“4 Exercises for Better Money Habits”
Do you ever find yourself wishing you had better money habits, but you just can’t seem to change your day-to-day actions? Here’s the good news: It is absolutely within your control to transform your habits and become confident and proud of your financial habits. People aren’t inherently “good” or “bad” with money, but we can build good or bad habits with our finances. Instead of feeling like you have to change the person that you are, or overcome major weaknesses or shortcomings, you can simply focus today on starting to build better money habits.
Take an Honest Inventory of your Recent Transactions
It’s really hard to build better money habits when the necessary actions seem like no fun at all. Budgeting, and/or spending less is a great example of this. Unfortunately, most people associate these types of habits with being “deprived” or “missing out” and when you feel that way about a habit there certainly isn’t motivation to develop it. One way you can honestly assess your spending without going through a full-blown budgeting process is the following:
Pull up your bank and credit card transactions from the last 3 months and go through every single line item to:
- Highlight in green all the spending that you value and/or that makes you feel good
- Highlight in yellow things that you somewhat value, but don’t feel extremely excited about
- Highlight in red anything that, looking back at it, leaves you feeling a little negative/regretful
Then, identify all the purchases you highlighted in red. These are the things to stop spending on immediately since they don’t bring you value or might have been things you regret buying.
It’s an easy way to eliminate what isn’t worth the cost.
Don’t Try and Willpower your way to Success
Have you ever tried to go on a diet and the very next day it feels like there are magically 27 opportunities to eat cake and ice cream? It’s hard to have the willpower and discipline to stay the course when temptation is all around us. The reality is that our finances are no different.
The people who do succeed in establishing new, improved habits are not necessarily the ones who resist the temptations that would cause them to veer off-course. The people who are “most disciplined” tend to be the same people who simply don’t have as many distractions or temptations to deal with along the way. It’s not that they’re better at turning down dessert when they’re trying to lose weight. It’s that they don’t put themselves in a situation to say no to dessert in the first place — maybe by not buying ice cream to keep in the freezer, so there’s nothing to tempt them.
We tend to think we can just will our way through hard things, but the reality is that willpower only gets us so far because everyone has a limited amount of it, and you can exhaust yours. Instead of relying on willpower, try to engineer your environment, your schedule, and your routine so they you don’t have to engage directly with so many distractions that can lead you astray.
Make Better Habits Visible
Having consistent visual cues can be a great way to stay on track with your financial habits. It’s hard to forget something that you know you will see every day/week as you go throughout your daily routine. For many people, one of the biggest visual cues is having a shared budgeting app that they use to keep track of their spending. Sure, it may sound tedious, and it does take time and effort, but the payoff is that it stays top of mind throughout the month.
If you can find a consistent way to do this, you can stay on top of how much you’ve spent, what is left to spend in the month, and think more critically about the frivolous money purchases that come up during the month.
One idea is to get a piece of paper and write down the goal you are currently working on — and how much you need to save on a daily, weekly, or monthly basis to achieve it. Stick it somewhere you can see it. Bonus points if it’s in a place that could prevent you from engaging in a bad habit instead of the actions that will help you accomplish what you want. For example, you might stick your note on your computer screen — so you can see it when you’re tempted to do some online shopping.
The reason so many people struggle with building better money habits — or any kind of behavior change, even when the change leads to beneficial or positive results for us — is because we’re human. We’re not perfect, and we don’t live like robots, making completely rational, best-for-us decisions every second of every day.
Often, that’s because we’re asked to choose what’s “best” for us on a broad, overall, long-term scale… but we have to choose that in the moment, when we’d really much prefer something that’s “best” for us right that second. Which is why we choose to sleep in rather than get up early and exercise. Or why we select the cheeseburger over the salad. Or why we spend on what we want now rather than saving for the lifestyle we want in the future.
Knowing this, there’s a pretty straightforward solution: make less decisions; automate instead.
Anytime you can pre-commit to an action (like having 401(k) contributions automatically withheld from your paycheck) or automate a decision (like putting $1,000 per month into your long-term savings or investment account via an automated transfer that goes through after your direct deposit hits), you make it much easier to stick to the beneficial habit that you want to maintain.
Look for ways to build in automation into your financial life, so the burden isn’t 100% on you to make great decisions 24/7.