Smart money management isn’t a skill you’re born with. It’s something you develop over time, through a combination of financial education and habit development to reinforce the behaviors that enable financial success.
If you want to learn stronger financial management skills, it helps to look at the strategies and behaviors of financially successful people. What, exactly, separates them from the rest of the pack? We’re glad you asked!
1. They Prioritize Debt Repayment.
Financially successful people aren’t completely averse to debt; they understand the value of pursuing a college education, the equity-building opportunity of building a home, and the importance of using available credit to preserve their emergency fund.
But they’re also aware that interest can be a drain on their finances, so they prioritize paying off debt on time and even ahead of schedule whenever possible.
They also know how to prioritize their debt payments. For example, a credit card balance always takes priority over making surplus payments on student loans or a mortgage, considering how much higher the interest rate is for credit accounts.
2. They Make Short-Term Sacrifices to Reach Long-Term Goals.
Financial success is the result of discipline. Even if you earn a high income, it is easy to burn through that money by making expensive purchases, blowing through your restaurants budget, and failing to track your spending to identify areas where you can improve.
We’ve all heard the financial success stories of the millionaire who lives in a modest two-bedroom home. That person became a millionaire for a reason: They understood the value of keeping expenses small and saving, and they built a comfortable future for themselves in the process.
3. They Take Advantage of Tax-Saving Opportunities.
Are you maximizing your tax deductions and minimizing what you owe? If you aren’t, you could be overpaying the government—and that’s money you could be putting into savings instead.
It’s important to look for tax-saving opportunities that could reduce your tax obligations come April. For example, contributions to a retirement fund can increase your net worth and long-term savings while also reducing how much tax you have to pay for this year.
If you’re unfamiliar with the intricacies of these tax deductions, seek out the guidance of a tax professional.
4. They Use Their Money to Earn More Money.
Financial success grows exponentially over time. The more you save and invest, the more you generate from those investments, and those earnings can then be re-invested to further increase your total wealth.
If you’re serious about building financial success, seek out these opportunities, even in small amounts. Find a savings account that generates a small profit off of your balance. Consider using simple saving tools like Pocket Change, which rounds up your spending on any purchase and deposits that extra money into a savings account.
5. They Crunch the Numbers Before Making a Financial Decision.
Financial decisions can come with a lot of uncertainty. Whether you’re selecting terms for a home loan or trying to figure out how to allocate retirement investments, there are always risks and rewards to consider.
The one thing you shouldn’t do is operate out of fear or other negative emotions and let those emotions dictate your financial decisions. Instead, lean on the math: Calculate total interest paid over the life of a loan, evaluate savings opportunities based on predetermined earnings rates, and make the choice that is best supported by that math.
We offer a number of financial calculators to help you easily crunch the numbers and make a well-informed, data-backed decision.
Instead of envying the financial success others have enjoyed, examine their financial behaviors and strategies to identify characteristics you can embrace for yourself. By following the lead of these examples, you can put yourself on a path to financial wellness and security!