Our society is built around inequity and financial habits that promote spending Money. From a lack of financial education at a young age to the accessibility of high-interest Credit cards, many people find themselves in debt before their lives have indeed started.

Creating a healthy relationship with money takes time and effort. There are several things you can do immediately to start improving your relationship with money, and others that will take years of intention.

Here are nine lifelong tips to help you become financially literate and independent.

1. Understand Your Credit Score

Many people only think about their credit score when they apply for a significant loan, such as a student line of credit or mortgage. For those with a less-than-perfect financial past, having a bank or lender pull their credit score can be an eye-opening experience. Understanding how a credit score works is the first step to optimizing it.

How a Credit Score Works

A credit score is a summary of your financial history and money habits. The number is used by banks and lenders to assess your risk as a borrower. In addition to impacting whether you’ll get approved for a loan, this number also impacts your loan terms, interest rates, collateral requirements, etc. In essence, the better your credit score, the less a loan will cost you in the long run.

The credit score ranking is:

• 300 – 579: Poor
• 580 – 669: Fair
• 670 – 739: Good
• 740 – 799: Very Good
• 800 to 850: Excellent

Most traditional banks and lenders want to see a ranking of 670 and above to approve a loan.

What Impacts a Credit Score

Your credit score is impacted by negative and positive financial activities. Having a credit card, loan, or mortgage and making payments on time is the key to building good credit. However, not all types of loans and bills have a positive impact on your credit score. This leads to questions. Do title loans affect your credit? Do utility payments affect your credit?

One of the strategies consumers use to build credit is to take a small loan and pay it back, but not all types of loans have an impact. Many lenders and utility service providers don’t report your payments to the credit bureaus unless you fail to make your payments. In essence, you don’t receive positive credit, but it will have a negative impact if you default.

Other factors that impact your credit score include:

• Late payments
• Missed payments
• Hard inquiries (when lenders pull your credit report)
• Bankruptcy
• Accounts in collections
• Approval to borrowing ratio (how much of your credit is in use)

Understanding what impacts your credit score will help you be mindful when using borrowed money. Having continued awareness will also help you avoid nasty surprises when you apply for a mortgage or car loan.

2. Start Saving Early

Saving money is like planting a tree: the best time to start was 20 years ago and the second-best time is right now.

While many people are told to start saving early, they don’t have the tools or direction to do so. There are often conflicting priorities for saving that also factor in. 

For children and teenagers starting their first jobs, learning to save is an invaluable skill. Encourage your children to set aside half of their birthday or job money in a separate, inaccessible savings account. This money can go toward big purchases, long-term goals, post-secondary education — whatever comes to mind. It’s also beneficial to break it down further and set aside long-term and short-term savings.

Saving for Retirement

As you get older, the priorities will likely evolve. It’s never too early to start saving for retirement, even if you’re in your first year of college. The reason why this is so crucial is a little thing called compound interest.

The sooner you start saving, the sooner your account will start accumulating interest. In a long-term retirement savings account, you also gain interest on the interest you’ve already accumulated. 

If you saved $5 a week starting at age 20 and didn’t change your habits as you moved through life, you’d save $12,675.10 at an interest rate of 3% by the time you turned 50. Nearly 40% of that account ($4,855.10) would be interest you’ve gained, not money that you’ve put in out of pocket.

Conversely, say you get a good job at 35 and start putting away $20 per week at an interest rate of 3%. By the time you turn 50, you’d have $19,702.32 saved. Only 21% of that ($4,082.32) would be interest — less than if you had spent less over a longer period.

So, if you’re a broke college student, consider putting $20 a month into a retirement savings account. Your future self will thank you for it.  

Emergency Savings

Another essential saving fund to consider as an adult is an emergency savings fund. This is a short-term savings account that’s meant to keep you afloat if a disaster (like a pandemic or unexpected job loss) occurs.

The goal is to save up enough to cover a month of your living expenses should your income stop. From there, build up to two months, and so on. The recommendation is that people in good health with low living expenses should save up to three months worth of living expenses in this account. People with high living expenses, job instability, or health concerns should aim for six months.

This is an account to work on over time and tuck out of reach for real emergencies. Consider creating a smaller float account to cover unexpected car or home repairs.

3. Use Automation

As you start building savings and paying down debt, the best thing you can do until your habits are established is to automate the process. This is the “out of sight, out of mind” approach. Essentially, you’re using automated bill payments and transfers to ensure money is getting saved or put toward expenses before you can spend it elsewhere.

Set up recurring transfers in your online banking account to reflect your paydays. Set up separate accounts for savings and bill payments to help keep you accountable. Create account alerts and reminders to check and ensure everything is flowing smoothly.

