Good financial habits

By Matt Mayerle
Modified on May 22, 2024
good financial habits

What do people usually need, rarely have enough, and always wish they hadn’t borrowed so much of? For so many people, the answer to this riddle is simple: money. And creating good financial habits can lead to more of it.

Our relationship with money is based on the financial habits we practice daily. These are just like any other kind of habits, for a couple of reasons:

  1. There are good and bad financial habits.  
  2. The oldest habits die the hardest. 

Bad habits, whether they’re money habits or otherwise, can become abundant in our lives as they require less effort to fall into and are difficult to break out of.  Small (or nonexistent) savings accounts, past due bills, low credit scores, and out-of-control spending are the typical results of bad habits. And money habits like these can create many financial issues for you in the future.

Practice Good Financial Habits

Building good financial habits—and practicing them often—is how people achieve financial freedom.  Good money habits help us keep the bills paid on time. They provide the way to make those big dream purchases like homes and cars a reality. And most importantly, building good financial habits will help you eliminate debt.  

There are factory workers and grade school teachers that retire as millionaires. How did they do it? Well, they didn’t all buy Amazon stock at just the right time or inherit vast swaths of real estate from wealthy parents.

Ok, maybe some of them did. But only a few. We’re sure of it.  

The truth is, most of them used good money habits. By practicing some discipline and focusing on their bigger picture, they are now able to do whatever it is they want to do. Regardless of what we think of it, money is a tool that gives us access to the things we want and need, now and in the future. 

Learning how to manage money is critical. And because of its role in our lives, our relationship with money should be positively nurtured through the use of good financial habits.  

In this post, we will share some good habits that can help decrease spending, increase savings, and empower you with the knowledge to make the best financial choices for your future.  

Pay Your Bills on Time or Early 

This is an extremely important financial habit to practice. Late fees and penalties can turn manageable bills into financial nightmares, so avoid them by paying your bills before the due date.  The sooner you pay them in the billing cycle, the less likely you are to forget them and see additional charges.  Whenever a bill becomes available, pay it and get it off your plate.  

Set Financial Goals

Where do you want to be financially in a year? In five years? How about in ten years? 

Your financial goals are the objectives that you set for yourself to save or spend money, and a financial habit is how you achieve it.  They are the framework on which good money habits exist. Whether they are short-term or long-term, setting financial goals teaches us to focus our efforts on making positive financial gains.

A financial goal is any milestone that you want to achieve that will involve careful and measured spending, saving, earning, or investing. A financial goal could be to save $100 over a month or to decrease your monthly dining out expenses by 10%.

To achieve either one of these goals, you would need to alter your current financial patterns. For example, if you are trying to save $100 over a month, you will most likely have to decrease your spending in other areas.  

When thinking about what financial goals you want to set for yourself, make sure that they are goals that you can achieve with good effort. More importantly, start small. Setting and achieving a small savings goal or making a spending cut can give you the encouragement and motivation to shoot for an even bigger goal.

Success breeds success; if you stay committed to your goal and hit it, you will only want to do it again. And then again.  For many, financial goal setting becomes a habit that builds wealth and betters your financial situation. When you can see money as a tool and not a need, getting what you want can be a whole lot easier.

Live Below Your Means 

This financial habit is one of the best. When you don’t spend more money than you make, you are living below your means. Living below your means is one of the best habits to bring about immediate change for you.  Getting serious about taking control of your money means making smart, conservative moves, and one of them is to spend less than you make, whenever possible. If there is one habit to take away from this list, this is the one.

Living frugally means starting a financial habit to spend money more carefully than what you might be accustomed to. If you spend your free time searching for “great deals,” or are an unabashed expert in the art of impulse shopping, you are going to have to find a new hobby if you want to get right with your finances. That’s money that can certainly be used to pay off the debt that earns you interest and sinks you further into your financial hole.  

The advantages of living below your means can be felt by making even small changes.  When you go to the grocery store, for example, think about buying generic brands; many of them contain the exact ingredients as name brands and can be much cheaper.

Living below your means can increase your overall happiness by decreasing the stress in your life.  Consider the pressure that we feel to make enough money to cover our bills and buy the cool things that advertisers tell us we must have. Your personal finance problems occur when you spend money you shouldn’t.

