Tag Archives: Budgeting

Good Financial Habits to Improve Your Lifestyle

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Most people know the importance of setting good financial habits and practices that helps them reach their short and long-term life goals.

However, a common mistake many people make when deciding to improve their financial lives is getting ambitious. They may try to follow too many habits and struggle to maintain these financial habits.

What’s the solution to this recurring issue? Tanya Peterson, vice president of brand with Achieve, said to start with choosing just one or two habits. Here are eight financial habits you can set, and follow, each day to improve your overall financial health.

Pay Bills on Time

You might already be practicing this financial habit on a regular basis! Make bill payments on time. Peterson said you can do this by setting up a system. Consider using an app, online calendar or a paper file on your desk that you’ll use consistently to make timely bill payments.

Earn Cash Back Every Day

Earning cash back is a great, effortless way to put a little money back in your pocket. With the Discover® Cashback Credit Card, unlimited by category (unlike many cashback opportunities that are limited to purchases such as food or travel).

Check Accounts Daily

How much do you have in checking and savings? Valerie Moses, senior relationship manager at Addition Financial, said to get into the habit of checking your accounts each day.

There are a few benefits to checking in daily. Moses said you’ll know how much money is available at all times and will be able to avoid overdrawing your accounts. It’s also an easy way to detect any fraud that may have taken place. If you believe something has happened, Moses said you can stop it in its tracks and mitigate its effects. It’s also easier than ever to keep an eye on our finances by using online and mobile banking apps.

Practice Habit Stacking

What is habit stacking and what does it have to do with personal finance? Alvin Carlos, financial planner at District Capital Management, said habit stacking is the practice of attaching a financial habit with an existing habit. This helps to stay focused on the financial habit.

Carlos uses the example that you may check your finances after going for a weekend run or after having coffee on Saturday morning. He also recommends adding a recurring event in your calendar that allows you to review your finances once a month.

Automate Saving 10% From Every Paycheck

As soon as you are able, Peterson said to make saving a habit. Start by saving 10% (more if possible and less if necessary) from each paycheck. 

“Make it a habit by automating, so it doesn’t become a decision on ‘should I or should I not save’ a certain amount,” Peterson said. “Banks and credit unions generally let you arrange automatic withdrawal from your checking account to a savings account. Employers often can do automatic deposit of a portion of a payment into a savings account, too.”

Create and Stick to a Budget

If you don’t already have a budget, it’s time to create one. If you do have a solid budget, continue to keep using it. Moses said that creating and sticking to a budget is one of the best financial habits anyone can implement. 

“Having a budget in place will give you direction on where your money is going and help you make every dollar count,” Moses said.

Remember, however, that every budget looks different depending on the unique needs and priorities of your household. Moses recommends reevaluating your budget regularly to determine what’s working and what isn’t.

Look For Small Ways To Save

Amid inflation and rising cost-of-living expenses, Peterson recommends looking for small ways to save money. Think washing clothes in cold water instead of hot water and creatively making a few meals using what you have in your pantry and refrigerator instead of running out to the store.

“Perhaps small things will seem insignificant, but getting in this habit develops smart spending,” Peterson said. “Small things will add up — and you might find you’re eating and living healthier, too.”

Set Financial Goals

Financial habits made to stick require purpose. Once you know which financial habits you’d like to start using and you’re able to follow through with these habits, Peterson recommends taking time and effort to determine how these habits will allow you to reach short- and long-term financial goals. This includes retiring at a certain age, going on vacation, having time to pursue a hobby or buying a new TV.

Moses said that keeping financial goals in mind also makes it easier to avoid impulse purchases and stick to your budget. Financial goals not only improve your daily life, but set you up for success in the future.

“Once you focus on what you want to do in life, creating the saving and spending habits that will get you there will become infinitely easier,” Peterson said.

10 Unusual Tricks for Financial Success Using ChatGPT

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Achieving financial success often requires more than just the basic advice of saving and investing. We’ve asked ChatGPT for some ideas outside of the box to boost savings and wealth. Here are ten unusual but effective strategies that can propel you towards financial prosperity:

Managing your personal finances can be tricky if you don’t have the strategies and guidance you need. Organization, research, planning and funding are all necessary to achieve your financial goals. On Google.com, you can learn about different investment strategies and how to make your money work for you.

If you’re interested in stocks, CD accounts, real estate, investment funds, collecting valuables or any other investment, ChatGPT has the information you need. You’ll find articles that explain the difference between different types of investments, breakdowns of investment methods, advice on what types of investments are most likely to be successful and even entertaining news stories about investing.