4. Limit Access to Credit

The digital nature of modern transactions has an interesting psychological effect on consumers. Unlike paying cash, debit and credit have a lack of tangibility. In other words, you don’t feel the money leaving your hand and your wallet getting thinner. This can lead to mindless spending without really calculating the total cost until later.

With debit, there’s a hard limit of when the money runs out and the card stops working. While the same applies to credit, there’s a difference: you’re spending someone else’s money and still need to pay for it.

Here’s where the challenge lies: the world is designed for credit cards. Shopping online, contactless payments, and reward programs all support using credit. Furthermore, the only way to build a credit score is to use credit in some form. There are people with significant savings accounts, no debt, and no credit from relying on cash and debit that struggle to find a place to live or approval on a loan — even though they may have a better relationship with money and higher net worth than others. Furthermore, closing credit accounts can also damage a credit score.

Using the “out of sight, out of mind” approach to spending with credit cards can also be a helpful way to get better control over credit card debt without ruining your credit score. Keep higher-limit credit cards tucked away in a safe or closet for use only when booking trips or covering emergency expenses. If you choose to use credit in your daily life, use a lower-limit card for transactions and pay it off as you go.

When you pay your credit card bill each month, you’re paying for something that happened in the past. When you shift to using debit, you’re transacting in real-time and getting ahead of your debt. It may take time to shift to relying on a debit or a low-limit credit card, but it’s life-changing.

5. Use Debt Payment Plans

Striving to avoid consumer debt is a smart strategy for improving your relationship with money, but what about the debt you already have? 

Creating a debt payment plan to reduce your existing debt and become more financially independent is a big job. Fortunately, there are several proven strategies to try for people of all financial backgrounds. 

Debt Snowball

The debt snowball is a method proposed by financial guru David Ramsey. This controversial approach focuses on paying down the lowest debt first and reallocating those funds toward higher debts. For example, if you had a $1000 maxed credit card and a $5000 maxed credit card, you’d work to pay down the $1000 card first.

The reason this is controversial is that higher debts accumulate more interest, making them costly to sustain. However, the snowball strategy plays into human psychology by creating small wins and building momentum. Looking at the biggest debt first is overwhelming and could be a deterrent. Starting small and building up is more approachable.

Debt Avalanche

The debt avalanche takes the opposite (and more intuitive) approach to the debt snowball. In this strategy, consumers pay down their biggest debt first to get ahead of the interest. They continue making those payments until the big debt is paid, then move to smaller amounts. The benefit is the reduced interest payments. The downside is the overwhelm when starting with an ambitious goal that won’t yield significant long-term results.

Debt Landslide

The debt landslide is an approach for those trying to rebuild their credit score quickly as they pay down debt. The idea is to pay new debt down first, as opening new credit can lower your credit score. 

The debt landslide follows the same basic structure as the avalanche and snowball. You set aside money to pay down the debts, then use the freed-up money to continue paying down debt exponentially. This approach (and the others) only work if you use the money you’ve freed up to continue paying debt.

Debt Cascade

The problem with the three strategies above is that they assume you have an extra $50-100 monthly to pay down debt. If your household is living paycheck to paycheck, that might not be feasible. 

With the debt cascade, you make the minimum payment and write the number down. Your next minimum payment should decrease slightly. Regardless, you make the same minimum payment as the first time, allowing you to pay down more principal. Continue this strategy until you have enough money available to shift to one of the other methods.

Choosing a debt payment plan creates structure for your goals. However, it still requires dedication and control to work. Combining these strategies with putting your credit cards away and implementing budgeting tools will help.

6. Limit Access to Marketing Materials

As of 2015, it was expected that the average person saw between 4,000 – 10,000 ads per day via television or digital marketing. As social media use has increased from 111 to 147 minutes per day and general internet use has increased by 38 minutes per day, it’s likely more in 2022.

Advertisements are everywhere; they’re practically unavoidable. However, there are steps you can take to reduce your ad consumption and avoid the instant gratification culture that successfully finances so much consumer debt.

Start by unsubscribing from email lists from your favorite stores and unfollowing your favorite brands on social media. You can’t like an item if you don’t know it exists, and saving 10% is not as good as saving 100%. If you need something, you’ll always be able to find it and a discount code. You can also use apps like Honey to inform you of price changes.

If an ad pops up on social media, you can click the settings and prevent it, or any other ads from that company from showing again. If you don’t want to unfollow your favorite influencers and brands, consider snoozing them during peak sales seasons (like the holidays).

Unplugging from social media and content will also help you minimize ad consumption. Explore other (free) hobbies and relaxation methods.

Create Purchasing Rules

What about those times when marketing is unavoidable? Marketing is designed to create a sense of urgency or scarcity to encourage immediate action. The best way to combat this is to create a time limit rule for yourself. 

