11 Better Money Habits to Transform Your Finance

In this post – you will learn 11 useful money habits that will be highly impactful in your personal finance life.

The earlier you incorporate these habits, the faster you can build your wealth.

A little story about me – when I was in my graduate program, I was quite stressed about the amount of tuition I will owe. I still remember the financial stress and I was desperate to look for jobs so I can start paying off my school debt.

Luckily, fast forward many years later – I have saved over 6 figures which all of it is my hard-earned money. I am so glad that I have been incorporated these helpful habits since a long time ago.

Note that this took me a very long time to go this far (more than 8 years of working full time) and this did not happen overnight. I quickly paid off my student loan, live below my means, switching to a better job, and have been working since I am 20.

Below are the money habits to grow and this could potentially make you have lots in savings.

Table of Contents

Pay yourself first

This is one of the habits that I did not realize that I’ve been doing for a long time. After I receive a paycheck I quickly moved some portion to my online savings account. Then, I use the rest of it to pay my credit card balance in full, other utilities, and fun stuff. By doing this, I prioritize saving, build good financial habits, and set aside emergency funds.

Plan your purchases

You know the time when you had to buy an umbrella because you forgot to check the weather, and end up having a bunch of umbrellas? I’ve been there a few times, and I got annoyed at myself.

Or, when you end up buying clothes and told yourself that it’s really cute but you ended up never wearing them.

This can simply mean checking the weather before going to work, or it simply means asking yourself more questions before making a purchase i.e. why I am buying this? Will this make me happier? do I have any pair of clothes that can go together with? Does this fit my style currently?

This can also mean having a specific list of grocery items so you don’t have to wander around and spend more than you need. A few other helpful questions are:
– Can I wait on the purchase?
– Are there cheaper options?
– Could I buy used?
– Is it worth working for x amount of hours for this?
– What are the total out-of-pocket expense of owning this item? E.g. if you have a car you would have to pay insurance, gas, registration, maintenance, etc.

Another helpful tip is to sign up for a notification on camelcamelcamel.com for any non-urgent item you want to buy. It is an Amazon price tracker and it is very helpful when I have items in mind, for instance, a Christmas gift for my mom.

Make a purchase as a conscious decision

Related to the previous point, conscious spending is about spending money on the things we love and cut back on the things that we don’t really care about (a term that I learned from famous financial blogger Ramit). In other words, I am frugal on the things that don’t matter to me and generous on things I love.

A good starting step is to see where you spend the most – is it on traveling? Is it on eating out? Is it on online courses? This can be a good indication of where you are willing to spend your hard-earned money.

If you like to buy lattes and it makes you happy, you don’t have to completely stop doing it (although if you tend to overspend, create a budget will certainly help). There is nothing wrong with spending on the things you love but also you want to balance it out by cutting back on other things.

For me specifically, I don’t mind buying a generic brand for medicine, live in a smaller space, or buy cleaning supplies at a dollar store. I’d rather increase my budget on the things that’s important to me such as music education and equipment.

Being good at controlling your spending

One of the practical ways to do this is by writing down a list whenever you really wanted to buy something. I do this and I check my list a few days later and a lot of times I don’t really want it eventually. If an item survived for a few months, then I would get it after doing more research and finding the best deal.

I also use my amazon Wishlist for this purpose. Although. I found myself rarely open the wish list because that was just an impulse or hobby that I lost interest in.

Another practical tip is unsubscribing from all email marketing list. Not only this will declutter your inbox but also eliminate the temptation completely to check out some deals.

Turning off notification on a shopping app can also help!

If you have no money left over and no idea where did they go, you would want to start tracking your spending. After finding which areas you tend to overspend, you would want to create a budget to make sure you are on the right track.

Do you tend to impulse buy when you are angry, frustrated, or sad? If yes, write down things you can do when you feel this way e.g. going for a walk, calling a friend, taking a shower, listen to music or something else that can distract you. When you are writing a plan B, this increases the likelihood of you achieving your new habit.

Shop around, don’t make a decision right then and there if you don’t have to

Most purchases these days are made online and it usually takes few minutes to compare prices. Simple google “[merchant name]” + coupon – you might be able to find a coupon online.

My favorite browser plugin is Wikibuy and it will automatically apply a bunch of coupons when checking out. You can also shop around for items on Amazon or eBay.

I’d recommend using Rakuten.com (used to be called Ebates) to get cashback. Personally, I have received $196.28 as of today and I use it particularly for almost every purchase online. The cashback especially will be quite significant for major purchases such as phone and laptop.

If you are okay with the used items, nextdoor.com has been a helpful site for me to find the free and used items.

