7 Great Financial Habits for All Ages

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Strong financial habits don’t just happen. You have to practice them over time, like regular exercise or good eating habits. Unfortunately, our credit-driven society encourages us to spend more than we can afford, so many Americans are not saving because of debt. If you can develop good financial habits early, then you will see the benefits for the rest of your life.

Most Americans lack the basic skills to manage their money effectively. Two-thirds of Americans can’t even pass a basic financial literacy test. And the situation is getting worse; 42% were able to pass the same test in 2009. And 45% of Americans don’t have sufficient emergency savings to cover three months of their living expenses in the event that they get sick or lose their job. In addition, 43% of student loan borrowers are not making their payments, 38% of U.S. households have credit card debt, and 33% of American adults have no retirement savings. With a little financial planning and some good financial habits, not only can you pay your bills, but you can also have enough to save for the future.

Here are seven financial habits that will help you put yourself on the road to financial happiness:

1. Live within your means. Too many families are overextended. It has become too easy to pay for things using credit, and too few families maintain a household budget. If you are struggling to pay your bills or put money aside in savings, take a hard look at your family finances. Develop an honest and detailed family budget that reflects the amount of money you take in every month and all your household expenses. If you don’t have money left over for savings, then you are overextended. You should be able to set aside enough to maintain an emergency fund and save for retirement. Download iQ’s Budgeting Checklist >

2. Pay your bills before they are due. Many people accumulate their bills and pay them all once a month, which often means some bills are paid late. That’s no way to stretch your paycheck. Plan on paying bills in advance, when you have the money to pay them. For example, there is no reason to wait for your credit card bill to arrive when you can pay all or part of it online at any time. It will make sure you get your bills paid on time and help you maintain a healthy credit score. Learn more about what a credit score is and why you should start building credit now!

3. Know the difference between good debt and bad debt. Debt is inevitable but undesirable. There is some debt, such as a mortgage or student loans, that is considered good debt since you are investing for greater returns later. Credit card debt, department store or retail debt, and paying for consumables on credit is bad debt. Car loans are considered bad debt, for example, because cars only depreciate in value over time, and you have to pay interest on a loan that yields no real returns.

Related: Download the Budgeting Checklist for a list of income and expenses to  include when planning out your household budget.

4. Avoid the credit card vortex. It’s too easy to get caught in a quagmire of credit card debt. Many people keep using their credit cards until they reach their credit limit, with no hope of paying them off. Use your credit cards wisely. Don’t spend more than you can afford to pay off each month (or within a reasonable amount of time). If you do find the need to use your credit card to cover emergencies or unexpected expenses, then prioritize your debt and work to pay down your credit cards as soon as possible. If you keep paying only the minimum each month, your debt will accumulate more interest, and the totals will keep getting larger.

5. Maintain an emergency fund. Be sure to set aside enough cash to handle a family emergency, such as losing your job or being laid up with an illness or injury that prevents you from working. You should have liquid savings to cover at least three months of expenses.

6. Save for your retirement. When you are just starting out on the job market, it’s hard to think about saving for retirement, but dedicating cash for retirement is one of the best financial habits you can have. Too many people wait too long to set up a retirement plan and underestimate how much they need to save. We are living longer, and healthcare costs are rising—so retirees need to save more than ever, which is why you should start saving for retirement as soon as possible. If you’re looking for more information on retirement planning, we have you covered with these blog posts.

7. Prioritize your debt. Ideally, you want to reduce your debt without affecting your retirement savings. If you prioritize your debt, paying off either your high-interest debt first or starting with your debt with the lowest balance, you can still save while reducing your overall debt. Be sure to make your payments on time and try to pay more than the monthly minimum to reduce your debt.

Maintaining good financial habits also requires using the right financial tools. Your credit union can help with checking and savings accounts, credit cards, retirement strategies, and a host of other financial services. And the great thing about working with your local credit union is that you aren’t just a customer, but a member, which means you get better service from people dedicated to helping you meet your financial goals.

It’s never too late to start developing good financial habits. You can start by making sure your savings strategy is on track, both for an emergency fund and retirement. Talk to your local credit union to get started.

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