Does it ever seem like everyone has a much easier time saving money than you do? Like everything else in life, good financial practices need to be just that – practiced until they become a habit or a part of your daily routine. New habits can be built. They just take time to implement in order to successfully become a part of your life.
Our brain is hardwired to engrain repetitive actions into “muscle memory” so we can do those actions without exerting too much energy on a regular basis. For example, learning to walk is hard. It’s something most of us don’t remember doing, but that was figured out none-the-less. If you’ve ever seen a baby learn to walk, they fall down several times before they take their first steps. But with time and practice, they get the hang of it and before you know it, struggling to walk was a thing of the past. Walking becomes so much of a habit that we don’t even think twice about it now. The same goes for your finances. By taking small steps toward success, making good financial decisions will lead to having more money to save, and financial freedom from debt.
A keystone habit is a habit that trickles to other parts of your life and sets off a chain reaction. Bad financial decisions and habits have an effect on several things such as your day-to-day levels of stress, happiness, and anxiety to name just a few. Your brain is smart but cannot differentiate between good habits and bad habits. The brain learns both types of habits equally. Because of this, it is possible to learn good habits. You need to encode those good habits in your brain the right way. By introducing good behaviors slowly, your brain will respond and form a new habit.
The old saying, “yard by yard, life is hard, but inch by inch, life’s a cinch” applies to formulating new habits. Remember, your brain already knows your old financial habits such as overspending, ignoring or not having a budget, giving in to impulsive wants, swiping your credit card without a plan of how to pay it off, etc. And all of those habits make you happy in the moment – so your brain lets you do it. You get a reward of something you want right then and there, but the instant gratification comes at the expense of financial strain in the long run. By adding small changes to your daily routines, you will experience the satisfaction of the success that comes with meeting your goals, and you will be satisfied by your successes instead of giving in to your impulses.
When we’re going throughout our daily lives, it’s easy to be unaware of how much we are spending. By simply looking at your bank account every day, you can stay on top of how much you’re spending. Once looking at your bank account every day becomes a habit, you can start planning your spending one day ahead of time. Once you’ve mastered that, try to plan for your weekly spending, your monthly spending and eventually graduate to planning your yearly goals.
The “snowball” effect is when you pay off your smallest debt first and the success of paying it off leads to paying off more debt. For example, if you owe $1000 on one credit card and $500 on another card, focus on paying off the $1000 card first and pay only the minimum on the $5000 card. After you’ve paid the $1000 card off, take the monthly amount you usually paid toward it and add that to what you’re paying on your $5000 card. This will help you pay off the $5000 card faster, and it won’t affect your monthly budget because you’re already used to spending that money paying off the lower balance card. If you do this with all of your debt payments, your debt will be paid off and you will be getting the personal reward of seeing consistent forward progress.
Don’t think that you have to start off grand with your savings. If you carry cash, try to save $1 or $2 a day. Keep the money you save in a transparent jar so that you can see your progress as your savings grow. After the jar is full, take your savings and open a savings account and start the process again.
If you prefer to do everything online, transfer $10 a week into your savings from your checking account. By the time you reach $500, increase your goal to $1000. You can meet your new goal by either continuing your habit of transferring money to your savings $10 at a time and not touching your savings or by doubling or tripling your contribution to your savings account.
All in all, the most important aspect to building habits – financial and otherwise – is a slow process. Don’t try to change everything all at once. Give yourself time to implement new behaviors into your everyday routine and you will see the benefits of your new financial habits in your life.