I recently finished an awesome new book called Atomic Habits, by James Clear. It sets up a framework for making good habits and breaking bad habits.
It got me thinking, what are some good money habits we could try to create that would help us improve our finances? Here’s what I came up with.
Awareness is Key To Creating Good Money Habits
“The first step to changing bad habits is to be on the lookout for them.”James Clear, Atomic Habits
The simple fact is, you’ll never have control over your money if you don’t know where it’s going.
It’s always better to know what you’re planning to spend versus looking back at what you’ve already spent. The best approach I’ve found is to focus on being deliberate when you plan and when you spend.
As disciplined as I feel I’ve become with my budget, my no-spend challenge revealed that there’s always room for improvement.
Knowing I have money in the budget for something and making the conscious decision to spend it are two different things.
Developing the habit of awareness means being deliberate in each and every purchase.
Track Your Spending If You Want To Establish Good Money Habits
“The mere act of tracking a behavior can spark the urge to change it.”James Clear, Atomic Habits
Starting a habit of tracking your financial actions can have a massive impact on creating good money habits. Tracking goes hand in hand with awareness and can help you avoid common pitfalls and establish better goals.
I prefer to track my spending as close to the point of purchase as possible. I’ve made a habit of recording my receipts as soon as I get in the car or get a confirmation email.
When you start tracking your spending you’ll likely discover ways to spend less as well as find the encouragement and motivation to stick with long term goals.
Tracking Will Help You Spend Less
The act of tracking itself, knowing you’ll be accountable for that purchase, sometimes stops you from making it.
You’ll also gain more awareness of how much you’re really spending versus how much you think you’re spending in certain areas.
The most common expense that seems to surprise people is realizing how much they actually spend eating out. Most people are shocked at what they discover. I know we were.
Simply by tracking our expenses we were able to adjust our behavior and save hundreds per month, just by eating out less often.
Tracking Will Keep You Motivated
Another way tracking can help you form good money habits is by encouraging you to continue with them. A great example of this is debt-free or savings goal charts.
Use tracking charts to get in the habit of tracking the positive financial steps you’re making.
This allows you not only to see your debt shrink or your savings grow but to associate that positive behavior with the reward of gratification as your work toward your goal.
Sometimes the simple act of checking off a box is all it the reward it takes.
Appreciating What You Have Can Lead to Good Money Habits
“Being poor is not having too little, it is wanting more.”Seneca
There are psychological aspects to why we spend the way we do, and you can bet the advertising agencies and retailers know all about them.
The best way to avoid being manipulated into buying more stuff you don’t need and may not even want is to get in the habit of being appreciative for what you already have.
A daily gratitude practice is a great habit to start for numerous reasons. It helps you start the day with a positive attitude as well as recognize the little things we take for granted.
Gratitude can also help with your finances. By showing gratitude for the things we have, we’re less likely to covet the things we don’t.
Why We Buy Things We Don’t Need & How To Avoid It
Suggestion Impulse Buying is used by companies to manipulate us into buying products, not because we want them, but because of how they’re presented to us. They arrange products in a way that intentionally encourages impulsive buying.
Grocery stores are notorious for this.
Checkout lanes are filled with guilty pleasures like gum, candy
So how do we avoid these type of impulse buys?
Well, at the grocery store I’ve got in the habit of using self-checkout. I find I’m less likely to even see the candy when I’m busy scanning and bagging the groceries, and since Little GFB loves scanning too, he rarely asks for a treat either.
For other stores (especially online) I’ve found the best way to avoid impulse purchases is to make a habit of waiting 24 hours before buying.
Since a lot of my shopping is done on Amazon, I add wants to my wishlist and needs to the cart. But I don’t check out for at least a day. Giving myself the added wait time ensures I’m making a deliberate choice when (or if) I do check out.
Also, even if you manage to avoid impulse buys, you’ll still want to be careful anytime you buy.
The act of spending money itself can actually lead to the desire to spend more money. There’s even a name for it – The Diderot Effect. It’s basically the idea that one purchase leads to another. The simple act of acquiring a new possession creates a spiral of consumption.
A habit you can adopt to avoid this spiral of buying is to make a rule that for every new thing you buy, you have to get rid of something else.
Automate the Good Money Habits
“Sometimes success is less about making good habits easy and more about making bad habits hard.”James Clear, Atomic Habits
Studies have shown we’re more likely to pursue good money habits when they’re easy.
Employers who offer 401k plans find more people participate when they’re automatically opted-in instead of asking them to opt-in on their own.
Most of us are aware that we should be saving for the future, but it’s hard to think about
Automation can also help avoid some bad money habits like late payments, overdraft fees, and penalties. Set up minimum payments so you never have to worry about bank fees again.
In summary, a
Time to Go Set Your Own Good Money Habits
The habits mentioned above are just a few of the takeaways I got while reading Atomic Habits. I highly suggest checking it out if you’re interested in creating your own good money habits or breaking some bad ones.
So what do you think? I’d love to hear any other habit ideas you’ve got that can