The quest for financial freedom is everyone’s dream and aspiration. And while this is true, the majority of people don’t know how to get there.
It all boils down to financial literacy, the scientific knowledge and rules about how money works.
Personal finance is usually not taught in most schools. This often results in financial illiteracy and young people picking up bad spending and saving habits. And you know what they say about bad habits – they’re usually difficult to break.
There are money laws, like the law of cause and effect and if you habitually break these laws, it begins to work against you, whether you know it or not. Unfortunately, many people form habits that are counterproductive to their financial well-being and are most time oblivious to the fact it could be the reason for their financial woes.
So what are the core habits requisite for a healthy financial and prosperous life? What are the laws of money, and how can you incorporate these laws into a routine until they form your habits?
This article seeks to change your view of money and show you how you can build financial habits that will change the financial trajectory of your life.
Some finance tips to know
Knowing how money works is one thing. Knowing the red flags that hinder wealth creation is another thing. Money has rules, but these rules are based on the knowledge of facts about money. Let’s explore some of them
1. Know the difference between asset and liability
Though most adults in their lifetime have heard something called asset and liability, many do not factor that into their spending habits. Knowing the difference will help you make an informed decision when it comes to spending. When you spend your money on things that will lose their value right from the moment of purchase, such items are called liabilities. They don’t only lose their values, they take more money from you in the name of maintenance. On the other hand, assets are things that are appreciated with time. They increase their worth and value as the day goes by. With this knowledge, you will prioritize assets before any luxury that is a liability, unless it’s a necessity
2. Bad debts and good debts.
Another very important fact in finance is the knowledge of bad debts and good debts.
The former is a loan or debt incurred for the purchase of liabilities. While the latter is the loan you secured for the purchase of assets.
It becomes financially defeating to borrow money on something that loses its value with time. Also with this knowledge, borrowing money to service an asset like a landed property is a good debt. Of course, there’s a school of thought that says a personal residential building is a liability. Well, I don’t outrightly agree. What’s your take on that?
3. The myth of long-term savings as opposed to long-term investments
While those without financial education save for the Long term, those with a robust knowledge of how inflation impacts any money saved over time, causing it to lose its value, will rather invest for the long term. Saving for the long term must be discouraged. And for a country like Nigeria that has experienced unprecedented inflation and depreciation of the naira, those who have saved their hard earned Money in the bank or elsewhere have become victims and have shot themselves in the leg, because the money will have lost its value as a result of the inflation.
6 Financial habits that can change your finances
1. Practice a positive mental attitude
Your mindset more than anything is the key factor for living a prosperous life. Everything comes from the mind.
A positive mental attitude is one thing that is always optimistic, grateful and willing to take on challenges. This alone is one of the rare qualities of every successful man in the world.
2. Set life goals
What is financial freedom to you? Everyone has a general desire for it, but that’s too vague a goal. You need to get specific about amounts and deadlines. The more specific your goals, the higher the likelihood of achieving them.
To do this you will need to write down what your lifestyle requires, how much you should have in your bank account to make that possible, and at what age is the deadline to save that amount.
Next, count backwards from your deadline age to your current age and establish financial mileposts at regular intervals between the two dates. Write all amounts and deadlines down carefully and put the goal sheet at the front of your financial binder.
3. Create automatic short-term savings
Pay yourself first. Enrol in your employer’s retirement plan and make full use of any matching contribution benefit, which is essentially free money. It’s also wise to have an automatic withdrawal into an emergency fund, which can be tapped for unexpected expenses, as well as an automatic contribution to a brokerage account or something similar.
Ideally, the money for the emergency fund and the retirement fund should be pulled out of your account the same day you receive your paycheck, so it never even touches your hands.
Keep in mind that the recommended amount to save in an emergency fund depends on your circumstances. Also, tax-advantaged retirement accounts come with rules that make it difficult to get your hands on your cash should you suddenly need it, so that account should not be your only emergency fund.
4. Make a monthly budget
Making a monthly household budget and sticking to it is the best way to guarantee that all bills are paid and savings are on track. It’s also a routine that reinforces your goals and bolsters your resolve against the temptation to splurge.
5. Track all your inflows and outflows
Tracking your income, and the outflows is vital to know how you spend your money. With it, you will know what takes more of the money.
6. Practice delayed gratification and luxury
One of the key factors for financial woes is the tendency to always satisfy your immediate cravings and wants. That also applies to those who are guilty of impulsive buying.
Delayed gratification means putting your money where it should multiply or investing in assets rather than spending it on luxury and other liabilities.
Conclusion
Making money and having a prosperous life is not just a wish. It must be a strong desire, backed by concerted efforts and consistency. Habits are not formed overnight. You must endeavour to begin and deliberately monitor your progress as you employ these time-tested principles.