You’ve Earned It, So Pay Yourself

Did you know that you have had an employee your whole life? 

Yeah, it’s you.  

Think about it: You get up every morning and lug your body around to school, work, and all your activities.  Then, you listen to your friends, dote on your family, and snuggle with your adorable pets.  And you do all that with no breaks, no vacations, forever.  

After all that effort, don’t you think you’ve earned a little something?  

“Pay yourself first” is a phrase popular in personal finance. It describes the financial habit of consistently paying into a savings or retirement account of some kind. Typically these kinds of deposits would be withdrawn directly from your paycheck and routed to the savings account of your choice, so you are paying yourself even before you pay your living expenses. This habit can help you create a better financial future.


One of the most common ways people pay themselves first is through a 401(k). A 401(k) is a retirement savings plan set up by an employer that allows its employees to put money into it before it is subject to payroll or income taxes.

Employees opt to have a portion of every paycheck deposited into a group fund that is used to make money through investments in stocks, bonds, mutual funds, and other opportunities. After a certain age, the employee can withdraw the dividends earned on the investments.  If you are enrolled in a 401(k), make it a goal to contribute the maximum amount. While it is a long-term habit, it’s designed to set you up for a successful financial future.

When you take action to pay yourself first, you are expanding your financial view.  Instead of just focusing on your immediate needs, even if you need money now, you are also making a literal investment in your future, by putting money away now that you know you will need later. 

Create a Budget

Using a budget will, without question, change your financial perspective. 

Simply put, a budget is a financial overview that details the amount of money you need to spend over a certain period of time.  Typically, personal budgets are used to plan perpetual, month-to-month spending. 

The thought of using a budget can feel unusual—even intimidating—for a lot of people.  Many households are managed paycheck-to-paycheck, so their lives are subjected to constantly changing short-term financial plans. This kind of instability makes planning a budget seem like a nonstarter. With money going out as quickly as it comes in, how can they make any plans for the future? 

Some people believe that a budget will limit their spending, which won’t allow them to be financially nimble. When they think “budget,” they think about all the things they can’t do or experience anymore because they can’t do anything that isn’t “budgeted.” But, when people new to using finance tools start incorporating a budget into their lives, they discover real power in the knowledge and control that it brings. 

A budget can give you an immediate snapshot of the amount of money you have to spend each month, where it is going, and what is available to you to spend on things other than bills and necessities.  That means that you can eliminate any guessing or estimation about your money. Want to know if you can finally order everything on your wish list? The answer is waiting for you, right there in the budget.  

How To Budget

There are plenty of budget apps available that can help you manage your month-to-month spending, set bill pay reminders, and plan for long-term goals like big purchases or vacations. One of the greatest perks of using a budget app is accessibility; many allow you to view and update your budget from anywhere. For beginning budgeters that may not be ready for that kind of commitment, a much simpler approach is just as effective.  

Grab a pen and paper, and write down the amount and due date of every bill that you pay each month.  Add up that total, and boom, you have your monthly expenses.  Next to that number, write down your monthly income.  Now, you have a clear picture of what you have coming in and going out. 

With that information, you can now decide if you’re comfortable with the flow of your money.  If you owe close to what you make (or, in more extreme cases, owe more than what you make) you can use your budget to prioritize your expenses and eliminate the ones that you can live without. If you make more than you owe, you can use your budget to allocate that money to new “expenses” that benefit you, like investments, savings accounts, and yes, even fun purchases! 

With the information that a well-maintained budget can provide, you can begin to spend smart and make better decisions about your financial future.  

Use Your Credit Card—Then Pay It Off

It seems odd to include credit card usage in a list of good habits.  Stories and warnings of credit card abuse are necessary to illustrate how irresponsible behavior can lead to serious consequences.  However, when credit cards are used responsibly, they can teach us how sticking to a repayment schedule can have a positive impact. 

Ideally, your credit card balance should be paid off each month so that you can avoid paying large amounts of interest. Remember that credit cards can rack up interest quickly.

Should you carry a balance on a credit card, it is strongly advised to pay more than the minimum payment due each month.  Making just the minimum payments or less each month will undoubtedly keep your balance high by accruing fees, and ultimately keep you in debt much longer.  

Using your line of credit or credit cards responsibly will make a very positive impact on one of the most important numbers attached to you: Your credit score. 

