Nearly 57% of American adults have savings of less than $1,000, while 39% have zero savings.
Following a few quintessential personal finance practices, however, can help you achieve a healthier financial profile.
Here are the seven key personal finance habits to form immediately:
Create a detailed budget: Budgeting is one of the oldest and most efficient tools of money management, and yet most Americans fail to follow a budget.
To keep a tab on your finances, you must know where your money is going each month. All you need to do to create a budget is to list your current monthly expenditures, keep a provision for one-time costs (such as annual insurance payments), then draw a comparison between what you earn and what you spend.
Automate your savings: When you restrict your access to your own money it is hard to spend it. If you have been consistently struggling to save money, a time-tested solution is to establish an automatic savings plan.
This will ensure that a certain amount of money gets filtered directly from your monthly paycheck into your employer’s 401(k) or the bank. This will turn you overnight from a compulsive spender into a compulsive saver.
Pay bills promptly: Making timely payment for all your monthly bills is an excellent practice, and not just because it saves you money by avoiding potential late fees. This practice will over time work silently to help you build and maintain solid credit.
Another advantage is that you will be using your money for essential payments first and not allow yourself to sit on cash that could be frittered away on less essential consumption. An ideal way would to be to use the auto pay options for your bills wherever possible to achieve more disciplined monthly spending.
Control impulses: Impulse shopping is the surest way to disrupt your monthly saving plans. As many as 85% of Americans indulge in some kind of impulse buying, and one in five say that they have spent $1,000 or more just on a whim.
If you want to become a disciplined shopper, create a self-imposed 24-hour rule for unusual or non-essential purchases. Sleep on it for 24 hours, and by the end of it, chances are you will have changed your mind about buying that item that you did not need in the first place.
Check credit periodically: A 2017 study showed that 16 percent of Americans never review their credit reports. That is a serious omission because one in five credit reports have errors. If you fail to take corrective steps it could pull down your score and make your borrowing more expensive in the future.
The three leading bureaus – Experian, Equifax, and TransUnion – provide a free credit card report annually. You can request your credit report and receive it online every four months to review it for errors. This good practice will keep you on top of your credit scores.
Create a contingency fund: According to personal finance professionals, you should create an emergency fund that will have you covered for at least six months of daily living costs.
In the event of an unexpected financial contingency, such as loss of job or a major car repair bill, you can dip into your fund rather than having to rely on expensive personal loans or credit cards. Large contingency funds appear intimidating at the outset, but you will soon get there in small, consistent steps.
File your own taxes: Taxes for most individuals are not too complicated. You may require an accountant to file your taxes only if you have a number of deductions to claim, rely on income from multiple sources, or have special tasks to accomplish, such as writing off a part of your office or home.
But most taxpayers will not have such requirements and they can file their own taxes with any user-friendly tax-prep software program. So instead of spending a substantial amount to use the services of a tax pro, consider filing your own taxes. It will only take you a few hours (or about 30 minutes), and you will master it if you do it once on your own.