Set a rule that you won’t buy impulse purchases the day you see them. Instead, you’ll wait 30 days and determine if you’re still thinking about it. You’re not allowed to make a reminder or write it down; if it really matters to you, you’ll remember it. If you’re still thinking about it 30 days later, and it fits your budget, consider purchasing it for yourself. Otherwise, wait until you have room in your budget.

Another purchasing rule is to take a minimalist approach. For every book, pair of shoes, item of clothing, or decoration that you purchase, you must donate one. This exercise will help you determine if you really want the item more than what you already have while avoiding clutter.

7. Use a Percentage Plan

Think of your personal finances like a business, creating rules for allocating your income and expenses. A percentage plan is an effective way to clarify where your money is going and account for unexpected fluctuations. It’s also easy to create a budget with this strategy using apps like Mint or YNAB.

Determine what percentage of your income will be allocated for specific expenses, like fuel, groceries, etc. Follow suit for savings and spending, ensuring a set percentage is always going into your savings account. Use an Excel sheet or app to calculate where money should be allocated as it comes in, and transfer it immediately. 

The Profit First Approach

Profit First is a business accounting strategy developed by business guru and author Mike Michalowicz. The idea is to always pull profit from your business and set it aside, then make your expenses fit what’s left. This method helps create a realistic picture of what’s happening in a business and helps entrepreneurs eliminate their scarcity mindset.

In the business approach to Profit First, all money comes into one account and is reallocated semi-monthly into several other accounts based on the allocated percentage. These accounts include tax payments, business expenses, etc. Using separate accounts limits calculation time and access to keep everything clean and separate. 

Michalowicz has also adopted this strategy for personal finance. The accounts used in this approach include:

• Income – where all money is channeled through. This should be empty after each allocation.
• Vault – this is an emergency savings fund.
• Recurring Payments – for bills, subscriptions, and known expenses.
• Day-to-Day – groceries, shopping, variable expenses.
• Debt Paydown – this account is specifically for paying down debt using one of the strategies listed above.

Start by outlining what percentage of your income is allocated to recurring expenses, adding a 10% buffer. Then, adjust the rest of your allocations to fit. 

It may take time and restructuring to implement this percentage plan, but it’s a great way to make saving money a part of your daily life.

The 2% Rule

The 2% Rule is a debt payment strategy introduced by The Thrifty Couple. While they’ve used this strategy to pay down debt, it’s also useful for building a savings account. 

This approach to budgeting requires looking back at your expenses for the past few months and finding a baseline. From there, you find ways to improve your income by 2% the next month while decreasing your expenses by 2%. This is an easy starting point that creates a sense of success and habit-building. 

For example, if your monthly income is $3000 and your monthly expenses are $2500, you’d find a way to make an extra $60 next month while cutting expenses by $50. That extra $110 would go toward paying down debt or building savings. Then you repeat the next month with the new baseline.

This strategy is an effective way to get started for people who struggle with behavior change and need to overhaul their relationship with money.

8. Do Some Inner Work

Money habits, mindsets, and behaviors can be passed down through generations. Our parents are often the first people we learn about money from. If they struggled with their financial relationships, you likely will too. This modeling is often why you’ll see people who come into money later in life still purchasing no-name branded shampoo or stressing about food scarcity. 

Before you can make lasting habit changes, you need to dig deep and determine your key drivers. The idea of poor willpower is a myth; habit change is an intense, psychological process. Talk to a counselor or financial literacy expert for coaching. Learn more about your behaviors and where your relationship with money comes from. Understanding the factors that influence you will help you make meaningful changes.

9. Reframe Your Mindset

Changing your mindset about money can help you transform your financial habits. Even the words you use when talking about finances will have an impact. The human brain is rich in neural pathways that get deeper over time. 

Terms like “I can’t afford this” create a restrictive mindset that can have negative impacts. Instead, try rephrasing it as, “I’m choosing to spend my money elsewhere.” Yes, those expenses might be rent and groceries, but those expenses deserve to be acknowledged as a positive. This approach is also a powerful way to set boundaries with others who pressure you to spend.

Considering your mindset about how one expense relates to another can also help you practice delayed gratification and mindful spending. As you hold an item or are faced with a financial choice, take some time to weigh the options. What will you give up if you purchase this item? How will it impact your goals? Will it bring you joy in the long run? 

Slowing down and training your brain to think differently about money will create a sustainable mindset shift and set you up for success in the future. 

Final Thoughts

Improving your relationship with money requires awareness, structure, systems, and behavioral changes. It will take time and effort to accomplish such a significant life change. When in doubt, reach out for support from financial advisors and coaches who can help you make better decisions that suit your goals.

This article 9 Fast Ways To Improve Your Money Skills originally appeared on Rick Orford - Invest, Earn More Income & Save Money.