Sound money habits are what determine whether you will enjoy financial freedom or not. When you ask people about financial freedom, many will answer that they want to attain it. However, when you listen carefully, you will realise that Financial freedom means different things to different people. For some, it may mean having enough savings and investments. While to others, it means having sufficient cash flow to finance the lifestyle they want.
In reality, most people never live to enjoy what they describe. They fall prey to the burden of debt and lifestyle traps that cause uncontrollable spending. As a result, they fail to achieve their goals. There is also the challenge of uncertainties surrounding them.
Unpreparedness can cause long-term cracks in your financial status. Almost everyone experiences money challenges at one point or another. To overcome these, you need to adopt sound money habits. These ten habits can help you prevent or seal cracks and leaks that threaten your financial freedom:
1. Goal-Setting: Lifestyle Goals Are Financial Goals
What does financial freedom mean to you? How do your lifestyle choices affect your money? Being conscious that choices affect our finances is one of the first solutions to attaining financial freedom. You achieve goals by planning and executing the plan – this is a sound money habit. Therefore, be specific about your goals. Be Specific with the amount you want, the lifestyle you want, and by what time or age to achieve it. Goal-setting is a deliberate practice that brings you definite results. Ensure you work out the milestones within your goals. Putting check marks as you navigate each step keeps you motivated. Use the SMART tool as a guide.
“If it cannot be measured, it cannot be managed”
– Peter Drucker
2. Track your money
A Budget is such a dreaded word to most people. A mere mention elicits mixed emotions that lead to a mental block! Good news! You don’t always have to begin with it! Tracking is the key to installing sound money habits. It is a proven technique that reveals so much about your money.
The process exposes you to your cash flow patterns and produces a better understanding of money. The idea is to track every income and expense as they happen – it works wonders. Sooner or later, you find yourself appreciating your money more. Tracking consciously transitions you into budgeting without much stress. It also helps you identify the difference between needs and wants – priorities.
3. Pay-Off Debt
The thought that you have someone else’s money is just as crippling as the burden of the debt itself. This feeling is toxic and cripples you with confusion and disorganisation. Examine how you view debt; is it a solution or a problem? Sound money habits sit on the foundation of emotions and perceptions.
If you want to get out of debt, you must be composed. List all your debt from the smallest to the highest. Next, draw a plan showing how to pay off the debt – the snowball method is an eye-opener.
On the positive side, being a good debt payer improves your credit rating and opens your possibilities for future borrowing. However, the bottom line is that debt is other people’s money – pay it. If you do it any other way and you will have obstructed your course to wealth-creation.
Next on the sound money habits is the emergency fund.
We live under both certainty and uncertainty. Both of these scenarios demand preparation. A reinforcement; if you are well prepared for the known, you apply the same zeal to prepare for the unknown. Surprise expenses like medical bills, sudden repairs, and job loss could set you back than you ever imagined. Setting up a fund that could cater for at least three months of your living costs is the bare minimum. A safer option would be to have a whole year’s cushion. A real case scenario is the recent economic downturns and the COVID-19 pandemic. Consider a liquid and interest-bearing account to pack this fund.
5. Automate Bills and Savings
How good is your memory? Are you always on point when settling bills with a chequebook? Automation comes in at number five in the sound money habits.
People tend to bank on their memory to do things. It requires a substantial amount of effort and self-discipline to do this. Why stress yourself if you could have it better? If you are in employment, utilise the check-off option or have your bank deduct your savings and important bills before you start spending money.
6. Become an Investor
While savings install the habit, investing tests your patience and emotions.
Investing teaches us more about the concept of the time value of money. You also learn how to be patient and the power of compound interest. Investing introduces you to another of the sound money habits – diversification or asset class allocation. This practice exposes you to the risks associated with different asset classes. Make sure you understand the risk vs reward.
7. Embrace Continuous learning
Learning never stops; interestingly, the most valuable education happens outside academic institutions. Why not install a continuous learning mindset as one of your sound money habits?
Maintain a steady interest in market news, changes in legislation and regulation laws that may affect your money. Learn about stocks, tax benefits and how to be good with money. Read financial blogs and magazines or even listen to podcasts on sound money management. Read more on how to avoid getting scammed.
8. Exercise Duty of Care
How many times have you heard of ‘health is wealth’? Practise a healthy lifestyle; eat and drink healthily, rest and sleep well, exercise and conduct regular health check-ups. The duty of care does not stop with your body! Take good care of your home and fittings and your other assets. A small cost in maintenance is just a fraction of what you might pay to replace a whole! Safeguard yourself and your wealth with sufficient insurance coverage. If you can afford to buy it twice – you do not have to insure it. Insurance – number eight of the sound money habits.
9. Consult the Experts
Flying solo and feeling stuck? A quick insight; all great players have coaches, mentors and advisers. It should not be any different when it comes to personal finance. These types of experts offer a support system that is key to wealth building. They will help you with measuring progress and maintaining the required discipline. You get to see things from a different perspective. Try it, get that nudge and witness growth that you have never imagined.
10. A bargain is just as good
How often do you resist the urge to negotiate the price of a product or service, because of the fear of being perceived as cheap? That resistance is a trap. Learn the art of being thrifty with your purchases – there lies the power of wealth builders. Try bulk purchasing for goods like dry foods – you stand a better chance to get discounts. Practise this and observe the positive changes as time goes by.
Take Away...
These tips are just reminders and not the do it all solutions to financial freedom. However, repeated over and over, they can help you as you install sound money habits. They also help you learn and understand more about the relationship you have with your money. Select what works for you as you answer this question: what does financial freedom mean to you?
