“The more you learn about money, the better you’ll be able to use it.”
What sets people who are on top of their finances apart from the rest?
According to personal finance expert Dave Ramsey, it all comes down to how intentional you are with your money.
As Dave Ramsey writes in Total Money Makeover:
“It’s not about being brilliant, it’s not about being wealthy, it’s not about being successful, it’s about being intentional with your money.”
And the key to becoming more intentional with your money is to build better money habits.
The quality of your financial habits directly impacts how much you make, spend, save, and invest.
In other words, your daily habits are the key to financial success.
Habit #1: Creating (And Sticking To) a Budget
As Dave Ramsey writes, “A budget is telling your money where to go instead of wondering where it went.”
This is why financially savvy people are disciplined about creating (and sticking to) a budget.
A budget is a plan for what you’ll do with your money — it’s a plan for what’s coming in and what’s going out.
This allows you to decide where your money is going instead of wondering where it went.
But before you can create a budget, you’ll first need to track your income and expenses for at least 30 days.
Based on this data, you can decide where you need to cut expenses, how much you can spend (and on what), and how much you can save and invest.
Nevertheless, budgeting is the most important step in gaining control of your finances.
Habit #2: Living Below Your Means
Financially smart people are mindful of their spending and avoid the trap of inflating their lifestyle (upgrading your lifestyle when income increases).
By living below their means, they have more money available to save, pay off debt, and invest in financial assets.
In other words, financially smart people don’t use their money to buy fancy items that make them appear rich, they use their money to actually become rich.
They don’t squander their money on luxuries, but they put it to productive use so it helps them secure their financial future.
Habit #3: Saving For Emergencies
Financially smart people understand life can surprise them at the worst moments — so they make sure to save for emergencies.
By having an emergency fund in place, you can handle unexpected setbacks such as medical bills, car repairs, or job loss without having to sell your investments, rely on credit cards, or loan money from friends or family.
That’s why Dave Ramsey recommends “building a fully funded emergency fund of three to six months of expenses before you start investing.”
By saving for emergencies, you protect yourself from financial ruin if an unexpected setback were to happen.
Habit #4: Long-Term Investing
Long-term investing is another habit of financially smart people.
They understand that if they one day want to stop working for money, their money needs to work for them by investing in high-quality assets.
Just saving money isn’t enough, you need to invest.
For example, if you have $100k in savings and put it in a high-interest bank account for 20 years, you’ll end up with roughly $148,000 (assuming an annual interest rate of 2%).
But if you invest this $100k instead — let’s say into an S&P 500 index fund — you could end up with about $723,000 after 20 years (assuming the historical 10.4% annual return).
In other words, if you want to reach financial freedom and build true wealth, you can’t rely on just saving money — you’ll have to invest it.
As Dave Ramsey said, “The stock market is like a roller coaster. There are going to be ups and there are going to be downs. But over time, you will see your money grow if you keep it invested for the long haul.”
Habit #5: Investing In Yourself
People who are good with money don’t just invest it in financial assets, but also in themselves.
By investing in your skills, knowledge, and personal growth, you’ll be able to generate more economic value and make smarter financial decisions.
“The more you learn about money, the better you’ll be able to use it,” says Dave Ramsey.
As they say, the more you learn, the more you earn.
Contributed by Jari Roomer
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