Better Money Habits: 9 Steps to Developing a Positive Money Mindset

How do you feel about money? Do you feel anxious, overwhelmed or at ease when it comes to your bank account balance, monthly budget and ability to save for your future? The answers to these questions make up a part of your overall money mindset. 

It’s important to have a positive money mindset because it may help decrease stress and improve your overall well-being. It’s also the first step to becoming financially secure today and in the future. Creating a healthy mindset starts when you set goals, develop better money habits and define where you want to go financially. 

Here are 9 steps you can take to develop better money habits starting today.

1. Visualize Success

What works for athletes and other highly successful people can work for you and your money habits, too. Visualizing accomplishments is the first step in going from having bad money habits to creating a positive money mindset and achieving financial well-being. Here are some things you can visualize before actualizing:

  • There’s a four-figure balance in your savings account … and it’s growing!
  • Your highest-interest credit card is paid off — that zero balance is going to feel amazing!
  • You have extra money at the end of each month to be charitable.
  • A comfortable retirement will be a reality because the balance in your 401(k) is growing with your contributions and the maximum employer match available.
  • There’s money each month for self-care so that you can get your nails done, play a round of golf, or even buy simple things like a new bath bomb or scented candle to enjoy at home.
  • You’re on vacation at a beautiful resort that you saved for and paid for in full.

2. Be Hungry to Learn

No matter how you learn — by doing, listening or reading — there are plain-talking financial experts who share their wisdom for free. Absorbing this kind of knowledge regularly can help you develop better money habits. From personal finance websites and budgeting worksheets for good money habits to the Prosper blog and money-themed podcasts, there’s a wealth of information available to enhance your budding positive money mindset. 

Some other resources you might consider include:

3. …But Not Hungry to Eat Out (Or Often)

Is it old fashion? Yes, but eating breakfast at home, making your own coffee, and packing a lunch and snacks are some of the things that successful people with good money habits do regularly. This doesn’t mean you can never go out to eat with friends or coworkers, but when you make your own meals and brew your own coffee or tea more often than not, you will save a lot of money and be more financially well-off than ever before. 

4. Log Into Your Financial Accounts Every Morning

It’s a small step while the coffee is brewing, but as they say, knowledge is power. Every morning, bring yourself up to speed on your bank account and credit card balances. In a spreadsheet, keep track of the money coming, going and due. Doing so will eliminate surprises, reduce stress and give you a clear financial picture to start each day. This quick and easy routine will go a long way to helping you make better decisions and developing a positive money mindset.

5. Weigh Every Decision

It may seem obsessive, but when you think about it, nearly every decision you make has the ability to affect your financial life. This is one of the reasons setting a rolling three-month budget can be helpful. When you know that sticking to your budget means you’ll have a certain amount to put into your savings account in two months’ time, you’ll start to question whether you really need to spend extra money on this or that today. 

For example, you’re walking down the street and see a tempting fruit smoothie sign in a cafe window. You want one but it’s going to cost more than $6 and you have frozen fruit in your freezer and that blender you bought months ago is still sitting in your cabinet. That $6 might not seem like a big deal, but if you spend an extra $6 four times a week, that’s nearly $100 a month and $1,200 a year that could have been saved. Think about where you could go and what you could do with that money. When you consider every financial decision, you’ll develop better money habits, and better understand the value of a dollar and its impact on your money mindset. 

6. Save First, Spend Later

People with positive money mindsets and better money habits don’t make savings the last item on their budget, only to be added to if there’s money leftover. Instead, put your savings goals first and foremost, and adjust the rest of your life accordingly. Do you want to buy a house or car, take that dream vacation or build an emergency fund? Great! Dedicate money every month to those savings goals first, then list all your fixed debt obligations (rent, car payment, groceries, utilities, internet and phone bill, etc) before finally seeing how much you have left for takeout and extraneous spending. 

7. Spend and Shop Smarter

One of the better money habits you can have is to shop and spend smarter for everything you want and need. This means using coupons at the grocery store, comparison shopping online for bigger ticket items, and checking the cashback available through sites like Rakuten before you buy … pretty much anything. Not only will this extra ‘effort’ while shopping save you money, it may also help reduce emotional and impulse purchases, which will save you even more money!

