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Woman working on developing good financial habits

Developing good financial habits is an effort that will pay you back many times over. With each step you take, you’ll gain peace of mind about your financial security.

Start with the basics: Take stock of money coming in and going out. Then set up a simple budget to help you keep tabs on spending. It’s also important to build an emergency fund, understand and manage debt, and set savings goals.

If this feels strange and a bit overwhelming, don’t worry. There are plenty of resources to help you chart a course that fits your situation.

Regardless of any bad money habits you’ve had in the past, now is the perfect time to make changes for the future.

Develop these nine good money habits and you’ll be on track for financial success.

Understand your financial picture

The first step toward financial wellness is knowing exactly how much money you have and where you spend it. What’s your take-home pay each month? And how much do you spend on basic living expenses? These are items like rent or mortgage, groceries, transportation, childcare, insurance, and entertainment.

Then tally what you spend on discretionary items. These might include that fancy coffee you buy on your way to work, restaurant takeout, or even name brands when generic will do. When you do this for a couple of months, you will see how tweaking your spending habits could help you boost your savings.

If you have credit card accounts or other revolving credit, make note of the interest rate and minimum payments required. For other loans, like a car or student loan, note the balance, payments, and when they’ll be paid off.

It’s a good idea to review and update this information once or twice a year. That will make it easier to keep your budget current, which is the next key habit.

Set up a budget and track expenses

Once you have a clear picture of your finances, it’s easy to set up a budget. Your budget helps you save money by showing you where you might be able to cut back.

There are many tools and methods to choose from. So look for the one that would work best for you.

One place to start is the 50-30-20 rule, which offers a guide for needs, wants, and savings. This budget is popular because it helps people balance long-term savings and necessary expenses with spending for fun and enjoyment.

Whatever budgeting tool you use, the power of this money habit comes from tracking your spending on a regular basis. It can make the difference between just staying afloat and truly getting ahead. 

Build an emergency fund

An unexpected bill can quickly knock your finances off track. For example, if you can’t pay for at least part of a major car repair or medical expense, you might end up relying on a credit card or cutting back on long-term savings.

To avoid that scenario, financial experts recommend shooting for 3-6 months of living expenses in an emergency fund. But that’s a high bar for many people. You could start with a smaller amount, say $1,000.

The point is to be sure to include an emergency fund in your budget. Then commit to adding to it each month. (To supercharge this habit, consider automating your savings.) Even if you start with a small amount, you’ll be ahead of the game if that unexpected expense crops up.

Put savings on autopilot

It’s great to have goals like saving for retirement, a vacation, or a down payment on a home. It’s also easy to let day-to-day living get in the way of achieving those goals.

The best way to make steady savings a habit is to put that money out of sight.

Pull quote about automating savings to create a habit

How? Successful savers automatically direct a set amount from their pay into savings, so that it never hits their debit or checking account. That way, those funds aren’t available for impulse purchases. Instead, they can grow untouched in savings or retirement accounts.

Save early for retirement

The sooner you commit to saving for retirement, the better. This is true even if retirement seems far away.

It’s critical to build retirement savings early so you can benefit from compound interest, that is, earning interest on your interest over time.

If your job offers a 401(k) plan, sign up now (if you haven’t already) to take advantage of one of the best forms of automatic saving. And maximize your employer-matched contributions to make sure you get every dollar your employer is willing to give.

For those without access to a 401(k), a traditional or Roth IRA are other options. Both accounts allow you to save for retirement with pretax dollars.

Pay down debt

Debt can be a useful tool, but you don’t want it to hang around. The longer you carry debt, the more you’ll pay in interest. That’s money you could instead direct toward savings goals.

Make it a habit to pay more than the minimum amount on your debt whenever possible. Even a small increase will help you pay off debt sooner, which means you’ll save money on interest.

Pull quote about paying more than the minimum on debt when possible as a tactic to save money on interest.

Focus on paying off higher-interest debt first. It could also be helpful to consolidate this debt into a personal loan with a lower interest rate. With a personal loan from Discover®, for example, you might be able to lock in a lower interest rate, lower your monthly payments, and pay down debt faster.

Pay bills on time or early

Late fees are expensive.

You can avoid them by setting up a regular schedule for paying your bills. If you want to really simplify your financial life, check out your bank’s automated bill-pay service. That way you’ll never forget a payment. Just be sure to include those payments in your budget.

Of course, if you would prefer to stick with a manual method, try making calendar entries for your bills. You might decide to pay all your bills once or twice a month, with a few days’ buffer before due dates.

Getting in the habit of paying bills on time will prevent late fees and improve your credit rating. And a good credit rating can save you money in the form of a lower interest rate when you apply for a loan.

Review insurance coverage each year

Most people’s insurance needs change over time. That’s why it’s a good idea to review your insurance coverage at least once a year.

You want to make sure you will have the right coverage for your situation.

For most people, it makes sense to carry home (homeowners or rental), auto, and life insurance—and possibly an umbrella policy. And if your situation changes for any reason—you move, get married, or start a family—check that you have enough protection for you and your family.

And don’t forget to review your health insurance coverage at the same time.

Live on less than you earn

This final habit may seem obvious, but it can be more difficult than it sounds. When you are just starting out, it might not be easy to live on less than you earn. But if you work to build a frugal mindset early, it will pay off in the form of greater financial security over time.

Even as your income grows, you can make small lifestyle adjustments to keep spending in check. For example, review discretionary expenses like dining out, subscription services, and clothing and gifts—and ask yourself whether they are “wants” or “needs.”

You might find that you can easily live without some of these items. And your reward will be savings that grow at a faster rate, bringing you closer to that new home or special vacation.

Get serious about these nine good money habits, and you’ll be on the fast track to financial health.

Want more tools for good financial health?Learn 3 Steps to Budget Wisely