Personal finance
Personal finance is a tricky thing. Making a budget by yourself; tracking your expenses; saving money; aren’t usually taught in school. And, chances are if your parents don’t have good personal financial habits, then you may have inherited those habits.
I like to think that with a positive, growth mindset, one can still learn proper financial habits in spite of their upbringing or lack of education in the matter. It can never be too late to learn.
The importance of learning your money habits
It is very important to have good personal financial or money habits. With good habits, one will have proper handling of their money. Properly managing money means a sense of security for unexpected events and means you can achieve your goals faster.
Say, for example, John wants to buy a gaming laptop. He starts saving a portion of his income. In order to be on track, he had to make a spreadsheet of his cash flow. In about a year or two, he proudly purchases his gaming laptop from a well-established brand.
What would have happened if John had poor habits? Perhaps the words, "I want a gaming laptop", left his mouth without meaning; he would still have proceeded with spending all his money on instant gratification. He never would have gone anywhere, and there is a strong possibility he could even have experienced a negative cash flow for a month!
In my experience, I have always saved money for many things: a book, a video game, good food, smartphone accessories, and more. When I was smaller, I would put a portion of my allowance inside a piggy bank and count the days I would reach a certain amount of money. The wait would be worth it when I would finally get my hands on what I wanted.
Do a self-reflection
If you want to know if you have money habits suitable for your life, needs, and desires, I have some advice.
First, do a reflection on yourself. Think of how you deal with your money. Do you like to spend it as soon as you get it? Or maybe you hoard it for the really rainy days?
Second, ask yourself: are my current habits in line with my goals? Will I be able to get what I want in my life if I continue to do what I have been doing? In my case, the answer is no. I discovered I had to increase my passive income sources, and I will cover that in a different post.
If you also feel like you can do better, read on.
Money habit tips
Admittedly, I am still near the starting line in my financial journey. However, I feel the following are really useful, and you may think so too:
1. Monitor your expenses
Track EVERY MONEY you spend and receive. All the cash flowing out and flowing in your wallet and bank accounts should be recorded.
I recommend downloading a template from Microsoft Office or Google Sheets to make tracking easier. If you want to use an app, there are many on the iOS App Store and Google Play Store.
2. Make a budget
Now that you have a record (or baseline data) of your expenses, categorize each one as needs or wants. Food? That goes to needs. Smartphone case? This one is under wants. Then, all the expenses for needs and wants less than your income are your savings.
If you feel like it, you can also add a charity category and make your savings a fixed percentage per month.
For example, you can have a 70-20-10 split for a needs-wants-savings setup. Anyway, you NEED a budget.
3. Have passive income
I generally categorize income into two: one is active while the other is passive. Active income is your income from your job. You do the work here. On the other hand, passive income means that your money is the one that does the work.
There are many sources of passive income. You can invest. You can have a blog or YouTube channel. You can write a book. You can even have your own business.
4. Try to fix things by yourself
I had to add this as an engineering graduate. If something is broken, try fixing it by yourself first before you acquire the services of other persons. It saves you a lot of money. Plus, you get to learn new skills.
Book recommendations
I am no expert in finance, so another piece of advice I can give is to learn a lot on your own. Try reading Money Mammoth: Harness The Power of Financial Psychology to Evolve Your Money Mindset, Avoid Extinction, and Crush Your Financial Goals or Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth for more awesome information about personal finance.
Do note that some money habits could be caused by deeply, impactful events in your childhood. If needed, have someone by your side when you are reflecting on your money experiences.