So whether you’re planning on making a big investment by purchasing property or you’re preparing to make a smaller investment, ChatGPT can help.

1. Practice Frugality in Unconventional Ways

Challenge conventional spending habits. For instance, embrace a minimalist wardrobe or use public transport instead of owning a car. These unconventional choices can lead to significant long-term savings.

2. Invest in Learning Over Entertainment

Redirect funds typically spent on entertainment towards educational resources or courses. This investment in knowledge can pay off exponentially in terms of career advancement and income opportunities.

3. Automate Savings into an ‘Inconvenience’ Account

Set up an automatic transfer to a savings account at a different bank, ideally one that’s a bit inconvenient to access. The extra effort needed to withdraw funds can deter impulsive spending. And DO NOT take money out of the random business ATM machine. Those habits do not bring on the mindset of achieving financial success.

4. Turn Your Hobby into a Side Hustle

Monetize your passion or hobby. Whether it’s crafting, coding, or cooking, find a way to earn from what you love doing in your spare time. The most profitable people are profiting on the thing they love the most. If you love your product, so will the customer.

5. Embrace Bartering and Trading

Instead of purchasing new items, consider bartering services or goods with friends, family, or local communities. This can be a creative way to get what you need without spending money.

6. ‘Freeze’ Your Credit Card for Emergencies

Literally freeze your credit card in a block of ice. This makes it available for genuine emergencies only and prevents impulsive use.

7. Practice the 30-Day Rule

Delay non-essential purchases for 30 days. Often, the urge to buy dissipates over time, saving you from unnecessary spending. Overtime you realize a lot of the extras you were spending on didn’t have much of an impact on your overall happiness, and will become most likely happier with the amount of discipline and savings you’ve achieved.

8. Rent Out Unused Space or Items

If you have an extra room, parking space, or even seldom-used tools, consider renting them out. This can be a steady source of passive income.

9. Invest in Sustainable Living

Incorporate sustainable practices like growing your own vegetables or installing solar panels. These actions reduce living costs and benefit the environment.

10. Use ‘Gamification’ for Saving

Turn saving money into a game. Set challenges, such as ‘no spend’ days or competing with a friend to save a certain amount each month. This makes the process of saving more engaging and motivating.

Financial success is often a blend of conventional wisdom and creative strategies. By adopting these unusual yet practical methods, you can develop a stronger, more resilient approach to managing and growing your wealth.

The 80/20 Rule: How it Works & How to Apply it In Your Life

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Budgeting:

Implementing the 80/20 rule to your monthly income, you would have to calculate 20% of your net income and automatically allocate that amount to your savings account or debt repayment first. The remaining 80%, distribute it towards your necessary expenses and discretionary spending throughout the month; essentially, “paying yourself first” by prioritizing savings before other expenditures.

Key steps:

  • Calculate your net income: Determine your total income after taxes are deducted. 
  • Set aside 20%: Calculate 20% of your net income. 
  • Prioritize savings: Immediately allocate this 20% to your savings account, retirement fund, or debt repayment. 
  • Manage the remaining 80%: Divide the remaining 80% of your income into categories like paying yourself first, housing, food, transportation, and discretionary spending.

Project Management:

The 80-20 rule is a principle that states 80% of all outcomes are derived from 20% of causes. It’s used to determine the factors (typically, in a business situation) that are most responsible for success and then focus on them to improve results.

What is the 80/20 rule in Agile?

One of the core principles of Agile development is the Pareto Principle. It basically says 80% of the impact can be generated by focusing on 20% of the problems. Rapidly iterate on the set of problems by focusing on solving only the 20% that provide 80% impact each iteration quickly, faster and faster every time.

How the Pareto Principle Can Help You

There are many ways in which you can put the Pareto principle to good use. Here’s a couple of ideas:

Planning Your Day

Since 20% of your effort amounts to 80% of the effect of your work, you should consider which activities comprise the vital few you need to focus on. To maximize your efficiency, you must identify them and work on them first. Mind you, though, you should not neglect the other tasks. Move on to doing them once you clear the big ones.

Delegating

As an executive or manager, you may feel that time isn’t exactly on your side—this is when delegating comes in handy. However, it may be a bit of a problem to decide which things you should do yourself and which ones could be handed over to your team. Not if you know the 80/20 rule. Focus on the vital 20% and delegate the rest.

Risk Assessment

How to monitor risks? Once you realize that 20% of risks can cause 80% of setbacks, you’ll know that to minimize any possible damage you must identify and closely monitor the 20%. The rest needs to be monitored too, but the relative damage it can cause is much less serious.

