By Leo Babauta

Just like any goal, getting your finances stable and becoming
financially successful requires the development of good financial
habits. I’ve been researching this topic extensively in the last few
years in my quest to eliminate debt, increase my savings and increase
financial security for my family. I’ll talk more about these habits
individually, but wanted to list them in a summary (I know, but I’m a
compulsive list-maker).

Here they are, in no particular order:

1. Make savings automagical.
   This should be your top priority, especially if you don’t have a solid
   emergency fund yet. Make it the first bill you pay each payday, by
   having a set amount automatically transferred from your checking
   account to your savings (try an online savings account). Don’t even
   think about this transaction — just make sure it happens, each and
   every payday.
2. Control your impulse spending.
   The biggest problem for many of us. Impulse spending, on eating out and
   shopping and online purchases, is a big drain on our finances, the
   biggest budget breaker for many, and a sure way to be in dire financial
   straits. See Monitor Your Impulse Spending for more tips.
3. Evaluate your expenses, and live frugally. Evaluate how you’re spending your money, and see what you can cut
   out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary. See How I Save Money for more. 
4. Invest in your future. If
   you’re young, you probably don’t think about retirement much. But it’s
   important. Even if you think you can always plan for retirement later,
   do it now. The growth of your investments over time will be amazing if
   you start in your 20s. Start by increasing your 401(k) to the maximum
   of your company’s match, if that’s available to you. After that, the
   best bet is probably a Roth IRA. Do a little research, but whatever you
   do, start now!
5. Keep your family secure.
   The first step is to save for an emergency fund, so that if anything
   happens, you’ve got the money. If you have a spouse and/or dependents,
   you should definitely get life insurance and make a will — as soon as
   possible! Also research other insurance, such as homeowner’s or
   renter’s insurance.
6. Eliminate and avoid debt.
   If you’ve got credit cards, personal loans, or other such debt, you
   need to start a debt elimination plan. List out your debts and arrange
   them in order from smallest balance at the top to largest at the
   bottom. Then focus on the debt at the top, putting as much as you can
   into it, even if it’s just $40-50 extra (more would be better). When
   that amount is paid off, celebrate! Then take the total amount you were
   paying (say $70 minimum payment plus the $50 extra for a total of $120)
   and add that to the minimum payment of the next largest debt. Continue
   this process, with your extra amount snowballing as you go along, until
   you pay off all your debts. This could take several years, but it’s a
   very rewarding process, and very necessary.
7. Use the envelope system.
   This is a simple system to keep track of how much money you have for
   spending. Let’s say you set aside three amounts in your budget each
   payday — one for gas, one for groceries, one for eating out. Withdraw
   those amounts on payday, and put them in three separate envelopes. That
   way, you can easily track how much you have left for each of these
   expenses, and when you run out of money, you know it immediately. You
   don’t overspend in these categories. If you regularly run out too fast,
   you may need to rethink your budget.
8. Pay bills immediately, or automagically.
   One good habit is to pay bills as soon as they come in. Also, as much
   as possible, try to get your bills to be paid through automatic
   deduction. For those that can’t, use your bank’s online check system to
   make regular automatic payments. This way, all of your regular expenses
   in your budget are taken care of.
9. Read about personal finances. The more you educate yourself, the better your finances will be.
10. Look to grow your net worth.
    Do whatever you can to improve your net worth, either by reducing your
    debt, increasing your savings, or increasing your income, or all of the
    above. Look for new ways to make money, or to get paid more for what
    you do. Over the course of months, if you calculate your net worth each
    month, you’ll see it grow. And that feels great.