8. Pay Off Your Credit Cards Every Month

One of the biggest financial stresses most people face are their credit card bills. If you are going to use credit cards, which can be beneficial to maximize cashback bonuses or travel rewards, it’s crucial for your financial well-being that you learn how to manage credit card debt. Most importantly, that means not spending more than you can afford to pay off in full every month. Paying in full and on time will not only improve your credit, it’ll keep late fees and interest charges away, save you money and reduce your financial stress.

9. Consolidate Your Debt

Learning better money habits today is crucial to a happier life going forward; however, you may still be reckoning with mistakes from your past. If you have old debt spread out over a number of credit cards, medical bills and more, consolidating that debt into one loan with one monthly payment at a lower interest rate may have huge financial and emotional benefits.

Read more: 11 Financial New Year’s Resolutions You Should Be Making (and Sticking To!)

How to Deal with Holiday Financial Stress

The holidays are often filled with two disparate things: the fragrant aroma of fresh baked cookies and evergreen trees, and financial stress. Add in a global pandemic, furloughs and high unemployment, and this year’s holiday season could be even more challenging. Wondering how to deal with financial stress while spending time with loved ones? Here are our top tips.

Financial Stress Is a Healthcare Issue

It turns out financial stress can have a very real impact on your health. A recent Fox Business article on financial stress during the holidays quoted a Northwestern University study that found a connection between high debt and high blood pressure in young adults.

That same article noted that another BIG 10 school, Rutgers University, found that those with substantial unsecured debt, such as credit card debt and medical bills, for example, are more likely to suffer from depression. Clearly, learning how to deal with financial stress is as important for our well-being as it is for our wallets.

How to Deal with Financial Stress

1. Be Proactive, Not Reactive

One of the best ways to deal with holiday financial stress is to be proactive by setting a budget. By laying out your entire financial picture, you’ll have a much better sense of where to splurge or reign in spending. Our rule-of-thumb when creating a budget: don’t overcomplicate it. Start with money coming in at the top, then list your expected expenses, like rent, car payments, credit card bills, haircuts, or Friday night pizza deliveries beneath it. There’s power in seeing the number at the bottom, even if it’s a negative. Then, you can be proactive in reducing your financial stress as the holidays approach.

2. Consolidate Old Debt

With a debt consolidation loan, you can bundle your old credit card bills — and the regret of past impulse purchases — into a single loan with one payment. By consolidating your debt, you could enjoy a lower interest rate, a simpler financial life, and reduced financial stress. And that could make this holiday season even merrier.

3. Be Sales Smart

Look to save money at every turn this holiday season while still checking off your ‘nice’ list. Use cash back apps (like Rakuten) when shopping online. If you plan to shop in-person, Google “[insert store name here] coupons” before heading to the checkout line. Because COVID-19 could affect your plans to see family and exchange gifts, consider waiting to shop until after the holidays. You could score even better deals on toys, clothes, electronics and other great holiday gifts.

4. Set Money Aside for Next Holiday Season

It’s never too early to start thinking about the future, and this is true of holiday shopping, too. Even if it’s just $5 a week, start putting away small amounts of money for next season. Start with skipping one cup of coffee in the drive-thru lane once each week. By the end of next year, you’ll have a healthy holiday spending nest egg for gifts, a roll of cute wrapping paper, or holiday decor for your home. And you’ll have less debt stress to boot!

There’s no telling what the holiday season will look like in the future as we juggle the need for safety and quality time with family. There may be more anxiety up ahead, but if you start down the path toward financial wellness today, then come next year, you can focus more on not overcooking the turkey and less on financial stress.

Read more: 5 Tips to Pay off Debt for Financial Freedom

Avoiding Holiday Debt: 5 Tips to Manage Shopping Debt

Online shopping debt from quarantine life aside, this year has been extra tough for many of us. This holiday season may bring more temptation to splurge as we attempt to bring a bit of joy to those around us.

While overspending on holiday gifts for kids and loved ones who’ve spent the year tucked away at home is understandable, it’s also avoidable. Before you mask up and head out to the stores or fire up your web browser to take on holiday debt, try these 5 tips to manage your finances during the most wonderful (and expensive) time of the year.

1. Take Advantage of Store Credit Card Offers

It’s always a risk to take on new debt, but with discipline and a simple budget, you could save a few bucks this holiday shopping season by applying for store credit cards. Often, these store-specific cards have no annual fees and offer generous opening discounts like an extra 20% off your first purchase. These savings can help you keep holiday debt under control. Be sure to set money aside to fully pay off your shopping debt before due, as these cards tend to have higher interest rates than other national credit cards.

