Key insights:
- Learning how to manage money wisely is an important skill that will help you meet financial goals
- Some key ways to build better money habits include paying your monthly bills in full, automating your savings and regularly reviewing and updating your budget
- A Citi® Savings Account can help you reach financial goals faster by paying you interest on your savings, giving you extra support as you build better money habits
Adopting better money habits could help you take more control over your financial life, allowing you to save more, spend strategically and build the wealth you want for yourself and your loved ones. Whether you’re a recent graduate or near retirement, it’s never too late to start adopting good money habits.
Let’s look at 6 financial habits that may help you build your creditworthiness, save for the life you want in retirement, gain financial independence and stay during setbacks along the way.
Pay monthly bills in full
Many people carry a monthly credit card balance, and loans are often inevitable, especially if you have a mortgage or student and car loans. But if you decide not to pay bills in full when you can, it might create a cycle of debt that’s hard to break.
Underpaying or failing to pay bills can have compounding effects, such as:
- Expensive interest or penalty charges: Interest charges, especially if you’re only making minimum payments on credit card balances, can quickly add up, just as penalties for missed loan payments do.
- Lower savings: Cutting back on or withdrawing from savings to pay interest or penalties prolongs your financial goals.
- Credit score impacts: Higher rates of credit utilization, or the amount of your available credit in use, often impact your creditworthiness. If you carry a high balance month to month, it could lower your credit score.
By paying your card balances in full each month, you may be able to avoid credit card interest. And in certain scenarios, paying more than your monthly minimum loan bill could also help you save on interest and pay down debt sooner. Staying on top of debt is a great first step toward better money habits.
Max out your workplace benefits
Looking closely at your job’s benefits may help you uncover savings and spending accounts or other financial tools that can help you reach your goals, such as:
- Health Savings Account (HSA) or Flexible Spending Account (FSA): These accounts let you contribute pre-tax dollars to help pay for qualified medical expenses
- Life insurance and disability insurance: These plans help protect your income and safeguard your family’s finances, whether you’re gone, sick or unable to work
- 401(k) plan: A 401(k) retirement account lets you contribute a portion of your pre-tax wages and accepts a matching pre-tax contribution from your employer, if offered
- Qualified student loan payments (QSLPs): QSLPs are retirement contribution matching programs in which your employer makes 401(k) contributions that match your student loan payments — even if you don’t contribute to a retirement account
- At-home office stipends or employee allowances: Some employers offer funds to cover travel, office items, work-related electronics and moving expenses if you’re required to relocate
- Additional employer perks: Employers may offer bonus benefits, like family and life planning services, health and wellness stipends, commuting coverage, gym memberships or reimbursement for childcare costs
Regularly reviewing what your employment compensation package includes is a good money habit.
Focus on your emergency fund
As your life changes, so can the types of financial goals you might have, like buying a new home or vehicle, saving for a long vacation or planning for a child. While it’s always good to have financial goals, you never know when something could happen to set them back. Financial demands can change overnight, so it’s crucial to have an emergency fund to maintain financial stability.
Automate your savings
Paying yourself first means setting aside money from every paycheck before paying any other bills. Automating deposits to your savings account could help you consistently pay yourself first, build up short-term savings for unexpected costs and steadily work toward larger financial goals that may require a large upfront investment without too much thought.
Look for signs of lifestyle creep
How you spend money on housing, groceries, travel and everything in between reflects your lifestyle. Lifestyle creep happens when you start spending more and more money each month without increasing your income. Occasional splurges are normal, but gradually spending more on everything can throw your progress toward financial goals off track.
To get ahead of lifestyle creep, you can:
- Track your expenses to catch yourself shopping and dining out more than you would like
- Review credit card and bank statements for forgotten or unused services, like gym or streaming subscriptions
- Research how renting or buying a home that’s larger or more expensive than necessary may impact your savings goals
A budgeting app may help you track your spending automatically and set up savings goals to help avoid lifestyle creep.
Review and update your budget regularly
A budget is your roadmap for managing and allocating money for spending and saving. Life changes, like a medical emergency or new job, can affect your finances. Regularly reviewing and updating your budget may help you stay on track and work toward financial independence despite economic changes.
A couple of common budgeting methods include:
- 50/30/20 budgeting: With the 50/30/20 method, you’d spend 50% of your after-tax income on necessities, 30% on non-essential wants and 20% on savings and debt repayment. It’s a simple way to compartmentalize how you spend.
- Zero-based budgeting: Assign every dollar you make each month toward a certain expense and avoid unintentional spending altogether, making sure your monthly bottom line is always $0.
You can also blend approaches or move from one and shift to another as your income changes. Creating, sticking to and updating your budget is a key foundation to building better money habits.
Money habits to avoid
Certain habits might actively work against your finances and your ability to live the life you want:
- Delaying bill payments: Missing, putting off or making even one late payment could trigger steep interest charges, late fees or other penalties, all of which could negatively impact your credit score and make repaying debt harder going forward.
- Failing to stick to your budget: Failing to stick to a budget could make it harder for you to spot lifestyle creep and more likely that you’ll live paycheck to paycheck. Remember that budgeting can help you stay prepared for life’s curveballs, while spending without guardrails could place you in difficult situations with fewer solutions.
- Putting off retirement contributions: Since retirees need roughly 80% of their present annual income for 30 years or more after retiring, making regular contributions as early as possible can help you achieve greater financial security later in life.
- Ignoring debt: Neglecting debt could have serious financial and legal consequences, such as a damaged credit score, expensive fees or garnished wages. Some good forms of debt that help you grow financially, like a student loan or a mortgage, may help you build credit and financial stability, but only when making regular on-time payments.
Sometimes, the best way to build better money habits is simply getting out of bad ones.
Save with Citi
If you want to build better money habits, a savings account is a vital resource. A Citi® Savings Account offers a competitive interest rate with benefits that grow through Relationship Tiers. Each month, you’ll earn interest on your savings, giving you a boost toward all of your financial goals.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
