Unless people are compelled to save money, majority will not save money.
If one sees it deeply, you will find that this is done to encourage savings and developing emergency back-up.
Person who is not fully utilising all tax savings options is actually missing important priorities of life.
One must avail all income tax savings options first before budgeting provision for free cash as explained above.
#8. Save Money for Everything
Delaying gratifications is one essential money habits that many do not learn even in a lifetime.
But people who master it are live a more wealthy lifestyle.
Suppose you want to buy a Smart TV today which will cost you close to $1000.
Ideally try to delay buying your smart TV for next 6 months.
Save $170 each month for next 6 months.
This will accumulate $1000 and then buy your smart TV.
This habit is not so easy to implement initially.
But with some practice it will be a piece of cake.
This habit does two things for people, firstly people learn this way to avoid personal loans all together [Personal loans really sucks].
Secondly they also make people realise sometimes that the things they were desperately wanting yesterday was only a splurge of needless desire.
This realisation will save your $1000 all thousand all together and convert it to a free cash (check point no 4 & 6)