Keep in mind: There is a downside to applying for credit cards. Each time you open a new store card, lenders generate a “hard inquiry” on your credit report, which could lower your credit score. Learn more about your credit score and how it is used.

2. Always Pay Off Credit Cards in Full

It may sound simple, but the old saying is true: don’t spend more than you make. By following this time-tested rule, you can take advantage of credit card offers (hotel rewards, airline miles, cashback, and in-store discounts) while avoiding interest and late fees. Setting a simple monthly budget will help you keep your financial life — and holiday shopping debt charged to credit cards — in check. Plus, it’ll prevent you from racking up a higher-than-expected credit card bill that you can’t pay in full.

3. Don’t Max Out Your Credit Cards

Not only should you avoid taking on more shopping debt than you can pay back in full at the end of each billing period, it’s also wise to avoid maxing out your credit cards. This is because credit reporting agencies look at your credit utilization ratio, and you may get penalized if this ratio is above 30%. For example, charging $1,000 each month on a card with a $3,000 credit limit is a credit utilization ratio of 33%.

4. Say No to Credit Card Cash Advance Offers

Credit card companies often send offers to access cash through your credit card. While that may be tempting if you’re short on money at the end of the month, this doesn’t come without risks. Not only do cash advances from credit cards carry high-interest rates, but some charge costly cash advance fees, which can add 3% or more to your credit card bill. 

5. Consolidate Your Debt

So, you’ve accumulated shopping debt in a variety of places. It happens, and it can make your financial life dizzying. The good news is you can still better manage your shopping and holiday debt in the new year. By consolidating it, you could reduce your debt into a single lump sum with one monthly payment, possibly at a better interest rate. While consolidating your debt likely won’t change the total amount you owe, it may help you pay down the debt faster. And a less stressful life goes a long way toward improving your financial well-being.

Read more: Avoid These 5 Holiday Shopping Mistakes

Retirement Planning During an Uncertain Economy

Living through an economic downturn is difficult enough without your retirement planning being tested as you watch the balance of your nest egg precariously rise and fall every business day. What exactly to do (or not do) in regards to retirement planning during an uncertain economy all depends on where you are in your timeline toward retirement, as well as your level of aversion to risk. 

Retirement Planning During an Uncertain Economy

To save or not to save, that is the question many people ask when the stock market is faltering and the economy struggling. It can be a bitter pill to swallow to put more money away in your 401(K), 403(b)(7) or IRA only to see those accounts continue to lose value on the screen daily or on paper when the quarterly statements arrive. Let’s take a look at four retirement planning options for when the economy has fallen on hard times, or when you’ve been furloughed from your job.

1. Stop Saving

What this means today: You stop contributing to your retirement savings plan.

What this means going forward: Your retirement savings plan does not grow with new money and no new shares of the investments are purchased. The balance continues to fluctuate with the market.

Your gut reaction to a recession or a period of economic uncertainty may be to stop contributing to your company’s retirement plan. That’s totally understandable. The urge to stop saving, when the prices of stocks and stock mutual fund investments may be depressed, however, is not generally considered sound retirement planning if you are still many years away from reaching retirement age. This is because, while an economic downturn can be a struggle week to week at home and in your bank account, you may end up missing an opportunity to invest in stocks and stock mutual funds at lower prices in your retirement savings account. If you are close to retiring and don’t have time to wait for the economy to recover or if you could just use some more money in your paycheck every two weeks, reducing your 401(k) contribution percentage — yet still maximizing any available employer match — is one choice during uncertain economic times.

2. Reallocating Your Current Investments

What this means today: You exchange the ‘riskier’ stock-based investments currently held in your retirement savings plan for more traditionally conservative options.

What this means going forward: Historically, the stock market in general has provided the greatest return on investment over the long term. By reallocating some/all of your retirement saving plan balance out of stock-based investments your account may underperform in relation to the overall economy in the future.

You may have heard the expression, ‘buy low, sell high’. That’s the easy, four word template for most retirement planning and general investment strategies. Reallocating your retirement plan investments by selling or exchanging out of stocks or stock mutual funds after they have fallen, or while they are still tumbling downward in value, however, could end up doing the exact opposite. Having potentially bought high in the past before selling lower in the present, a reallocation to bonds or ‘cash’ investments could turn paper losses into real ones. Unless you need the money immediately (or in the near future) or if your original retirement planning timetable has shifted since you started saving, selling during a downturn could have a negative impact on your retirement plan.

