10 Fantastic Financial Habits to Work Toward
There are a lot of articles about money mistakes, but let’s take a moment to highlight the great habits that you hopefully have already formed or are in the process of forming.
The following is a list of fantastic financial habits that will help you along your road to wealth and financial security.
1. Making Automatic Retirement Contributions
This money should get pulled out of your paycheck before it ever hits your bank account so that you never touch it. It should also happen instantly every month.
Additional bonus points if you increase the amount of your retirement contributions every year. If you’re self-employed, set up an automatic monthly transfer from your checking account into a retirement account. This will allow you to automate your own retirement contributions.
2. Taking Advantage of Your Flexible Spending or Health Savings Account
Not only does this offer you a tax advantage, but it also acts as a supplemental emergency fund that you can use for health-related expenses.
If you have an FSA, make sure you spend the balance by the end of the calendar year. Money in your FSA is "use it or lose it."
If you have an HSA, by contrast, you can continue accumulating money in this account as much as you’d like (up to contribution limits).
In fact, I make a practice of paying out-of-pocket for my medical costs so that the money within my HSA can continue to grow tax-deferred. Once I reach retirement age, I can use this income without penalty.
3. Pay Attention to Mortgage Interest Rates
If you are in a low-interest rate environment and have the opportunity to refinance, I’d encourage you to strongly consider it.
Run the numbers to make sure that the refinance makes sense given the closing costs, but if it does, you could save tens of thousands over the remaining life of your loan.
4. Set up Automatic Bill Payments
By doing this, you’ll never accidentally miss a payment and get hit with late fees and interest charges.
5. Invest in Low-Fee Funds
Give index funds a try and pay attention to all of the various fees within your accounts to make sure more money is staying in your pocket.
6. Review Your Credit History Statements for Errors
In addition, check your credit at least one to two times per year and look for any errors or fraudulent activity. If you spot something that looks suspicious, follow up on it.
7. Take Good Care of Your car and Home
Yes, you will pay a little more upfront for the cost of maintenance, but this will reduce the risk that you’ll have to deal with some hefty costs down the road.
An ounce of prevention is worth a pound of cure, as they say.
8. Analyze Your Insurance Premiums at Least Once a Year
Look at your car, auto, home, health, and life insurance policies. See if you could save money by switching to a plan that offers lower premiums with a higher deductible. Just make sure you have adequate savings to cover this risk.
9. Maintain an Emergency Fund
Make sure this represents at least three to six months of your core living expenses. Don’t touch this fund for any reason short of a dire emergency, which ideally should happen either rarely or never.
10. Always Consider Opportunity Costs
For example, if you are thinking about making a down payment on a home, what is the opportunity cost of locking that money into the property?
Could you be foregoing the chance to invest that money instead? This isn’t to say that you should not buy the house.
In other words, this is not a caution against buying the house. This merely says that you should weigh the opportunity cost, crunch the numbers, and do some math.
Figure out what makes more sense in your particular situation based on the price of the house, the price of a comparable rental, the amount of time that you’ll live there, and other factors.