Paying yourself first
Before you pay any bills, consider paying yourself first. This means saving and investing a portion of your earnings before you do anything else with your money. In the book The Richest Man in Babylon, written by George S. Clason, the parables are told by a fictional Babylonian character called Arkad, a poor scribe who became the richest man in Babylon. How did he achieve this? By following the first law of wealth: ‘Save at least 10% of everything you earn first and do not confuse your necessary expenses with your desires.’
After you have paid yourself, the rest of your earnings can then be used to pay bills and purchase the things you need.
Spending less than you earn
The problem is if you routinely spend more than you earn, you could be building up more and more debt. In many cases, this may mean turning to a credit card and not paying off the balance each month. This could leave you with potentially exorbitant fees and interest rates which can take years to pay off. When considering spending on something you want, ask yourself if you genuinely need it.
Not letting emotions affect your financial decisions
For many people, money habits are tied to emotions and how we feel.
It is easy to fall into the trap of spending money when we are disappointed, angry, or even happy. While emotions are important, they are not helpful when it comes to making financial decisions.
Develop a habit of taking your time and making rational money decisions.
Controlling your debt
Debt is not necessarily always a negative. In some cases, debt can be a positive step towards helping you get closer to something good. For example, while a mortgage is a form of debt, purchasing a home could be a necessity for you. Similarly, borrowing money to enhance your education could allow you to get a better-paid job. You might even be borrowing money to set up a business.
On the other hand, using credit cards, for example, to cover extra spending is generally considered a bad use of debt. This is because the repayment terms and interest payments can often be expensive.
Having a financial plan
It is good to have a plan around coping with the unexpected financially, building wealth, and securing your future. When you have a plan, good financial decisions can become automatic.