3. Keep Saving

What this means today: You make no changes to your retirement planning strategy or goals.

What this means going forward: While the state of the overall economy will change, continuing to ebb and flow during these uncertain times, your plan for how and when to retire remains consistent.

The simplest reaction to an uncertain economy is to change nothing about your retirement planning outlook. If you understand the risks, have decades until your actual retirement arrives, and can avoid logging in to look at your 401(k) balance too often, the Keep Saving method could pay dividends by the time you’re ready to enjoy your well-earned retirement. 

4. Save More

What this means today: You increase your 401(k) contribution percentage to put more money toward your long term retirement planning goals.

What this means going forward: Your retirement savings plan balance will still fluctuate with the market but you will be buying more shares of the investments in your plan, increasing the potential for long term growth if and when the economy rebounds.

Saving more in the middle of a recession or during periods of economic uncertainty is not for everyone. Maybe you simply can’t afford to stash more money away for 20 or 30 years from now, or maybe you just can’t stomach the roller coaster of investing during challenging times. There’s no shame in either. But, if you can, increasing your savings during a downturn in the economy may present the opportunity to buy investments at lower prices which, should they recover and continue to grow over time, could provide more long term gains in your retirement account. 

Next Steps

As difficult as it may be to look at your retirement savings account during an economic recession, it is even more difficult to predict what the future will look like. When it comes to retirement planning and investing during periods of uncertainty, it may be beneficial to maintain a long term approach and vision while employing a strict ‘living within your means’ strategy in the short term.

Read more: 4 Ways to Prepare for an Economic Recession

Always Over Budget? Dodge These Psychological Spending Traps

It happens to everyone. We spend more than we make in a given month, or worse, every month. Sometimes there is a valid reason, such as an unexpected necessary expense like a car repair or medical bill. But too often, there is no apparent reason for our dwindling cash flow. Or is there?

Advertisers and retailers are constantly laying sneaky traps to get us to spend more than we intended and more than most of us can afford. Once you understand the psychology behind these spending traps, you can train yourself to dodge them and keep more money in your own pocket. 

Resist the Emotional Tricks

SafetyNet explains: “Marketers study consumers’ lifestyles and world views to focus on specific psychological triggers.” They appeal to your desire for the latest gadgets and trends, to your fear for the safety of your family or property and to your jealousy of others.

One Psychology of Spending course says, “The challenge is to recognize the emotional appeals being made in most ads and minimize them so you can rationally judge the true value of what is being sold.”

Stop Comparing Yourself to Others

Your friend buys a new car. Does it immediately make you want one too, even though you loved your car up until the moment you saw your friend’s shiny purchase? It’s human nature to envy others, but the need to act on that green monster isn’t a foregone conclusion, even though that is what advertisers and retailers want you to do.

Instead, compare financial situations rather than things. Acknowledging that your friend’s new car is the result of a job change helps you distinguish his purchase as solely about him and not you.     

Make a Shopping List

Whether it’s the grocery store shelves, the 100-store shopping mall, the miles of car dealerships or unlimited online sites, consumers today face an overwhelming number of decisions about how to spend their money. The American Psychological Association points out that this constant barrage wears down our will power to spend our money wisely.

When making big financial decisions, counter that trap by making one financial decision at a time. With everyday purchases, always make a list and stick to it to avoid making impulse buys and saving money on “bargains” that you don’t really want or need. The Chopra Center even suggests rewarding yourself with an inexpensive treat (a coffee) or a free experience (a picnic) for sticking to your list.

Don’t Shop to Soothe

When you’re sad or stressed, do you shop to feel better? If so, you’re not alone. In 2017, Credit Karma surveyed 1,000 U.S. consumers about stress spending and found a significant number of them shopped to deal with anxiety and depression:

  • 52 percent admitted to stress spending when they were in a negative place
  • 43 percent of stress spenders spent at least $200 on their purchases
  • 83 percent of stress spenders later felt a sense of regret about their purchases

That last statistic is solid evidence that retail therapy doesn’t work. In fact, it actually creates more stress, especially if you are buying things you can’t afford.

