3 Great Money Habits For 2013

Most of us view the new year as a clean slate, a chance to correct the wrongs of previous year at midnight. As we approach 2013, this is a good time to think of things you would like to do differently, especially when it comes to personal finances. Today I want to write about three things you should consider doing  faithfully in 2013 if you’re already not doing them:

1. Create a budget: Personal finance experts say that if you fail to tell your money where to go, it walks out of your door in impulse purchases. This year, resolve to create a budget. Your budget  should be a realistic plan of spending your income. When budgeting, you need to consider several things:

• Pay yourself first: Most of us reserve saving for last, after paying all our bills and end up not saving at all. In actual sense,  saving should be the first thing we do, even before paying our mandatory bills like rent. In the new year, set up a standing order of 10% of your gross income  into a savings account that you can’t access easily. Do not worry about where to invest the money just yet, first build the habit of keeping some money aside. Don’t worry if 10% isn’t much, it is a good starting point, and if done faithfully adds up over time.
• Budget for your impulses: Most personal finance experts say we should curb our impulses and plan all our purchases but we all know this is a recipe for failure, as we end up failing and spending money we shouldn’t have. What I have found works is every month, I set aside an amount of money that I can spend on something impulsive. Another way to go about it is to reward yourself after every 3 months of faithful saving.

2. Make a habit of tracking your expenses: Most of us track our expenses till the point where we use them to make a budget, then assume that the budget works after that. A couple of months down the line, we realize that we deviated from the budget and didn’t realize. In the new year, make a resolution to track your monthly expenses and compare them to your budget every month. You should try out money management with Money Dashboard which enables you input your budget and your expenses, and gives easy to read reports that show you how well you have performed. Tracking expenses may seem like a difficult thing to do day to day, but I’ve found it helpful to input my expenses at the end of the day. If it helps, get a mobile tool where you can input your expenditure.

3. Avoid consumer debt: There are several schools of thought on consumer debt, with some people arguing that credit cards are alright as long as you pay them off in full at the end of the month. However, research has shown that we spend 12-18% more when we use our cards as opposed to paying cash. There is no emotional connection when using a card because there’s no actual cash leaving your pocket, as opposed to when we pay by cash, when we have to calculate if the money we have will be enough. I have found this to be true with debit cards too. It is easier to over spend when you swipe. Instead, use cash as much as possible. This for me is a growth point too. I have a credit card I use for online transactions only, my new year resolution is to credit my Paypal account and use that instead of the credit card.

4. Commit to learn one new skill or start a business: There are two ways to have more money in our pockets; one is by cutting on our spending, and the second is to increase our income. When you’re done reducing your spending all you can, consider learning a new skill that can earn you an income on the side. Most of us have passions that are away from what we do day to day. This afternoon as I passionately described to my colleagues how to rear and slaughter a rabbit (yes I know how to), they all were surprised that I love farming, and I was reminded of that one thing I do effortlessly. This year, resolve to learn a skill that can earn you money, and find a way to monetize it. If your talent lies in craft making, make some and put them up on Facebook, you never know. Start a blog. Code an app. By December 2013, have that one thing you can look back on and say “I learnt this in 2013”. My one tip: Once you decide to do it, do it excellently.

As you prepare to cross over to 2013, as you shop and plan for parties and holiday trips, take some time out to plan and actually make change something this year.