How to Build Good Money Habits


"Don't fear failure. Fear being in the exact same place next year as you are today."


-Unknown


I sit down at my desk to pay my bills. I have a lot of credit cards. And those credit cards have significant balances on them. I racked up a good amount of credit card debt while I was in college. Now I'm here staring at all of the bills in front of me. I'm trying to pay $1,000 every month to repay this debt. That's a good chunk of my first-year salary, but I run some numbers, and I’m motivated to get this debt paid off.


A year-and-a-half later, I pay the final balance on my credit card debt. I thought it would be a struggle to pay that money each month, but I got used to living on what was left over after those credit card payments. I decided to keep the habit going. I already sat down once a month and got rid of $1,000. Before, I got rid of it by paying credit card companies. Now, I can get rid of it by putting that money into an investment account.


Before long, that money grew into five figures, which is a lot for me at the time. It wouldn't have happened if I didn't have a habit of moving money from my checking account into my investment account every month.


Habits are powerful, and when they are good habits, they can work very well for you.



Good Money Habits


Good money habits are behaviors that we partake in and they are automatic; often we don't even know that we're doing them. Automation is a strong tool that we can use to align our financial lives with what's important. Habits are the automation of behavior. Habits happen automatically, so turning our good financial behavior into habits is very powerful.



Bad Versus Good Money Habits


It's easy to know what we don't want. Our minds have a strong negativity bias, and as a result, we notice and pay more attention to the negative events in our lives. Good things happen to us, as well, but we don't tend to focus on those. That's why it's easier to know what we don't want. There's so much negativity that gets into our brain, and the simple thing to do is wish we didn't have those negative things happening.


It is far more difficult, however, to actually articulate what it is we do want. Ironically, we suffer from a concept called choice paralysis. Intuitively, it would seem that having more options would be better for us. In reality, the more choices we have, the less confidence we have that that was the right decision for us.


So it's harder to know what we want with any confidence, but it is worth the time.



Determine What Money Habits You Want


If you want to implement better money habits, it is important to know what behavior you want to implement. A vague idea about a future outcome is not very useful. For example, wanting to have savings or to be a saver is vague. Moving $100 per month from your checking account to your savings account is a specific behavior that you can try to form into a habit.


Think about what good habits you want in terms of the specific behaviors you want yourself to do.



Building Good Money Habits


Once you know what behavior you want to turn into habits, the next step is to implement your new habits. The trick here is to make it as easy as possible.


Every behavior has a prompt, or trigger. If you want to implement a new habit, then the prompt should be obvious and happen regularly. One prompt is your memory, but having to remember to do something all the time is why we don't turn behaviors and habits. Using reminders like those on your calendar or other phone apps can be great prompts. A potential issue with using reminders like this is that you may get the reminder at an inconvenient time. For example, if your phone buzzes while you’re grocery shopping, it's a lot more difficult to log into your checking account and move money. Adding an activity that you're already doing to your new behavior is a good prompt. For example, perhaps you already pay your bills every month at a particular time. Pay your bills, and then try turning that into a prompt for moving money into savings, for example.


Your new behavior should be easy to do. If you try to bite off more than you can chew or try to do too much too quickly, it's more likely that you will give up on the new habit. So make it easy and build on it later.


Find ways to reward yourself. This doesn't have to cost you any money. Simply taking in the moment and feeling proud about what you've done can be a great reward. Find a reward that works for you, hopefully one that doesn't cost an arm and a leg, and pair it to the end of your behavior. That reinforcement will help keep the habit going.



Automating the sound financial decisions in your life is a great way to have your finances in order without becoming a personal finance expert. Turning behaviors into habits is how we can automate our behavior. It starts with understanding what you want to do and then taking steps to make that behavior automatic.


What good money habits would you like to implement? What steps can you take to make this an integrated part of your life?


You only have one life. Live intentionally.



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Related Money Health® Reading
References and Influences

Clear, James: Atomic Habits

Fogg, BJ: Tiny Habits

Housel, Morgan: The Psychology of Money

Kahneman, Daniel: Thinking Fast and Slow

Klontz, Brad, and Ted Klontz: Mind Over Money

Millburn, Joshua Fields, and Ryan Nicodemus: Essential

Newcomb, Sarah: Loaded

Richards, Carl: The Behavior Gap

Zweig, Jason: Your Money and Your Brain


Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.


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