The following is a guest post from David Hamilton (aka FPT Guy), owner and author of Financial Planning Tips – where you can find sensible information on personal finance for the average Joe or Jane.

We all could use a little improvement in terms of our financial health right?  Maybe some of us more than others.  But wherever you are in terms of your finances, it doesn’t really matter – just that fact that you want to get better and know that you can improve puts you ahead of many people.

I happen to have solid money habits from being part of a family that has managed its money quite well.  I feel I’ve been successful in terms of my personal finances: never had a problem saving my money, buying the things I wanted, going on vacations and I’ve never been in credit card debt except for once – which was planned to help me with an expensive move out to New York City.

I’ve always understood the importance of cash flow and increasing it whenever possible via promotions or switching jobs to make more.  My money personality is that of an earner and a saver.  But because I’ve been successful, it doesn’t mean that I don’t need to improve.

So where to start in improving your financial health?  If you’d like – get out your pen and paper and follow each category and assess how you are doing – what your strengths are, and where you think you can improve your financial health, and what you need to do to change it.  As we go along, I am going to break down where it is that I’m strong and where I need to improve my financial health.

Your Mindset around Money

Money doesn’t grow on trees?  Easy to come by or hard?  Do you think you even deserve to have money?  Is it the root of all evil?  Anything that you say is “true” about money, is actually just your belief about it, which in turn creates your habits.  Write down what you believe about money and notice how that’s what you make happen in terms of it.  I “believe” that belief is the main driver behind all financial habits and the difference between making things easy or difficult.

Here are my basic beliefs around money, and I’ve noted which I think are “resourceful” or “not resourceful”:

“I am intuitive and great with managing my money.” (Resourceful)

“I am great at using my credit card and never carrying a balance.” (Resourceful)

“It’s fun to look at my accounts and see all that money in them.  I feel safe and secure with there.” (Resourceful)

“I spend my money wisely, and by only what I want and need, not what others tell me to.”  (Resourceful)

“Owe as little debt as possible.” (Resourceful overall, but not resourceful in terms of assets like a home – which I’ve never owned)

“I suck at investing in the stock market and real estate, it’s not for me.” (Not resourceful)

“Hard work = money.” (Resourceful to a certain extent and gets results, but that’s in terms of trading time for money rather than thinking like an entrepreneur.  I’m shifting my mindset about working less but making more).

As I take a look here, it’s easy to see why I’ve gotten little results in terms of investing, and why I’m not making as much as I could be in terms of money.  If you believe that mindset controls fuels your habits, it can be a very powerful place to make changes.  So what were your beliefs?

Cash Flow

Are you focused on cash flow and increasing it?  It’s very important to realize that if you are at all skilled at what you do, you are probably more valuable than you think.  It shocks me how often people undervalue themselves and their talent – I did the same for years.  Perhaps you can start an internet business on the side to rake in some more cash, or even get your kids involved in it.  Not only will that help out the family, but teach them money making skills as well.  I do believe now that the best way to make money is to start your own business, but that does require quite a shift in thinking from the employee to the owner.

Budgeting & Expense Tracking

Do you have a monthly budget?  Are you tracking expenses at all?  To be honest, I wasn’t doing this until I became an entrepreneur, but then again I didn’t that I had to and was always ok.  Even then I could have probably been more diligent with my budgeting, but hey, at least I’m doing it now.  Even if you are good with intuitively managing your money like I am, I actually recommend this and am very glad I started doing it.

Credit Card Usage

Do you pay off your balances every month, or are you a “balance carrier” or perhaps deep in credit card debt?  This can be a tricky one.  If you carry balances it may be time to reform your ways and use your credit card as “electronic money” rather than credit – where you spend on your card to gain rewards and other perks, but always pay off your balances in full.  If you are deep in debt, it goes without saying that you need to get yourself on the path of settling credit card debt for good.

I actually attribute a lot of my financial success to this habit, because credit card interest and late fees are just money down the drain – and I haven’t ever carried balances – except for my move to New York City when I was 25 years old.  But as soon as I landed and I was done with moving expenses I devised a plan to balance transfer everything to 0% APR cards and had it paid off in 9 months.

Over the years I’ve had a near perfect credit score due to this practice, and to be honest it isn’t all that hard if you don’t stray from it.

Savings

Are you paying yourself every month?  Always stash cash in your savings account – an often quoted standard is 10% – and only withdraw from your checking.  This can be money saved up for vacations or special items your want to buy or projects you want done.  But weigh those carefully – do you really need them?  Depending on how adept you are at saving, a portion of this money can be used for investing or going to your children’s college funds.

Retirement Accounts

How much are you contributing to 401ks and IRAs?  Think about contributing as much as you can to these accounts.  Why? Because the restrictions & penalties should make you think twice about ever withdrawing from your accounts until retirement and that’s more money saved that will compound when invested properly.  Of course special cases do apply for withdrawals – but in general the money has to be put back.  Of course Roth accounts are even more flexible with these rules.  But I discourage withdrawal from these accounts at all until retirement age.  Another strong point of mine has been my consistency in contributing to these to their maximum

Investing

This is the number one area that I need to improve on, especially now that I work for myself.  No more 401K or matching for me, so I need to be a more active investor in the stock market.  Taking time to learn how to actually evaluate companies and funds is something that I’ve been dreading for years.  But know that I need to do it, and to learn how to decipher what companies, funds and sector will be the best investments for my portfolio and personality type.

Recap for me:

Strengths – earning, saving, budgeting, using credit cards to my advantage.

Areas to improve – active stock market investing, taking on “good debt” in the future like a house or condo.

Now it’s your turn. Feel free to comment here about any section that interests you, let’s hear from you about your money habits – what you’re good at and what you’d like to improve.

Note from Crystal:  We’re perfect and need to make zero changes…

HAHAHAHAHA!!!  That’s funny!

Seriously, I think we are good at prioritizing our spending, but we need to work on scaling back a few of our budget categories.  For example, we go over our restaurant and fast food budget a little bit most months but we shrug it off since we are doing well overall.  We need to stop shrugging.