With the new year in full swing, why not start working towards better money management? It seems like everyone in the online business world is focused on the year to come. And while I think it’s valuable to set goals for the future, I think we should also look back on the previous year and decide which money habits we don’t want to carry into the new year.
Here are four bad money habits I think we could all use to leave in 2021.
Bad Money Habits You Should Break in the New Year
1. Budgeting the wrong way.
Did you know that most people budget the wrong way? Here’s what it looks like:
At the beginning of the month, you budget your income into spending categories, including necessities (like rent and groceries) and fun things (like eating out and browsing the Target dollar aisle). As the month goes on, you label all of your expenses into these categories. If you overspend in a category, you simply reallocate your budget to match it.
Do you see the issue? Instead of making spending decisions based on your budget, you spend and then adjust your budget to match. Instead, try budgeting like this:
At the beginning of the month, you budget your income into spending categories, including necessities, fun things, debt repayment, and savings. As the month goes on, you consult your budget before making spending decisions. If your ‘eating out’ budget is empty, you opt to make dinner at home. If you have money left over at the end of the month, you transfer it to savings.
With this method, your budget informs all of your spending and saving decisions. This way, you’ll stay on track with your goals without letting impulse purchases derail you.
2. Avoiding worthwhile investments.
When I first started my business, I wanted to DIY everything to save money. I was genuinely afraid to invest in education or resources for my business. The more my business made, however, the more comfortable I became investing in things I knew would make me more money down the line.
Many of my clients deal with this mental block, both in their businesses and personal lives. They pour all their time, energy, and money back into their businesses, and they neglect their own fulfillment and happiness.
This year, make a point to invest in worthwhile education, resources, and even self care. Your return on investment doesn’t necessarily have to be monetary. Any investment that enriches your life, makes it easier, or brings you genuine joy is worthwhile!
3. Neglecting your business savings.
In my opinion, not enough business owners talk about the importance of a healthy savings account. Just like your personal savings can protect you in the event of an emergency, your business savings can protect your business if you run into legal trouble, can’t work for a while, or need to replace a piece of equipment.
When you make your business budget, be sure to include a line for your emergency savings. Personally, I save about 5-10% of my revenue in savings each month. Even just a few thousand dollars in savings can give you peace of mind that your business is safe from emergencies.
4. Charging too little.
Yep, we’re going there! Too many business owners undercharge for their services for fear of scaring away potential customers with high prices. In my opinion, though, the benefits of raising your prices far outweigh the risks.
You look like an expert. Let’s be honest, we’re all more likely trust the quality of a product of service if it’s a bit more expensive. (That’s why everyone’s wearing Patagonia and North Face.) By raising your prices, you make your services appear more valuable.
You attract ideal clients. You should price your products and services based on A) your expertise and B) your ideal clients. When you raise your prices, you’ll attract more high-level clients.
You enjoy your work more. When you charge your worth, you feel more fulfilled in your work and appreciated by your clients. That means you’ll enjoy and appreciate your work more!
Give yourself the raise you deserve this year! Check out this blog post for figuring out your prices and overcoming mindset blocks along the way.
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