8 Financial Habits You Should Build This Year
The thing about January is that it gets so filled up with New Year resolutions that you struggle to get even one thing done — you’re just too overwhelmed with your goals. That’s why a lot of experts recommend starting your heaviest lifting in February, after the shine has worn off your new toys and you’re ready to really get to work.
While you’re taking that advice, consider adding these seven financial practices into your repertoire. Trickle them in over the course of the year and see how things look at the end of January 2019.
8 Financial Habits You Should Build This Year
1. Use an I Want Board
Set up a whiteboard in your family communication center, or a spreadsheet on your laptop, or a checklist on your phone. Whenever you are struck with the sudden inspiration — or compulsion — to buy something, write the thing down on your “I Want Board.” Then don’t buy it.
Schedule a time at the end of your fiscal month (the days just before your next paycheck drops and you know exactly how much money you have left over). Then look at your board. Cross off the things you no longer want — that will be half or more of the items, most of the time. Then buy what you can with your surplus cash. This is known as “delayed gratification” and is known to be hugely beneficial to consumerist behavior.
This wins big for you in four ways. First, you don’t spend money you can’t afford earlier in the month. Second, you don’t make those expensive impulse purchases because you make your buying decision after the initial urge has faded. Third, what you do buy, you can buy without guilt. You’ll know you made a good decision and bought it with money you could spare. Finally, delaying gratification might just help make you more successful in other aspects of your life.
2. “Heck Yeah” or “No Way!”
Whenever you consider buying something new, adopt this method, made popular by productivity expert Derek Sivers. Although Derek uses stronger language and applies the concept to committing your time to projects and opportunities, the concept works great for your finances, too.
It’s pretty simple. Whenever you think about buying something nonessential, ask yourself if you really want it. If the answer is “Heck, yeah!” go ahead and make the purchase (or put it on your Want It Board). If you’re not at least excited enough for a “Heck, yeah!” then the answer is no.
This habit keeps you from buying things you sort of want but will tire of by the end of the year. You can keep that money in reserve for experiences and possessions you’re really excited about.
3. Create Spending Barriers
A spending barrier is a simple rule you follow when it comes to considering purchases. Using the “Want it” Board is an example of a spending barrier, expressed as a rule: “No buying extra items without using the board.”
Different people will get better or worse results from different kinds of spending barriers, so you’ll need to pick your own. Here are a few that a lot of consumers have found help them keep their unnecessary spending in check:
- “I must donate or throw away one permanent item for every item I bring into my home.”
- “I don’t drink alcohol at restaurants.”
- “I only buy nonessentials with cash, and when it’s gone I’m done.”
- “I buy things online only after researching three options.”
- “I leave my credit cards at home.”
Pick two or three spending barriers that directly address your own financial stumbling blocks, and see what happens.
4. Automate Everything
Now is the year to put everything you possibly can on automatic. Set up your bills on autopay. Create automatic deposits to your savings accounts. Spend the time to link transfers between your various banks for easy moving when you need money in point A when it’s all in point B.
Sometimes this is easy, taking just a few minutes online. Other times it requires a week of cross-checking and identity confirmation. A few companies still want you to fax or mail info in a letter. Do it all, then sit back.
With automatic payments and deposits set up, you can focus your energy on improving your money situation instead of just maintaining it.
Bonus points for setting up automatic payments to rewards cards, including cards that give you cash back rewards, followed by automated payments on those cards during your grace period. That’s free money forever after just an hour or so of work.
5. Half for Me Now/Half for Me Later
Everybody gets bonus money from time to time. Your tax return hits your bank account. You get a bigger-than-average commission check. You find $20 in your jeans. You sell that old couch on Craigslist. You work a couple extra shifts.
Whatever the source, money above and beyond your usual budget is bonus money. It can be tempting to spend it all on fun stuff, and equally tempting to make yourself use it all to pay down debt or build up savings.
Neither option is great. If you use it all on fun, then you stay in debt longer. If you use it all “responsibly,” it takes the fun out of bonus money. Instead, cut the bonus money in half. Put one half toward debt or savings. Spend the rest on something fun.
It’s that simple. And it really works.
6. Save the Savings
If you’re under budget on a line item — say, your weekly grocery bill, or gas allowance — take what’s left and put it in short-term savings. Whether that’s a bank account or a jam jar in the pantry is entirely up to you. At the end of each month, total it up and make that payment on your highest-interest credit account. If you don’t have a credit account, put it in the savings bucket for the thing that inspires you most.
You won’t miss the money — it was already spoken for — and by doing it in a single monthly chunk, you get to see satisfying progress from your savings.
You can also treat this as bonus money, from habit number four, if you need that immediate payoff to keep you motivated to make those little cuts every day.
7. Set Smaller Goals
Needing $300,000 in your retirement account or paying off your mortgage are important goals, but they rarely have a real impact on your daily spending decisions. They’re simply too large, and too long deferred.
Instead, set goals you can reasonably accomplish in 4 to 6 months. They can be benchmarks toward larger goals, such as “Pay off an extra $500 on the mortgage” or “Top off the emergency fund to $10,000.” Or they can be individual goals like saving enough for a down payment on a car, or for your annual vacation.
Either way, the smaller goals will motivate you more effectively, since you’ll be able to see meaningful progress sooner and in larger chunks.
And remember: a goal without a timeline isn’t a real goal. It’s a dream. Always express a goal as having a deadline, like “Have a $1,000 balance in the vacation fund by July 4” instead of “Have a $1,000 balance in the vacation fund.”
8. Categorize and Track Your Spending
If you’ve ever categorized your spending, you’ve spent at least a few minutes slapping your forehead for how much you spent on something silly, like fast food. If you haven’t, do it once and you’ll slap your forehead, too.
By tracking your spending, you can identify the habits you most need to break. Since “the first step is admitting you have a problem,” this is key to retooling your financial life for leaner spending and greater wealth.
Online banking and many credit cards do this for you automatically. If yours don’t, you can use any of dozens of free apps to do the heavy lifting. Or you can just use a spreadsheet like your grandparents did way back in the 20th century. However you do it, you’ll be surprised at what you learn.
Seven is, of course, an arbitrary number. If your life is already too complex, just take on three or four that will be easiest or make the biggest difference given the realities of your situation. If you’re all about personal finance this year, do all eight and then find seven more.
What you end up doing doesn’t matter all that much, as long as you do something. You’ll find the forward momentum that you build from successfully making a single positive change will fuel your motivation to make other changes. Before you know it, you’ll have mastered all of these habits and be hungry for more.
Harold is a crafty Do-it-yourselfer. He built most of his furniture from scratch and upcycled wood, scrimping and saving to create beautiful pieces of art at minimum cost. After years spent sharing valuable advice about spending and budgets with his family, he’s now decided to share them farther and wider than ever before.
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