Changing your money habits for the better
Keeping a handle on your personal finances is all about forming and building realistic habits around your money – and also getting rid of some habits that may not work so well.
A habit is defined as “an acquired behaviour pattern, regularly followed until it has become almost involuntary,” like brushing your teeth before bed. There are always ways to improve our habits, including with money. Let’s get into a few tips and tricks that might be helpful.
Anatomy of habits
One of the best ways to develop good habits with money is by having go-to methods to keep you honest. One of those methods is the “Anatomy of Habits” formula. It goes like this: motivation + ability + trigger = habit
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Motivation: highlights the root causes for money challenges
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Ability: the capacity to take action
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Trigger: the internal or external prompt
How to start a new habit
Looking at it from a financial standpoint, let’s say the habit you want to introduce is “living within your means.” The motivation is having peace of mind financially. You have the ability to practice sustainable spending by removing your payment cards from your wallet or online apps and going ‘cash only’ to avoid impulse buys.
The trigger could be as simple as adding a reminder in your calendar to track everyday spending. This also works long-term by adding a reminder once a month to revisit cash flow from the prior month.
Removing a current habit
On the flipside, if you want to remove a habit, take an element out of the equation. Reflect on your bad habits and figure out what can go. Let’s think about the habit of overspending, where the motivation is a dopamine hit from shopping, the ability is having access to payment cards for online and in-person purchases, and the trigger is not having the newest or trendiest things.
In this instance, you would aim to remove the “ability” element by limiting automatic payment card access. You can do this by locking your cards online and removing data from your browser. You could put the physical cards in a hard to reach spot, switch to using cash or make use of gift cards. Trigger wise, let’s say you plan a day out with friends. You could avoid going to a mall and set reminders to plan an outing where you don’t pass by shopping temptations (take a nice walk in a park instead).
Automating your finances is sustainable
This might be one of the most important habits you could develop for sustainable success. Start setting up automated transfers to help you manage debt (if you have any) and definitely STOP automating anything that’s connected to unnecessary spending. This makes saving easier and spending harder. We have limited amounts of willpower and this helps us feel in control when we struggle.
Review your budget to understand your spending thresholds. Add automation on things like debt repayment by setting up overdraft protection or minimum payments on credit cards. If it works with your budget, you could add automation to your utilities and property taxes too. Of course, you’ll want to remove all automation on unnecessary spending!
Taking action against procrastination
Procrastination, meaning to delay or postpone an action, is human nature. We often spend more time avoiding the task than doing the task. Taking action is all about overcoming this. You’ll need discipline, honesty, patience, creativity and courage to reach your financial goals.
For example, let’s say you're taking action towards your savings goals: Discipline helps you increase your income or cut spending. Honesty allows you to tell the truth about your habits to yourself and others. Exercise patience to pay down debt and save over time. Use your creativity to get another source of income. Last but not least, count on your courage to step outside your comfort zone and overcome the fear of changing habits.
Key takeaways: how to improve your own money habits
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Choose one habit to remove and one to introduce
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Design the motivation, ability and trigger for these changes
Words of encouragement: procrastination and action are both human
Very successful people procrastinate. It can be very hard to determine why you procrastinate and it doesn’t mean you’re lazy. Instead of wasting time and energy focusing on why, ask yourself a different question, like “what would it take to add my new habit?” Then focus on the actions.