The Compounding Effect of Good Financial Habits

Does the word “compounding” sound familiar? We hope it does because we’ve mentioned it countless times when talking about compounding interest.

And similar to the magic of compounding interest, good financial habits can also reap huge rewards if given time. 

The compounding effect of good financial habits refers to the way that small, consistent actions can lead to significant results over time for you and your wallet. Just like sticking to la dieta while consistently showing up to the gym will improve your health, taking small actions in your finances will also have you looking your best by the end of the year.

And because we want this and so much more for you, here are three ways to compound your way into wealth!

1.Putting Money weekly into a high-yield savings account

Set aside a small amount of money each month in a high-yield savings account. The interest earned on that money will compound, meaning it will earn interest on itself as well as on the original amount saved. 

As we have explained in other articles, looking for an account that offers high-interest rates is critical as this can lead to significant growth in your savings over time. Take a look at online banking. They offer higher interest rates that can go up to 4% or more.  

2. Investing in low-risk long-term assets

Investing in low-risk, long-term assets can also have a compounding effect. We’ve all heard the saying, “slow and steady wins the race,” and this couldn’t be more true than when it comes to long-term investments. 

While nothing in life is guaranteed, there is a pretty high chance that if you start investing early on and keep it up throughout your life. By the time you reach retirement, you will have amounted to a lot more dinero than you put in. 

Some examples of low-risk long-term investments are treasury Bonds, ETFs, and REITs. If you want to know more about what each one means check out our SUMA Academy here. For now, what’s important is that you open an investment account NOW and aim to diversify your portfolio as much as possible. 

3. Having Monthly Spending Fasts 

A spending fast, also known as a “no spend challenge,” is a period of time during which you can commit to not spending any money on non-essential items. The goal of a spending fast is to save money, pay off debt, or simply to be more mindful of one’s spending habits because we know it is crazy out here!

A spending fast can last for a specific period of time, such as a week or a month, or it can be an ongoing commitment. We recommend aiming for an ongoing commitment, because only then will you see the transformative effect holding off on spending can have on your overall net worth. 

Remember, a spending fast does not include necessities like rent, groceries, and utility bills. This does however include non-essential purchases such as buying clothes, going out for Margarita Monday, or spending on tickets to see Bad Bunny at Coachella. 

Becoming financially stable and free of money troubles takes time. By making consistent, small financial decisions that align with your long-term goals, you can gradually build wealth and improve your financial situation.

The compounding effect of good financial habits is REAL and probably one of the best decisions you can make for yourself in  2023. So if you’re ready to get started, take advantage of our FREE resources by downloading the SUMA App here.