Limit Credit Card Purchases

According to Psychology Today, “The main psychological force of credit cards is that they separate the pleasure of buying from the pain of paying.” It’s one thing to pay with a credit card in order to earn the cash back rewards if you’re paying off your credit cards every month. But that’s a big if.

Too many of us use credit cards because we can’t afford the thing we want today and we’re not willing to wait until later when we can afford it. Nor is it usually just one item that gets charged, it’s many things—clothing, meals, vacations and more. That all adds up, and even though the pain may be delayed, it often feels far worse and costs much more than paying with cash as you go. 

Distinguish Needs and Wants

The desire for instant gratification has all but obliterated the virtue of patience that our parents and grandparents prized. Between globalization, immediate access to credit and 24/7 online shopping, there is almost nothing you can’t buy today and have in your hands within a matter of days—or hours. All of this ready availability blurs our sense of needs versus wants.

Our last trap buster—with every purchase ask yourself “Do I need this? Or do I just want this?” Items that fall in the former category should be your first priority. Those in the latter are not a priority at all.

How the Financially Savvy Put Their Tax Refunds to Work

Once you file your 2018 tax return, it’s time to celebrate with your refund, right? Yes, but just not the way you might think. Last year, the Internal Revenue Service (IRS) said the majority of taxpayers received an average refund of $2,800. Although spending a few grand on a big, shiny object might feel good in the moment, there are several wiser options to consider.

Instead of buying material stuff, or worse yet, trying your odds on the lottery or at a casino, the financially savvy put their tax refunds to work for them, reaping the benefits well into the future.

Plan for a rainy day

Financial experts agree that everyone should have an emergency fund that could support them for three to six months. This fund would help tide you over in the event of a layoff, natural disaster, debilitating medical issue or some other unforeseen circumstance.

In fact, NBC News asked various financial advisors how best to spend a tax refund, and they all agreed that an emergency fund “is the first place you should park your refund dollars.” This reflects the fact that too many people have nothing or too little stashed away for an emergency. In fact, GOBankingRates found that a majority of adults don’t even have $1,000 in a savings account.

To determine how much you need in your emergency fund, consider all your routine monthly expenses, including housing, utilities, media subscriptions, food, car payment and/or transportation costs, childcare, insurance and debt payments. Tally up all these expenditures and multiply the sum by at least three. If you don’t have that amount of money socked away for a rainy day, use all or part of your tax refund to build up your savings and your peace of mind.

Pay down your debt

A high-interest debt load is one of the biggest hurdles to building wealth, and it is just as problematic for people as the lack of an emergency fund. According to Experian’s State of Credit, the average person has $8,195 in credit and retail card debt. Both NerdWallet and Intuit suggest that paying off such debt is the single smartest thing that you can do with your tax refund.

Although parking your refund in a safe investment (other than your emergency fund) might make sense for some, the TurboTax team explains why paying off debt is the smarter move for most. “It doesn’t make much financial sense to put the IRS check for $3,000 in a fund yielding 1% interest and maintain a $3,000 balance on a credit card charging 18% interest.”

If credit card debt is not an issue for you, consider making an additional mortgage, home equity line of credit or student loan payment with your tax refund. Assuming there are no pre-payment penalties, this will save you money over the life of the account.

Invest in your golden years

Given that approximately half of American households have no money set aside for retirement, putting some of your annual tax refund into a traditional or Roth IRA is another smart move. The Motley Fool notes that adults under 50 can put as much as $6,000 a year into this type of tax-deferred account, while those 50 and older can contribute up to $7,000.

Such a contribution yields three key benefits to your financial health:

  1. A 2019 IRA contribution reduces your 2019 taxable income
  2. The typically lower retiree tax bracket reduces the tax on post-retirement IRA distributions
  3. An IRA compounds over time, increasing the value of your account the longer you own it

Improve yourself, your life or your home

Still looking for a smart way to use your tax refund? If you don’t want or need to put your money in the places described above, at least consider a strategy that pays you back over time, rather than leaving you with nothing:

  • Take a class or acquire a certification that helps you earn more money or a promotion
  • Contribute to a Health Savings Account that helps fund uninsured medical expenses
  • Install energy-efficient appliances or greener home features that can lower both your taxes and utility bills while also increasing the value of your home

On the surface, these suggestions may not sound as exciting as spending your refund on an exotic vacation or as easy as just putting it into your checking account to cover routine expenses. But the peace of mind and financial stability that smart investing brings will pay the savvy tax filer big dividends for years to come.