Have a long term goal

When you know the “why” you are saving, you will be more motivated to save and striving for your best.

For instance, do you want to save for a house, wedding, or your kids’ education? Personally, I am saving for a house and early retirement (which will take a while obviously), but this gives me a purpose as to why I am saving.

Your motivation may be simply to have an emergency fund, help with your parent’s retirement, or you just don’t want to live paycheck to paycheck. Whatever it is, write it down and remind yourself whenever you are getting off track.

Cut on expenses

Cutting expenses is one of the most practical ways to increase your savings. It is a lot easier and faster than negotiate a salary or get a higher paying job. Things such as phone bills, car insurance, cell phone plans, or cable internet expenses can be easily reduced.

For instance, I was able to save ~$400 a year by switching to a pre-paid plan (H2O & Tello) from T-Mobile. Check also a list of subscriptions that you don’t currently use and cancel it. If you enjoy cooking at home, this can also be a great way to increase your saving and eat healthier.

Check this article to further reduce your expenses!

Don’t keep up with Joneses

When I was a teenager, I spent my savings on branded shoes and bags just to impress my high-school friends. Looking back, it was probably a border-line dumb decision and I am glad that I am over it.

If you are thinking to buy a tesla, higher-end handbags, expensive luxurious house just to keep up with your social circle, trust me – you don’t do yourself any good. Not only you will be financially burdened but you may end up being liked because of what you have, not because of who you are.

Set up automatic payment and pay off your credit card balance in full

This one is quite obvious but you don’t want to spend your hard-earned money on paying on interests for those big fat corporates. Most credit cards have high APR and this can be easily avoided by paying it off fully.

It is also a good idea to set up an automatic payment so you won’t forget. If you happen to forget (which I did), give the credit card company a call and ask them to waive a fee. I did that a few times for different credit card companies, and in all cases, they are willing to waive the fee.

Invest your money

Investing is a big topic but after you have enough emergency funds to save, generally you want to start investing.

If you have 401k from your employer, you already invested your money and contributed every paycheck. For me, after funding my 401k up to the employer match, I opened a Roth ira with Charles Schwab and start investing using index funds. After maxing out my contribution, I opened a brokerage account with Vanguard.

I know that some people might be worried things can turn out bad in the market, but tried to not always check the stock market and understand that a lot of it is background noises and what matters is the return rate over the long term.

You may also consider real-estate investments such as buying a multi-family home and rent other space. I have some friend who does it and it seems pretty going well. For me, I don’t know real-estate and fixing houses well enough – so I stay within the area that I am comfortable with.

Pay as little taxes as you can

According to MoneyRates.com, if you earn an average income, your federal tax bill could total in the hundreds of thousands of dollars over the course of your lifetime. If you earn a six-figure income, you might be looking at million dollars lifetime tax bill. That’s heck lot of money for Uncle Sam.

Tax are inevitable, but there a few things you can do to reduce your tax bill:

Contribute to an employer-sponsored plan e.g. 401k to reduce your taxable income.
Take advantage of IRAs i.e. opening a Roth ira account and max out annual contribution before brokerage account.
If you have high-deductible plans, consider HSAs and invest in it. Not only this reduce your taxable income, but also you can take this money tax-free to cover health-care costs.
Take advantage of the business deduction of your to own business. Considering the number of details required to file state and federal taxes, it might be well-worth to hire a professional

Investing in yourself

This does not probably do not 100% fit in the money habit. But I’d like to throw in this post because it is so important (and it does have an indirect impact on your finance).

There are many ways to invest in yourself, for instance, reading books, taking a class/workshop, get more education/certification, attending networking events, volunteering, or even starting a side-hustle. I believe this is not only opening up more opportunities but also it might bring more awareness and fulfillment to you!

Starting a side hustle can be a bit overwhelming particularly given the number of choices out there. For me, it took me a long time to understand myself and I decided to focus on one thing which is writing on my blog. I recommend trying one thing at a time and it is ok to take your time to understand yourself and build up the skills.

Whether you are still in college, or a busy mom – I believe setting aside an hour every day/ few days can make a big difference.

Those things that you learned will accumulate, and even it may not always be useful/practical in your daily life – at the very least you can learn more about yourself and it may plant a seed for a different project/idea in the future.

Vi, a software engineer with a keen interest in personal finance, had planned to retire once she reached her lean FI/RE (Financial Independence/Retire Early) goal. However, after achieving the goal, she took few months of a mini-retirement filled with travel and adventure and decided to continue her career.

For the past five years, Vi has been using Personal Capital (Empower), a free financial tool. Her favorite features include the dashboard for net worth, allocation, and planning, which help track her FI/RE goal and keep those investment fees in check.