When it comes to personal finance, many of us like to think that some folks are just “good” with money. Managing money is a talent, we tell ourselves. Some people are good at budgeting and saving in the same way other people are good at fixing things or baking or doing Sudoku puzzles – right?
Well, not exactly. The truth is, anyone can be good with money. Any skill – from fixing a leaky faucet to baking the perfect cake – gets better with practice. Same goes for money: The people who are really great at saving and budgeting have simply developed good money habits.
Want to become a money maven? Start developing these five good money habits now – pretty soon, they’ll become second nature.
Good Money Habit #1: Pay attention to details
Do you know what you spent on groceries last week? Down to the penny? Do you know how much you saved by opting for the store-brand vanilla soymilk instead of the national brand? Do you know how much you spend on gas every week? Or how much you could save if you brown-bagged your lunch instead of buying snacks from the office vending machine?
People who “get” money track all of their spending, every cent of it – and they’re always looking for new ways to save. These are the people who clip coupons and do heavy-duty comparison shopping before any purchase. They read the fine print on their bills and bank statements – and they aren’t afraid to challenge fees that don’t make sense.
Bottom line: You should know precisely where every cent of your money is going. And you should always be on the lookout for ways to keep more of your hard-earned cash in your wallet.
One thing to keep in mind, though: “frugal” doesn’t mean “cheap,” which brings us to . . .
Good Money Habit #2: Buy for quality, not price
You need a pair of dress shoes for work, and you’ve got two choices: a $20 pair from your local discount superstore or a $100 pair from a department store. Which should you choose?
On the surface, this might sound like an easy one: After all, you’re looking at a pretty steep price difference. If price alone was the deciding factor, the $20 shoes would be the clear winner.
But if you look closer, things aren’t as black-and-white: The $100 shoes are made of real leather, and they’ll last for years if you take care of them. The $20 shoes are made of . . . well, you’re not sure what they’re made of, really – and even with the best care they’ll probably only last a few months before they start to fall apart and look . . . cheap. In the long run, it’ll cost you just as much – if not more – to buy and replace several pairs of cheap shoes than if you’d just shelled out the extra money for one good pair.
Frugal people understand that, in the long term, the cheapest option isn’t always the most cost-effective option.
Good Money Habit #3: Buy for price, not prestige
It’s one thing to spend a little more to get a higher quality product. It’s another thing to spend astronomical amounts of money just to prove that you can spend astronomical amounts of money.
Financially savvy folks know that there are more important things than keeping up with the Joneses – or impressing the Joneses with your shiny new $100,000 SUV and your wall-sized LCD TV. I’m not saying you can’t buy a television or a car. But keep things realistic, and avoid extravagant. Don’t buy a 70-inch television when a 32-inch would do just as well, and don’t go into debt just to follow a fashion trend.
At the end of the day, it’s not about the car in your driveway or the logo on your handbag. Live within – or below – your means. Don’t let peer pressure get in the way of your financial security.
Good Money Habit #4: Learn to wait
When it comes to money, patience is truly a virtue. Retailers and credit card lenders have made it ridiculously (read: dangerously) easy to buy now and pay later.
And you do pay. And pay. And pay.
Here’s my advice: If you want something, save up for it. It’s that simple. Want a new TV? Need a new set of tires? Have your eye on some new living room furniture? Start saving. That’s right. Saving. Put away $20 or $50 from every paycheck until you’ve got the money to pay cash. No credit cards. No convenient in-store financing or easy payments of $XX per month.
Good Money Habit #5: Pay yourself first
I know, I know – you’ve heard this phrase a million times. But it’s true. And it’s a very good money habit. If you want to start building a secure financial future, you have to get in the habit of saving money. Choose a set amount — $20, $50, $100; whatever you can afford – and put that amount in savings every time you get paid. Do this before you pay bills or buy groceries or send in your student loan payment. If you don’t think you’ll remember, set up an automatic bank transfer.
Like I said, being “good” with money isn’t a natural-born skill. These money habits aren’t highly complicated, and they don’t require any special knowledge. The first step to managing your money like a pro is to develop good habits. Eventually, these savings-savvy behaviors – like paying yourself first and saying “no” to credit card debt – will seem like second nature.