Financial habits: the way to achieve your financial goals

Financial habits: the way to achieve your financial goals

Almost everyone has some kind of financial goal(s). Some more ambitious than others. I am a huge advocate of having goals and writing them out. This way you can check if you are working towards your goals. However, just writing it down will not magically make you achieve the goal. The key to achieving almost any goal, especially more ambitious ones, is building solid habits into your everyday life. If done consistently, these smaller habits will have huge effects on your progress. To help you make progress I have collected some financial habits down below.

If you do not have any goals yet then consider starting here first. Having a clear path of where you would like to go is very motivating since you can track your progress. Whilst setting goals don’t only consider short-term goals but also think long-term. For instance, when and how would you like to retire? Even if you are still in your twenties or thirties it is a good idea to consider saving and investing for retirement. For example, if you are 25 and you invest $100,- a month this will, with an average interest rate of 8%, have turned into $310,867.82 by the time you are 65. If you invest the same amount per month with the same interest rate but start when you are 35, you will have only generated $135,939.85 by the time you are 65. So start as soon as possible for the best financial results.

A great tool to calculate compound interest on your savings and investments can be found here.

“If your habits don’t line up with your dream, then you need to either change your habits or change your dream.”

John C. Maxwell

Track your spending

The harsh fact is that if we have no idea where our money is going, we have no control over it. Always looking back at what you have spent does not automatically change our future spending. Therefore, I advise you to look at your spending for the last three months. Categorize every penny you spend into; essential spending (mortgage or rent, insurance, food) and non-essential spending (shopping, dinners out). 


Start with reviewing the non-essential category really consider if every item you spend money on was necessary, if it gave you the joy you expected, and if this joy could not be achieved without spending money. Be really strict with yourself. What budget do you really need for the non-essential category?

After this continue by reviewing your essential category. What can you do to reduce spending in this category? For instance, is your food budget accurate? Or could you save by cutting out a few items? Also, consider going to a less expensive grocery shop. For the insurance take out some time to review if there are any other providers that offer the same package but cheaper. With health insurance, you can also check if you are using everything in your insurance package. For instance, if you are a healthy young individual you could consider getting a more basic package. Mortgage or rent is the hardest to save on. However, you could consider refinancing, looking at a cheaper place to rent, or finding roommates. 


Ideally, this step is repeated once every month. Actively tracking your spending can definitely help to motivate you to keep going or to save even more. Seeing results will also keep you on track. Unconsciously you will already adopt better money habits by just tracking your money. This is because it makes you accountable for the purchases you make and the direct effect this has on your savings and goals. Also, consider that the brain naturally is not the best at remembering. Therefore the money you think you spend does not have to be an accurate representation of the money you actually spend. Tracking your expenses makes sure you do know exactly how much you spend.

Software to help you track your spending (currently only available for the US and Canada) (currently only available for the US)
Money Manager (app: Android, IOS)
SayMoney (app: Android, IOS)

Pay yourself first

Once you have a good idea of your spending it is important to get the order of payments right. Often people have the following order of payments: they get their salary deposited, they pay the bills, they go shopping, buy some presents and go out to eat, the last bit of money that remains in their bank account will be saved. This is not really a controlled strategy and therefore you can’t be certain that this will bring you closer to your financial goals.

Since we have developed a clear view of our spending we can now change the order of payments, to get more control over our money. For this new order, you first subtract all the essential payments (mortgage, food, etc) from your salary. From the leftover money decide how much you want to transfer to your savings and investments each month. We will set-up auto-transfers for this in one of the following steps. It is only with the last remaining money that you can go do fun stuff. 

I know that this is not always the nicest way of spending your money but it will surely bring you closer to your financial goals and financial independence. Therefore, it is definitely worth it.

Savings account and investment account

Since we now created a budget and know to pay ourselves first it is important to know where to put this money. An often-made mistake is to let the money we save in our regular bank account. I definitely don’t advise this. First of all, this makes it easier to spend the money. Second, you often get less interest on your money. Therefore, always transfer the money you save into a high-yield savings account. Here are a few resources which select the best high-yield accounts*. 

One other mistake would be to only put your money towards savings. This is often because people think that investing money in stocks is too risky. However, not all stocks have the same risk factors. Some stocks are definitely less risky than others. I will soon write a blog post about the different types of stocks and how to choose what to invest in (when available it will be linked here). I suggest saving 6 months of your income in a savings account. This makes sure that in case you hit rough weather you have at least 6 months in the high-yield savings account (make sure the account allows you to take out money whenever you please). When things get really sticky you could always lower your expenses and probably live off this money even longer. 

* Always do your own research to make sure that the information on these websites is still up-to-date and that you agree with the bank’s specific conditions.

