Sunday, September 6, 2015

5 Habits to Financial Freedom

It was January 2014 and my doctor scolded me for high cholesterol (250), being 20 pounds overweight, and threatened to put me on cholesterol medicine.  I knew I needed to change my lifestyle habits.  I cut back on red meat and sweets, got a personal trainer, started taking omega-3 daily, and began working out 3-4 days per week.  The first 3-4 months I didn’t feel like I was making great gains, but slowly I was losing one pound at a time and changing my metabolism.  When I went back a year later for my annual check-up, my cholesterol was down 54 points, I lost 15 pounds, and my doctor was surprised she didn’t have to put me on cholesterol medicine.  If you’ve ever tried to start a workout routine, you’re familiar with the inner struggle that occurs when you’re looking back and forth between your tennis shoes and the couch. You start to wonder how much one little workout really matters in the long run.  It isn’t until exercising becomes a habit that you are able to silence the persistent voice that swears your time would be better spent zoned out in front of the TV or computer vs. the gym and salad bowl.  Today, I have it on my calendar to workout every Monday, Wednesday, Thursday, and Saturday.  It’s a habit now, but it wasn’t easy. Financial freedom is built from the same foundation: positive habits molded from persistence chipping away one day at a time.  Here are five habits to start implementing today.


Habit 1: Performing Routine Check-Ups
Monthly automatic investing is helpful, but you should never fully remove yourself from the money management process.  Spending habits change, income fluctuates and bills have the tendency to increase without notice, so it’s important to get in the routine of doing a monthly money check-up. Compare your actual spending to your budgeted spending, assess and pay in-coming bills, ensure that all accounts are in good standing and you aren’t being charged unnecessary fees. If you notice that something isn’t working with your overall plan, now is the time to make the necessary changes.  Without this money habit, you can’t truly be in the driver’s seat when it comes to your finances.  With today’s automatic payment/billing with service providers linked directly to your bank account, it’s easy to overlook.  Don’t get lazy on the couch, stay focused on your tennis shoes to ensure you’re not overpaying, and your monthly expenses are not increasing per your budget.

Habit 2: Spending Less Than You Earn

It’s a simple equation: if you have more money going out each month than coming in, you will end up in the red. Ending up in the red for one month can quickly turn into a seemingly insurmountable pile of debt and no designated savings for the future.  If you’re already in this boat, there are two solutions: spend less or make more.  Getting into the habit of spending less than you earn, banking influxes of cash from things like bonuses and pay increases, and avoiding the ever-present temptation of lifestyle inflation is the cornerstone of creating a financial cushion you can count on now and into the future.  One service that I use to keep track of my net worth and monthly spending vs. income is Personal Capital.  There are other online services out there such as Mint, but the important piece is understanding your monthly income vs. spend.

Habit 3: Paying Yourself First
Just like your personal health, making positive decisions for your money when faced with the temptations of everyday life comes down to two things — willpower and creating systems to make up for the days when your willpower just doesn’t exist.  One such system is paying yourself first, meaning you deposit money into your savings account (or investment accounts) before anything else. It essentially makes saving an expense just like your electric bill or mortgage payment – before it can be haphazardly allocated to random and unnecessary purchases.  Once this habit is established, you’ll adapt to your new spending limit, and your savings will steadily increase without any additional sweat or hard work on your part.  At Real Estate Concierges, we call this our 20/30/50 financial plan where the 20 is paying yourself 20% of your take home pay first, before any other bills are paid.  Invest in yourself first!

Habit 4: Avoiding Buyer’s Remorse

Considering the vast number of people who struggle under the weight of consumer debt, overspending is a significant issue in the United States. Much of this spending is habit-based — not need-based.  Get in the habit of asking yourself these questions:


1) Does this purchase have a positive purpose?
2) What will I need to forgo in order to make this purchase?
3) Will I save more by purchasing this item elsewhere or at a later time?


Often times, simply stopping to think before whipping out your credit card will be enough to realize how unnecessary so many purchases actually are.

Habit 5: Creating and Sticking to a Plan to Eliminate Your Debt

If you’re simply paying the minimum monthly amount on your debt, you might think you’re following a solid repayment plan set forth by your creditor. The truth is, it is in your creditor’s best interest to keep you in debt for as long as possible – and collect massive amounts of interest in the process.  Instead, you should be the one in charge of determining how much you can pay monthly (above and beyond the minimum due) and when your official date of debt freedom will be. One strategy that I like is to start with your lowest balance and apply the maximum amount per your budget to pay it off.  So if your budget is only $50/month above all your monthly minimum debt payments, apply that $50 to your lowest credit card balance to pay it off first.  Then apply that $50+min payment of the credit card you just paid off to the next lowest debt balance that you have (credit card, car loan, etc.).  It’s gratifying to eliminate each debt/loan and move on to paying off the next.  Get in the habit of regularly checking your repayment progress, revisiting and recalculating your plan, and – most of all – making sure you are the one fully in charge of your debt repayment journey.

Just like your personal fitness plan, chip away one day at a time as results don’t happen overnight. It’s the daily habits that will transcend across everything you put your mind to; health, wealth, and achieving financial freedom.  Here’s to your health and future wealth!