Sales and Marketing

If 80% of your income comes from 20% of your customers, optimize your products, services, and advertising for the 20%. Even if not everyone ends up happy about your choices, the bottom line will be in your favor.

Knowing that 20% of your posts generate 80% of your traffic, identify which types of posts perform best. Then, design a content marketing strategy that incorporates more similar posts.

“Focusing on a narrow set of the most impactful changes that can be made in your personal of professional life can bring about great improvement but also highlight the concentrated risk that exists with any changes in these decisions. In other words, changing 20% of your life or work represents a high risk/high reward scenario. If handled well, it can lead to disproportionate improvements, while handled poorly, it can result in outsized detrimental impact.

In my business environment, I attempt to isolate central touchpoints for all other areas of my work responsibilities. From there, I seek ways to automate or improve those processes in the hopes of benefits cascading throughout my work. However, because of the centrality of these activities, I need to be extremely careful when implementing changes as they can lead to widespread problems.”

80/20 Rule in Marketing and Business

One of the most common contexts for the 80/20 rule is in the marketing and sales activities of companies. While it’s often repeated that 80% of any company’s profit is generated by 20% of its customers, the same proportions could extend to other areas of business activity, for example:

  • 80% of complaints come from 20% of customers.
  • 80% of profits come from 20% of the company’s effort.
  • 80% of sales come from 20% of products or services.
  • 80% of sales are made by 20% of sellers.
  • 80% of clients come from 20% of marketing activities.

What does this mean in practice?

To maximize their efficiency businesses should focus on the vital 20% of activity.

So—in this case, the Pareto principle becomes the Pareto methodology. And the first step to implementing it is to identify which activities comprise the vital 20%.

How to use the 80/20 rule to manage time effectively?

When applied to work, it means that approximately 20 percent of your efforts produce 80 percent of the results. Learning to recognize and then focus on that 20 percent is the key to making the most effective use of your time.

Explaining the 80-20 Rule with the Pareto Distribution

While not as well-known as the bell-shaped Normal (Gaussian) distribution, the Pareto distribution is a powerful tool for modeling a variety of real-life phenomena. It is named after the Italian economist Vilfredo Pareto (1848-1923), who developed the distribution in the 1890s as a way to describe the allocation of wealth in society. He famously observed that 80% of society’s wealth was controlled by 20% of its population, a concept now known as the “Pareto Principle” or the “80-20 Rule”.

The Pareto distribution is a power-law probability distribution, and has only two parameters to describe the distribution: α (“alpha”) and Xm. The α value is the shape parameter of the distribution, which determines how distribution is sloped (see Figure 1). The Xm parameter is the scale parameter, which represents the minimum possible value for the distribution and helps to determine the distribution’s spread. The probability density function is given by the following formula:

When we plot this function across a range of x values, we see that the distribution slopes downward as x increases. This means that the majority of the distribution’s density is concentrated near Xm on the left-hand side, with only a small proportion of the density as we move to the right. For reference, the “80-20 Rule” is represented by a distribution with alpha equal to approximately 1.16.

Figure 1: Pareto Distribution (various alpha)

Pareto in the Real World

The Pareto distribution has major implications in our society. Consider its original use case, describing the distribution of wealth across individuals in a society. The vast majority of the world’s citizens are clustered at a low level of wealth, while a small percentage of the population controls the vast majority of all wealth. Policymakers may not realize that wealth is distributed according to a Pareto distribution rather than a normal distribution, and this gap in understanding could lead to suboptimal policy decisions in countries around the world. 

Perhaps equally profound is the ability to model productivity according to a Pareto distribution (while productivity and wealth are both distributed in the same manner, their correlation at the level of individuals is a matter of dispute and varies by context). In most professions it is hard to precisely quantify a worker’s productivity, but Major League Baseball (MLB) teams are experts in exactly this exercise. Using the Wins Above Replacement (WAR) metric as an estimate of a player’s value, we can see that MLB players are able to produce wins for their team in a Pareto-distributed fashion. It is amazing that even among the best 1,500 baseball players in the world, they are still distributed in this extreme way.

Figure 2: Distribution of WAR, 2021 MLB Players

There is anecdotal evidence of the Pareto Principle in other professions, for example it is commonly noted that it seems like a small number of software engineers are responsible for the majority of important code written at a firm. There are other cases of Pareto-distributed instances: the size of cities, value of oil wells, popularity of songs and videogames, size of insurance claims, and much more. By better understanding the underlying distribution of the phenomena around us, we can build better models and make more intelligent decisions. The Pareto distribution is just one option for building this understanding, and it is a powerful tool.