IMPROVING YOUR FINANCIAL HABITS

FINANCIAL HABITS

A habit is a regular tendency or practice. Often it’s something hard to give up, or hard to make changes to. We have habits with how we eat each day. Maybe we have habits with how we do our dishes or laundry. We have habits with how we take care of our teeth or our health overall. In addition to these habits that people usually think of, we also have financial habits. Financial habits are those that we have developed related to the way we interact with money. While sometimes people will say “I’m just not good with money”. Just like the other habits mentioned, financial habits can be changed and improved.

START SMALL

Whether you have some minor changes you would like to make or you feel like you have major improvements needed you still want to start small. It’s difficult to get habits to stick when we make dramatic changes. Often what happens if we go from one extreme to another is that we last a little while with our new way, and then give up because it’s too difficult. We then go back to the way we were doing things and forget the whole thing.

If you make small changes they are much easier to manage and develop into habits. Once you have made a small improvement and it is now part of your regular habits, take another small step. We can usually improve somewhere, even if it just makes us a little bit better. Today I am going to go over some financial habits that we can think about to decide what we might be able to improve on.

TRACKING YOUR SPENDING

Tracking spending is one of the most basic financial habits. So many things depend on tracking your spending. Without knowing what you are spending it is very difficult to have a realistic budget. How often do you currently track your spending?  If you wait too long in between each time you record your expenses it takes more time to do.  It’s also difficult to remember what your purchases were for. If you get too far behind, it can become too much, and then you might stop altogether.

If you would like to get better at tracking expenses consider setting up a specific time to do it. Try to pick a time that you know there will typically never be a conflict. I take a few minutes in the morning before work, or at night before bed to do a quick update. I find that updating expenses quickly on a daily basis is much easier for me than doing it weekly.  Everything is fresh in my mind, and I don’t have to spend time thinking about what we purchased at some particular store. I’m not saying that there are no times when I fall behind.  But, creating a habit of doing this on most days, makes it much easier to stay on top of our expenses.

CREATING AND MAINTAINING YOUR BUDGET

Some people might not consider budgeting to be habitual. But it really is something that you need to build some good habits around. Unfortunately, a budget isn’t something you create and then just follow. Once you have created a budget it needs to be maintained frequently if you want to stay on track. Even when we have a really good handle on our expenses there is almost always something that comes in differently than we expected. That doesn’t necessarily mean that you have increased costs.  It could also be an increase in income or an expense coming in lower than you expected.

If you develop a habit of maintaining your budget, you can adjust for these changes that have occurred. The easiest way that I have found to make this a habit is to do it as I go. When I am recording my income and expenses, I adjust the budget at the same time as needed. If you let your budget get too out of sync with reality it won’t serve its purpose because it will no longer be a true picture of your financial activity.

SAVINGS HABITS

There are so many different types of savings. We can have savings for emergencies, savings for retirement, college, or a new car. Savings can be for smaller things like saving up for an annual subscription fee, vet visits, car maintenance, and on and on. When there are so many things to save for it can feel overwhelming to get started. If you don’t yet have good savings habits, it might be best to pick one or two types of savings to get started on developing your savings habits. As an example, maybe you might want to focus first on emergency savings and retirement savings.

If you can automate your savings, you actually don’t need too much work to get started on the actual funding.  The work is in determining what you want to save and how much you can afford in your budget. Once you have automated the savings the good habits are really related to paying attention to your budget to see if and when those savings amounts can be increased.

CURB IMPULSE SPENDING

Impulse spending is probably one of those financial habits that some of us really struggle with. This is because it is spending that we do on impulse!  When we make an impulse purchase, often we don’t think too much about it we just spend! It sounds like a great idea at the time. There are habits that we can work on to help curb impulse spending.

One of the most common habits that is usually is to implementing a waiting time before making a purchase. Deciding that you will give yourself a waiting period, even if only 24 hours, forces you to take some time to think about the purchase you are going to make. Very often after 24 hours, the initial excitement is gone and you may have even forgotten about the item all together. Impulse purchases can really negatively impact our budgets.  But, if we take some time to work on our impulse spending habits, we can usually make some positive changes relatively easily.

SINKING FUNDS

Years ago, I had no habits related to identifying what expense required sinking funds.  I don’t think I had any idea of what a sinking fund was or even realized that I should be saving up for short-term things. A sinking fund is simply money put aside for an upcoming expense. When I do my budget, I determine how much money needs to be put aside for future expenses. In the past when it was time to take my dogs to the vet, I would go pay several hundred dollars and then try to figure out where it should come from after the fact.  Often it would go on a credit card until I could pay it off. Over time I made it a habit to identify every time one of these types of expenses came up. Once they were identified I determined how much I would need to put aside on a weekly basis to cover the expense when the time came. By doing this my weekly budget for discretionary spending shrunk a lot! A big piece of our weekly spending budget goes to putting aside money for these future expenses. But, the reality is that the money isn’t coming from anywhere else. In the week these things happen, we will not suddenly have some other source of income to cover the cost.

MINIMIZING DEBT

Developing habits to stay out of debt, or to keep debt to the smallest amount possible is so important. Some aspects of habits around debt often relate to our mindset. We can often make major improvements to the amount of debt we have just by deciding to avoid it whenever possible. Our other financial habits really play a major part in staying out of debt. When we have good expense tracking habits, we know if we are spending too much. This allows us to curb our spending to avoid spending more than we have available which causes us to go into debt.

Good budgeting habits also help keep us out of debt because we can see how much we actually have available to spend. Savings habits help us stay out of debt also because we can utilize savings to purchase things that we may have otherwise put on a credit card. These could be for discretionary things that we have saved up for.  But, it may also be for emergencies. If we have good habits in place to limit impulse spending that has a big impact on our likelihood to go into debt also. So, if we can work on our other financial habits first, they will all help to develop good habits to limit our debt.

IN SUMMARY

There are so many pieces to developing good financial habits. Just remember to take it slow and do what you can. Most of us have areas we would like to improve on. Remember to start small.  Pick the one area that you would like to improve upon the most. Then pick one aspect of that area that you can work on. Improving habits is a slow process.  So, just take your time and you will get there!

Thanks so much for checking in! If you would like to hear the podcast version of this topic to check out Lola’s Frugal Life Podcast! Also, be sure to check out my other blog posts on this site!

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