Are you struggling financially and living pay cheque to pay cheque? Or you’re working just to pay off your student loan and credit card debt? Or you’re making a decent income, but never seem to be able to save any money? If any of these questions sound familiar to you, then it’s time to dig deeper and try harder to find the answers to your money issues. I believe that all of these money issues can be improved or solved by adopting five easy and simple money habits.
 

I am not a psychologist nor a behaviorist, but I strongly believe that in order to achieve financial success, you need to have the discipline to develop and maintain good money habits. I don’t consider myself to have achieved great financial success by any means. However, I think that the money discipline that I had demonstrated over the past year and a half on my blog and the $1.3M in net worth accumulated before the age of 40 is sufficient for me to share some of my simple money habits with you.
 

I hope that these real-life examples will inspire you to adopt these simple money habits to help you achieve your financial success. These simple money habits can be summed up in just one elegant phrase. Plan early, work diligently, save consistently, spend responsibly and invest wisely. Sound simple enough? Let’s get to it.

Plan Early

If you failed to plan financially, then you’re planning to fail financially. Failing financially is definitely not an option when you are in your golden years. You definitely don’t want to be dependent on the kindness of the government or anyone else to take care of you during this period. So how do you ensure that you’ll be in great financial shape and are worry-free when you retire?
 

A great way to start is to work backward from your current situation and use it to plan for your future. That means you have to start looking into your current expenses and incomes. Let’s say that your family’s annual expense is $65K, after-tax income is $75K (I hope that your expenses are lowered than your incomes) and your desire retirement income of about $50K/year. Using the simple 4% withdrawal rate during your retirement years, you’ll need a net worth of at least $1.25M (=50000/0.04) when you retire.
 

Is saving $10K/year from now till your retirement is enough to get you there? What annual average rate of return on your investment do you need to achieve in order to reach your target net worth? If you want to follow my example or you’re just curious, the number that I need to achieve financial freedom or success is $2M. Check it out.
 

Coming up with your number is the easy part. How to build your net worth from where you are now to reach your desired retirement net worth will require a little bit of tweaking of your money habits. If you have not calculated the number that you need to retire comfortably yet, now is the time to plan.

Work Diligently

You can have the greatest plan in the world, but if you can’t execute your plan successfully, then having a plan is still not very useful. The first part of executing your plan is to work diligently to earn a stable income, increase it and diversify your income sources over time. What does this all mean?
 

It means that being good at your job is not good enough, you need to have different sources of income. Having only one main source of income is like putting your eggs in one basket. If you lose that source of income, then you’ll definitely going to suffer financially. If you need some ideas to increase your sources of income, check out this post to see how I have built seven sources of income (and counting).

Save Consistently

Have you heard of “pay yourself first” or “spend what’s left of your saving”? If you want to achieve financial success, knowing how to pay yourself first is key. It’s also very motivating to know that you are first in line to have access to your hard earn money before your mortgage, credit card, student loan or anyone else.
 

Paying yourself first is good. Getting free money when you save and pay less income taxes is even better. I often stack my savings by taking advantage of my employer’s employee share ownership plan and direct my savings to maximize my Registered Retirement Savings Plan to pay less income taxes. Just by doing these two simple things, I am able to save about 20% of my income consistently without noticing that I never had access to that money to start with.

Spend Responsibly

Did you notice that I put savings before expenses? To spend responsibly is to only spend what’s left of your savings. One of the major reasons why some people can’t save any money even if they have a six-figure income is that they try to save what’s left after their expenses. If you are doing that right now, it’s time to reverse the script. Spend only what’s left of your saving.
 

To take my spend responsibly philosophy to the next level, I tried to spend modestly on my home, vehicles, electronic gadgets, clothing and eating out. I don’t have to live in a 3,000+ square feet home, drive a luxury car or have the latest and greatest smartphone. I am content to live below my means and use the money that I saved to build wealth and financial security.

Invest Wisely

The last, but not least, easy and simple money habits that I adopted to help me achieve financial success is to invest wisely. You can follow the first four habits to the “T”, but if you are not making your money work for you, then you are just wasting all the hard work that you’ve accomplished in the first four habits. I know that investing your money can seem risky and challenging, but the rewards that you get can pay off handsomely if you have the patience.
 

Many people believed or led to believe that you need to be highly intelligent, have lots of knowledge and takes a lot of risks to be a successful investor. Truthfully, you don’t need any of those to be a successful investor. All you need to know about investing are two things: index ETF and diversification. If you understand these two things, then it’s sufficient for you to build wealth. You don’t need a CFA designation to be a disciplined and successful investor.
 

Why is an index ETF such a great investment? First of all, most of the actively managed mutual funds out there can’t consistently beat the index that they model their portfolio after. Secondly, index EFTs has some of the lowest management fees, which can save you thousands or even hundreds of thousands over your investment lifetime. If you spread your investment into a few indexes that are categorically and geographically diverse, then you are all set.

My Two Cents

To achieving financial success does not require a six-figure income nor extreme frugality. What one needs are simple money habits that one can routinely follow. One of my teachers used to tell me that getting an “A” on any test is easy. However, maintaining an “A” is a lot harder. The same is true about your personal finance. Saving $1,000 may seem pretty easy, but to save $1,000 month after month after month, may not be. But don’t forget, there are five simple money habits that you can adopt to help you achieve financial success. Plan early, work diligently, save consistently, spend responsibly and invest wisely.
 

So readers, what simple money habits have you adopted to help you achieve financial success? Do you pay yourself first? What free money did you take advantage of to increase your savings?