We all get inspired by successful people and want to know the secret behind their success. Usually, behind the success lies hard work, patience, knowledge, and the right habits. Yes, you read that right. Habits play an important role in transforming your life, sometimes for the better or sometimes for the worse. Good habits result in positive outcomes and vice versa. Building new habits may seem easy, but it requires you to focus and be consistent. Oftentimes we have built bad money habits and don’t even realize it. In order to be financially successful, you have to form new and healthy financial habits.
Why we form habits? Your mind creates a habit to save you time and effort. A habit is a way of behaving that you repeat so often that it no longer requires your mind to work consciously. This means that to break a bad financial habit and to create a positive one that will last long, you must bring your current habit into consciousness.
The hard part is your habit or routine brings you joy. Many bad money habits do bring pleasure. For example, living beyond your means (luxury car, big house), shopping, always buying lunch during the workweek. All these things bring pleasure to an individual. Read, Five Bad Money Habits, to learn about some of the most common unhealthy money habits.
Now keep in mind habits, can be good or bad. If you have paid off all your debts, have healthy emergency savings, and got your retirement savings intact, and there is extra money still in the budget then continue to get that coffee every day.
However, if at the end of the month you get a sinking feeling in your gut when you see your credit card statement and you realize how much you spent again. Maybe you even told yourself you were going to cut back last month. Well, it is time you learn to form a new lasting habit.
If you are worried about your finances and want to create new healthy money habits having an amazing payoff, try the following tips.
The habit loop has three parts: cue, routine, and reward. To understand your habits, identify the loop. For instance, every day going to the office, you leave your house, go to a cafe and buy a coffee, drink it while chatting with your friend working there, and then go to the office. One day you realize your habit and the cost of your habit. This scenario is a habit loop.
To identify the components of the habit loop, you need to ask yourself what makes you go there and buy coffee, what are the cues that trigger this behavior, and what pleasure do you get in return? Identifying the loop components will help you create a new habit by breaking the older one.
It may not seem like a big deal to spend $3 daily for a coffee, you got a steady good-paying job after all, however, what is the total cost over those six months and how can your money, work harder for you?
You may know about some of the places that make you spend more. These places may include your favorite food cafe, jewelry shop, clothing stores, etc. Try to avoid those places. It will help you avoid spending when you don’t need to. For example, if you want to lose weight it doesn’t help you to keep your food pantry stocked with junk food. As soon as you open that pantry you have a trigger point. This holds true with money habits. In return what you can do is set up a good trigger or the right environment.
Here’s another example of using a good trigger: you are waiting in line somewhere and you see someone wearing those new AirPod headphones. You think you could use a pair yourself, so you pull out your phone to look up the price. Instead of seeing your browser you have put that expense tracking app front and center on your phone. That would be a healthy reminder and trigger. Another healthy trigger is printing out your financial goals and sticking it somewhere you will see it often maybe by your desk and when a coworker asks you to lunch you have a reminder of your bigger goals.
You may be worried about saving, and your spending spree, practicing gratitude enables you to be aware of your earning by reminding you how blessed you are to have things that many people desire, or you have all the necessities that one may long for. Thus, gratitude prevents you from unnecessary spending. This is a mindfulness exercise that not only can help you develop a better money habit, but it can help you become happier. The best option is to try and state your gratitude for one possession you come into contact daily. If you can, express it verbally to a partner, friend, family member, or coworker.
It is better to replace one habit for another verse trying to suppress your thoughts. For instance, if online shopping is your bad financial habit and you typically do it when you get home from work when you are watching tv, then do this. As a substitute when you get home and are watching tv look at your budget or bank statements on your laptop. As well, you don’t need to try and suppress your thoughts of wanting to look for new skis or clothes. By trying to suppress your thoughts by telling yourself not to online shop today, your brain is still hearing those words. Instead you need to redirect those thoughts to a more positive behavior.
Don’t be overly strict, make some room for balance. There is research that shows when you treat things from a scarcity standpoint versus an abundance standpoint you will overspend. This has been shown to be a factor that keeps people from rising out of poverty. However, it impacts all economic classes and varying habits.
The scarcity mindset creates an unconscious panic. When our mind is spending energy, not in the right way we unconsciously lose willpower and discipline. This stems from survival instincts. What happens in a scarcity mindset situation, in regard to money, is that when money comes in you will immediately feel the need to spend it.
In order to form a healthy new financial habit don’t completely cut the bad habit out. You might create a scarcity mindset if you do. Instead, limit it. Put aside a small amount of money every month for that particular habit. For example, maybe that small amount of money allows you to buy a few cups of coffee throughout the month instead of daily. That way you will be able to avoid the scarcity mindset. There are a variety of other techniques you can use to avoid the scarcity mindset, check out this article.
Building new habits is not impossible, but it requires effort and patience. Remember the 20/90 rule for any habit, be it financial or something else. Create a goal and stick to it for 20 days. It will become a habit after three weeks. Once established, continue it for ninety days to make the habit your lifestyle. A financial coach just like a personal trainer can work with you to establish and help you stay accountable to your new financial habits. Signup for a discovery session with Colorado’s best financial coaches today.