Always Know Your Credit Score 

Credit scores are one of the most accurate barometers of your overall financial health.  Your credit score is a rating that reflects the likelihood of you missing a payment.  

Credit scores are based on scoring models that aim to illustrate your relationship with your money and the debt you hold.  These scores are determined by the three major credit bureaus—Equifax, Experian, and TransUnion. 

To determine your credit score, credit bureaus review several factors that make up your financial profile.  Among these factors, the most important are: 

Payment History

A record of when you pay your creditors. A pattern of late payments will negatively affect your score.  Whether it’s credit card debt, loans, or any other payment, always make it on time.

Credit Utilization

The rate at which you are using your available credit.  If you have a $300 balance on a credit card with a $1000 limit, then your credit utilization is 30%—which is a rate you will want to stay under at any given point.  

In addition to important but less impactful factors (like the age, quantity, and variety of your open accounts) these bureaus typically give you a credit score somewhere between 300 and 850: 

  • 300-579: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very good
  • 800-850: Excellent

While help and expert advice on maintaining a good credit score can come at a cost, it’s important to note that, by law, your credit score is accessible to you whenever you want it, at no charge to you. You can sign up for an account at any of the major credit bureaus (or all three) to get access to your score, as well as research options for credit counseling and tips on rebuilding your credit. 

Additionally, many apps and websites can help you access your credit score, like 

Build an Emergency Fund

Even the best financial habits can’t help you predict the unpredictable.  Whether they’re surprise expenses, repairs, medical emergencies, or a loss of income, bad things happen to the best of us, and these unexpected situations can upheave our lifestyle. For those times, having emergency cash could make all the difference in your financial recovery. 

An emergency fund is money for the unexpected, to help you fill in the financial holes that have been created by unforeseen circumstances.  Even better, they can help you fill those holes without using solutions that only create more debt, like credit cards and personal loans.  If you are in a financial emergency, adding to the list of people you owe will only push back any timeline you set to get out of debt.   

It is important to note that this money should not be connected to any of your other bank accounts in any way. While your emergency fund should be accessible, it shouldn’t be so accessible that you’ll use it frequently.

A good way to manage that separation is to keep your emergency fund in a different bank or credit union than the one you use for your other accounts, and you may be able to arrange an automatic deposit every payday so that you can put money in your fund directly from your paycheck. Separating your funds in this manner keeps it out of your immediate view, which increases the likelihood that it will remain untouched (and therefore plentiful) when you really need it.  

What’s a Good Size for an Emergency Fund?

You should aim to keep a fund of three-to-six months’ worth of living expenses.  If possible, a year would be even more ideal.  This amount of money may take a lot of time to save, so think of this number as more of a goal to keep your commitment to steadily build up this important reserve. 

When you hit your emergency fund goal, you could look at decreasing your contribution and diverting those funds towards paying off debt or depositing it in an interest-bearing account.  But above all else, don’t stop!  In the end, when it comes to emergencies, any money you save can be put to good use.    

High-Yield Savings Account 

A high-yield savings account is a great place to hold this money. A high-yield savings account gives investors a higher interest rate on their deposits than a normal bank, provided that the money remains untouched for a certain amount of time.

These accounts also tend to require a minimum deposit that must remain in the account just to keep it open. Moreover, these funds rarely allow quick access to cash. Money moves through electronic transfers instead of being readily accessible via ATM withdrawals. These conditions are perfect for high-yield savings accounts, as the potential for fast growth is quite high.

When you’re looking to grow a fund for solving unpredictable problems that could occur at any given moment, you want it to be well supplied with cash as quickly as possible. 

Building Good Financial Habits

Developing good financial habits is something that will take time. Remember that you are asking yourself to reprogram a huge portion of your life and create entirely new financial habits. Our money habits come from varied and influential sources (our parents, home life, friends, etc.), so our processes can run deep. 

As you begin to incorporate new and better habits into your routine, remember to be patient with yourself. That means that it has to be okay to slip up and revert to your old habits from time to time and spend inappropriately. 

No matter how many changes you want to make, understand that you are redefining your entire relationship with money. Your old money habits are all you know, and change is hard. However, with effort, you will master each financial habit that you want to adopt.  When you see the positive effects the use of good financial habits will have on your life, you’ll stay hungry for change. 

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