Pay off high-interest debt first

One of the best ways to increase your money is by paying off high-interest debt. This includes credit card debts, personal loans, and depending on their interest rate student loans as well. A mortgage does not count as a high-interest debt since it is often not at a high interest and because a part of the mortgage is principal paydown which adds to your overall net worth.

Why pay the high-interest debt off first? Well, savings accounts often won’t provide an insanely high interest and the return of stocks depends on the performance of the companies. However, paying off high-interest debt guarantees you a set amount of money. For instance, your credit card interest is 20%. Whilst investments in the stock market accumulate an average return of 8%. So, by paying off the credit card you can save way more money than you (on average) will be able to make through the stock market.

So if you have any high-interest debt pay this off first. Even before thinking about saving and investing. Accumulating wealth whilst having high-interest debt is almost impossible. Besides, paying off high-interest debt is risk-free. When paying off high-interest debt I advise the debt avalanche method, meaning you pay off the debt with the highest interest first. This will often save you more money long-term. However, you could also choose the debt snowball method which means you pay off the smallest amount of debt first, hereby eliminate outstanding streams of debt. 

Auto-transferring money

Have you ever had the thought: this month I am going to save an X amount of money? But then when your salary comes in and it just doesn’t plan out the way you imagined it. Maybe some type of party came up or you felt like you worked so hard that you deserved to eat dinner out a few days that month. Whilst there is nothing immediately wrong with doing these things they can have a huge impact on your financial progress, certainly when you do this almost every month. Therefore, it is important to have an automated system to back you up. If you have tracked your spending you know how much you spend on average. Now set a saving and investing goal for yourself. Then go to the bank account where your salary is deposited and set up the auto-transfer for both investing and saving each month. By doing this, you are certain that the money will be deposited each month. With the money left over in your bank account, you can do whatever you like. 

Don’t fall victim to lifestyle inflation

Often when people get a raise, a bonus, or have another way of increasing their income they automatically (and often unconsciously) start spending more money as well. You buy a slightly fancier car or go out for dinner more often. Spending more money every time your income increases is known as lifestyle inflation. Even though it seems quite harmless “because you can afford it” it reduces the possibility of saving or investing more money and therefore impacts your financial goals. I am not saying it is not okay to treat yourself to a nice dinner after working hard towards a promotion. I merely want you to be conscious of the fact that lifestyle inflation is real and can impact your goals. So watch out for a structural increase in spending. This can be easily detected when you are doing your monthly spending track.

If you make the conscious decision that you do want to increase your spending then consider a fractional increase based on the extra money that you make. For instance, if you get a promotion and your net salary increases by $500 each month then you could consider spending $100 to $200 more each month. By intentionally fractioning the increase in salary you make sure that your savings also increase by $300-$400 each month. As long as you remain conscious and intentional this decision is perfectly fine.

Increase your earnings

After doing everything in our power to reduce spending it is time to look at the income side. By looking at spending habits first and making sure we are aware of lifestyle inflation we are ready to up our income. When expenses are not in check, earning more often won’t lead to higher net worth because of lifestyle inflation. 


One of the best ways to earn extra income and solidifying your income is by diversifying your income streams. Ideally, the diversification process will also consider making your income passive. This means creating ways in which you could make money whilst you sleep. This often does require your time, but only to create it. After the creation, it should be producing money on its own. Investing in stocks is a great way of earning some extra income whilst diversifying income. Depending on the way you invest this could also be considered a passive stream of income. If you are into houses you could consider buying and renting out houses to add rental income to your income streams. Do whatever you could think of, in this day and age the sky’s the limit concerning jobs and income.

I highly believe in the fact that if you want to earn more money investing in yourself and learning should be very important. Building expertise often comes with a nice pay raise or the ability to do things (that can be monetized) which weren’t possible before. Therefore, always keep learning! Read books and blogs, listen to podcasts, or take courses. Try things out and grow in your career and personal life.

Set your own good habits

The habits I discussed above are just a few of many possibilities. Therefore, I encourage you to come up with your own financial habits. Gamefying habits also seem to work really well for some people. Maybe one of your habits is watching an educational finance video once a week. Everything that will get you closer to your financial goals counts. However, do make sure to keep track of your progress and test if your habits work as well as you expected them to.

Whatever you choose to do: talk about it

Talking about whatever you choose to implement and how you will implement it will not only keep you accountable, it will also make sure you are aligned with your spouse and family. Especially with spouses, it is extremely important to be on the same page about finances. Nothing is harder than trying to save whilst your spouse is emptying the shared bank account. Therefore, make sure to discuss your financial goals and explain why this is important to you and the family. Help them understand how and what to do. Involve them in the planning of financial goals and help them go through the habits mentioned above. Sometimes it can also be helpful to create short reports of your finances to make it easier for your spouse to understand. Seeing the family’s net worth growing will most certainly get your spouse motivated as well. Together you can achieve your goals and make the journey towards them even better.

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