What are the Top Good Financial Habits You Must Have?

source: moneyfcu

Parents teach numerous healthy lifestyle habits to their children throughout their lives. However, teaching healthy economic habits needs to be addressed. Several people develop unhealthy financial habits which negatively influence their economic stability and future. This may lead to individuals never being able to achieve monetary freedom and independence.

Ergo, this blog aims to educate you on a few vital financial habits you must have.

1. Create and Follow a Monthly Budget to Manage Expenses

Building and adhering to a monthly budget plan is an excellent economic practice to develop since it helps individuals in the following ways:

• Awareness of monthly income and outgo of various accounts.
• Considerable improvement in financial well-being.
• A clear understanding of distinctions between wants and needs.
• Guarantees that all savings and assets are secured and on track.
• Curbs impulsive and costly expenditures.
• Ensures that all outstanding balances and debts are paid in full.
• Reinforces financial objectives and helps achieve them.

While creating a budget, one must be practical and account for all obligatory expenditures. Here are a few things to keep in mind during budget planning:

• Amount of monthly revenue generated from employment.
• Monthly amount spent on essential needs like food and living expenses.
• Monthly amount spent on other expenses like shopping, vacations, dining out, etc.

These crucial economic data are necessary for people to avoid spending more than what they earn and prevent a life of poor credit and debt.

2. Build an Emergency Corpus to Protect Assets

Life can be unpredictable, and crises may arise at any moment. To incorporate healthy financial habits, one must always be economically prepared for such unfortunate scenarios by establishing an emergency corpus. An emergency corpus acts as a financial safety net that ensures people do not deplete their savings or jeopardise their overall economic stability during economic emergencies. Ideally, one should set aside 6 to 9 months’ worth of living costs in an emergency corpus. An emergency corpus is especially helpful if:

• You are paying off debts or outstanding balances
• A family has only one income source
• You have recently started following a budget

For immediate fund transfer, an emergency corpus should be secured in highly liquid assets like overnight or liquid funds.

3. Start Investing Early

Everyone should begin investing early in their lives to maximise their assets’ growth and return. Here is how you can safely start investing early:

• Register on online brokerage accounts to learn the ins and outs of investing.
• Build a modest yet professional portfolio.
• Make automatic monthly or weekly payments to it.

Being an early bird when it comes to investing has the following advantages:

• Compound interest helps earn returns from previously accumulated returns.
• Long-term objectives like retirement funds benefit most from this.
• Allows little investments to increase significantly over time.

However, compound interests take a long time to attain substantial growth and return. Ergo, you should begin investing as early as possible in life.

4. Opt for Disciplined and Adequate Insurance Coverage

Having sufficient insurance coverage is the key to protecting the individual’s economic goals and safeguarding their loved one’s economic future during unanticipated events. One may develop good financial habits by investing in the following types of insurance:

• Life Insurance Plans: In the event of the policyholder's untimely demise, life insurance financially safeguards the beneficiary's family members. Individuals can ensure adequate life insurance coverage by purchasing a term plan.
• Health Insurance Plans: In this country, healthcare expenses have been on a steady rise for quite some time now. Therefore, it is wise to ensure maximum health insurance coverage for you and your family to have financial coverage during unforeseen medical emergencies.
• Systematic Investment Plans (SIPs): Using a SIP, essentially a kind of mutual fund, is an excellent approach to gaining financial independence. In SIPs, people buy shares and units when market prices run low and sell when prices run high.

5. Monitor Your Credit Score Periodically

People with low credit scores are deemed as risky individuals in the finance sector. A person’s credit also determines the following:

• Loan interest rates and duration
• Borrowable and repayable loan amounts
• Insurance premium amount

Thus, everyone should check their credit score periodically to ensure that they maintain a CIBIL score of at least 750. Individuals may also consider opting for reputed credit monitoring services to safeguard their data and assets.

6. Stay Financially Educated and Hire a Financial Advisor

Economic knowledge is arguably the best defence against financial turmoil and con artists. Here are a few ways to be financially educated:

• Examine tax laws to ensure maximum rebates, deductions, and exemptions.
• Stay updated with stock market movements and economic news.
• Alter your investments and portfolios accordingly.

Additionally, hire a financial advisor to stay on top of the finance game and market with expert financial education and guidance.

7. Routinely Update and Review Financial Strategies

Creating certain financial plans and strategies that cater to one’s specific needs and circumstances is crucial to building good money saving habits. However, more than creating a strategy is needed. Individuals must also routinely review and update their economic strategies with the passage of time and the alteration of circumstances. Here is how people can get the most out of their financial plans:

• Devise action plans to navigate economic decisions easily.
• Review strategies once every month, at the very least.
• Update significant data or information changes every 3 to 6 months.
• Update strategies upon the occurrence of major life events, such as:
  • Purchasing a house
  • New employment or pay rise
  • Marriage
  • Childbirth
  • Major medical emergencies

An economic strategy helps people assess, plan, and improve their overall financial condition and stability.

8. Overlook Temporary Volatilities and Focus on Long-Term Goals

Investments are typically subject to short-term volatility, particularly equity investments. Thus, portfolios may vary depending on the market's situation, i.e., ups and downs. However, volatility has always been transitory, and investments typically generate unrivalled long-term returns.

Hence, people should disregard short-term volatility and concentrate on long-term returns and goals to maximise investment returns. This eventually leads to gaining capital from the market, which aids in achieving one's financial objectives.

9. Improve Revenue Generation with Passing Income

Identifying plausible passive income strategies to increase one’s monthly income is vital for building wealth and repaying debts faster. Any long-term income mode with little maintenance is a passive income source. However, to get everything up and running, one must invest time and effort into building such passive income sources. Examples of passive income:

• Rental properties
• Investment dividends
• Side hustles or businesses

Individuals should be imaginative with their approach to passive income so they do not need to invest a lot of money to get decent returns.

10. Have Monetary Conversations with Colleagues and Friends

Honest and open conversations about money and finance with friends, family, colleagues or accountability partners can be constructive in the following ways;

• Learn money management strategies to enhance money-building drive and literacy.
• Overcome economic stress or turmoil and achieve financial objectives.
• Gain financial confidence in the economic future’s improvement progression.

Like all habits, healthy economic habits require individuals to invest time and effort to develop. However, once these habits are implemented, people will find they have great control over their economic well-being. Now that you know of the financial habits you must have, start making positive changes today and secure your financial future.