8 Tips for Financial Success

1. Create and Stick to a Budget

It's easy to avoid creating a budget—and actually sticking to a budget. But mastering these skills can be a crucial step toward financial success.

Creating a budget lets you allocate where your dollars go so you can live within your means and stay on track with savings and debt goals. Budgeting doesn't have to be complicated; you could use a simple spreadsheet or a fancy budgeting app.

Whatever budget method you pick, here are some ways to stick with it:

• Frequently review your budget to track progress, correct missteps and make adjustments.
• If your basic needs are met, include some fun items in your budget, such as vacation savings or a set amount for extras like dining out. This could help you feel less deprived while still meeting financial goals.
• Resist impulse purchases you don't truly need, especially if they bust your budget.
• Delay big purchases. Take time to weigh the pros and cons, and consider planning and saving for large purchases in your budget to avoid debt.
• Regularly look for ways to cut costs, like canceling subscriptions or streaming services you rarely use.
• Enlist an accountability partner, whether a relative, friend or group to be your budgeting cheerleaders.
• Automate bill payments so you never miss a payment and simplify budgeting.

2. Build an Emergency Fund

A critical way to prepare your finances for life's costly curveballs is to build an emergency fund, a savings account that shouldn't be touched unless there's truly a critical need that would otherwise wreck your budget or require going into debt.

Some examples of when your emergency savings can come to the rescue:

• Job loss
• Car repairs or replacement
• Medical or vet bills
• Travel for a family emergency
• Replacing a laptop or phone necessary for work or school

Most experts recommend saving three to six months' worth of everyday expenses so there's plenty of time to recover from a setback (or find a new job).

An emergency fund should ideally be in its own separate savings account so you don't accidentally (or purposefully) use it for other purposes. The cash should be easily accessible, preferably in a high-yield savings account or money market account that earns higher interest than a basic savings account.

3. Automate Savings

If you often forget to set aside savings, or you struggle to avoid the temptation of spending your paycheck, consider automating your savings. This tactic helps you easily grow savings with minimal effort.

First, review your current savings accounts and decide if you should open any new ones; having separate accounts for different goals can help keep them separate and focused. For example, you might want one sinking fund for a vacation or down payment, one for an emergency fund and another as a general purpose savings account for things like home repairs or holiday gifts.

Now assess your budget and how much you can afford to save every month or week for each account, then set up automatic transfers and forget about it. Even a small amount adds up, and you might not even notice it leaving your account. You may want to use different amounts or timing for different savings goals.

Just keep an eye on your balance and the timing of your paycheck so you don't overdraw your account. You can also set up automatic transfers to investment and retirement accounts.

4. Pay Bills on Time

Paying your bills on time—particularly credit cards—not only avoids late fees, but it can boost your credit score. That's because payment history is the most important factor in your credit score, making up 35% of your FICO^® Score^☉ , the credit score used by 90% of top lenders.

On the other hand, making late payments, or missing them altogether, can mean late fees plus damage to your credit score. Even one payment 30 days or more overdue can cause your credit score to drop significantly.

To ensure you make timely bill payments, consider setting up automatic bill pay or activating payment reminders.

5. Never Forget About Credit

Make sure you're aware of the other ways to keep your credit score in tip-top shape, since when you apply for a loan, credit card or line of credit, higher credit scores improve chances of approval (and landing better terms). Your credit report is also often reviewed when opening new utility accounts and renting apartments.

Here are some ways, besides paying bills on time, to improve or maintain your credit:

• Keep debt balances low; ideally, don't use more than 30% of available credit on revolving accounts such as credit cards at any given time.
• Don't apply for a large number of loans or lines of credit at the same time.
• Avoid closing credit card accounts in good standing that you've had for many years so you don't lose positive history.
• Stay on top of all bills to avoid accounts going into collections.

6. Maximize Retirement Savings

Financial success is more likely if you start investing as early as possible in an employer-sponsored retirement plan such as a 401(k) or 403(b). They allow automatic contribution of a percentage or dollar amount from your paycheck before taxes, decreasing taxable income. Plus, the contributions and earnings normally aren't taxed until you withdraw money in retirement. Or, if you choose a Roth plan, you'll pay taxes now but not on withdrawals.

Workplace retirement plans are more attractive if your employer matches some or all of your contributions. This free money helps your investments go even further.

Generally, experts recommend stashing at least 15% of your pretax income in a retirement account. If you max out your 401(k) or don't have access to an employer-sponsored account, consider opening an individual retirement account (IRA), a tax-advantaged retirement account not tied to a workplace.

7. Avoid High-Interest Debt

Even if you're on track with your savings goals, if you're carrying high-interest debt, it can be hard to achieve future financial success.

Some loans, like car loans or mortgage loans, might have reasonable interest rates. Credit cards, on the other hand, usually have high interest rates, especially for borrowers with lower credit scores.

Credit cards allow you to carry a balance and only pay a minimum payment each month. But paying only the minimum results in little progress toward your principal balance, and interest can pile on each month. When an interest rate is steep, you might end up paying far more for the original purchase than if you'd waited, saved and paid outright simply because of the way interest grows your balance.

Getting rid of high-interest debt is critical to financial success, and some ways to do that include:

• Choose a debt repayment strategy and make a plan to follow through with it
• Get a debt consolidation loan to pay less in interest
• Use a balance transfer credit card that offers a 0% intro annual percentage rate (APR)
• Adjust your budget to temporarily cut back on nonessential spending and prioritize debt repayment

8. Explore Your Emotional Relationship to Money

Many of us never stop to think about why we spend the way we do, or how the attitudes and behaviors we absorb about money early on continue to impact us. If you're not aware of these emotional undercurrents, you might form an unhealthy relationship with money, which can also impact personal relationships.

For example, say your parents were extremely frugal and pinched every penny. As an adult, you might feel guilty for buying anything that's not essential. Or perhaps you saw your relatives live large by racking up debt, and you've followed in their footsteps.

We also sometimes lean on money with emotional spending, whether consciously or unconsciously. This could look like celebrating a win with a splurge, "retail therapy" shopping if you're sad or making online impulse purchases if you're bored. When you stop to think about what messages you got about money growing up or the root cause driving your spending behavior, this new awareness makes it easier to curtail negative habits and get on a path to financial success.

The Bottom Line

Financial success looks different for everyone, and we're all on different timelines and have different needs and circumstances. It doesn't necessarily mean being filthy rich; financial success can simply mean getting to a place where you have spending tracked in a budget, minimal debt, and savings for both planned and unplanned costs. It's not always fun or easy to follow these steps right now, but one thing is for sure: Your future you will be very grateful you did.