If you are looking at your money habits and thinking you could do something differently, now is the time to do something about it. Replacing financially unhealthy habits with new sound ones requires time and discipline and it requires you to dive into the issue and figure out why you handle money the way you do. Bad financial habits are learned and they can be changed. Here are a few ideas to help you replace old habits with new ones and become financially successful.
Acknowledge the Problem
To get started, be honest with yourself. Look at your spending habits, and consider what triggers your spending. For instance, are you spending hours on Amazon or eBay looking for “great deals”? Are you buying discounted items, looking for additional “savings”?
Define what triggers your spending habits. Spending might lend a temporary feeling of control, but in reality, it’s irrational. To reveal triggers, keep a financial journal for three months, record each purchase, including when and why it was made. Track your spending for several months to find a pattern. Once you’ve identified a pattern you can address your spending habits.
Sort Out Your Financial Priorities
Once you recognize your problems, it’s time to decide what’s really important to you. Sort out your financial priorities. Think about what you really value, whether it’s the goal of returning to school for an advanced degree, reducing debt, or creating an emergency fund. Think about how your bad financial habits are keeping you from reaching your financial goals. This will provide you with motivation to improve your money habits.
Make a Plan
Next, you need to make a spending plan that fits with your new spending priorities. Make a plan that will help you address your financial goals of getting out of debt, saving for retirement, or planning for retirement.
Create a budget and set spending priorities. Without creating a budget, you will not be able to identify how much you are spending or allocating towards expenses.
Sort out wants versus needs. While you’ve heard it before, it’s still good advice. If you are planning to save, you must have an amount of money set aside each week towards your savings goal. Once you’ve established your goal, keep within your spending limits. Don’t let short-term wants keep you from reaching your long-term goals.
No More Impulsive Buying
One of the most common ways to lose money is to buy items impulsively. We’ve all done it at one time or another. We see an item and have to have it. But take time to explore the trade-off: how much are you giving up by spending now? For instance, if you are buying movies or CDs or Starbucks, how could the money help with paying down debts or increasing your savings? If you find yourself wanting to make a purchase, let it go for a day. Allowing even one day will make you think twice about buying the same item.
Set Clear Financial Goals
When establishing new financial habits, it’s important to set clear financial goals. For instance, if you are struggling with credit card debts, make a plan to pay off the debts. Create a plan that sets a certain amount of money towards debt reduction monthly. It’s important to have dates, dollar amounts, and a timeline for paying down debts. Make a list of all debts and arrange them from the smallest balance to largest and make a plan for reducing each debt. Not only will you improve your credit score but you will soon become debt free.
Invest in your future. Make it a habit to invest in retirement. Even if you think you can plan for retirement later start thinking about it today. The growth of your investments over time will make all the difference and it’s never too early to start. Begin with increasing your 401(k) to the maximum of your company’s match, if that’s available to you. Afterwards, the best bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
Keep your family secure. The first step is to save for an emergency fund, so that if anything happens, you’ve got the money. If you have a spouse or dependents, you should get life insurance and make a will. Also, research other insurance such as homeowner’s or renter’s insurance.
Read about personal finances. The more you educate yourself, the better your finances will be. If you have questions about budgeting, credit, housing, or debts, visit Trinity’s website and review our Financial Literacy page.
Additional Ways to Change Financial Habits You can’t just eliminate bad financial habits—you have to find better habits to replace them.
Here are some additional ideas:
Saving until you have the money for a purchase instead of buying on credit.
Using a 30-day list for all non-essential purchases — you can’t buy something until it’s been on your list for 30 days.
Paying bills either immediately or automatically online.
Taking 20 minutes a week to update your financial plan.
30 Days to New Financial Habits
So here is the challenge: in the next 30 days you are going to build new financial habits. Tell yourself that you’re going to be as consistent as possible for 30 days. Every single day, when a trigger occurs, do your new habits without fail. The more consistent you are in tying your new habit to a trigger already in your routine, the stronger the habit will become.
Other important principles for forming your new habits:
One habit only. Focus only on replacing one financial habit at a time during this 30-day challenge — taking on two or more habits at the same time will decrease your chances of success. You can work on your second habit in the 30 days following the first challenge, and then tackle the third, and so on.
Start small. Don’t try to become a new person overnight. Increase gradually, after you’re used to the small changes.
Commit. Try to tell as many people as possible about your habit — friends and family, on your blog, on Twitter or Facebook, this will help motivate you. Report your progress to them every day during the challenge.
Conclusion
Creating new financial habits doesn’t mean you have to deny yourself everything. Instead you are simply learning where you are wasting money. Once you see areas where you can improve make the changes needed to serve you better in the future. You won’t replace your bad financial habits with good habits overnight; it takes hard work and disciple to make a permanent change. You can accomplish this, though, if you remember to stay focused, and find ways to reward yourself. Set milestones and revise your plan.
When you reach a milestone, you can reward yourself. Also, if you get off track, don’t assume all is lost. Take a deep breath and get back on track as quickly as possible. You can change your money habits if you are willing to recognize your shortcomings, and make a plan to replace them with better money habits.
