The Power of Habit
Before you know it, you’re going to be inundated with talk about the end of the year and New Year’s resolutions. Creating new habits is difficult and requires a good deal of repetition to get them to stick. So, picking an arbitrary date like January 1 to start something might not be the best way to start, even if it does symbolize a clean slate. There is truly no better time than now to start forming new habits.
This week, I figured I would get a jump on the New Year’s resolution messaging and talk about setting up good financial habits primarily for the young adult readers because…why wait? However, that doesn’t mean that our readers nearing their financial freedom years get a pass. I implore all readers to work any financial habits the deem prudent to accomplishing their financial goals.
As we all know, both good and bad habits are equally powerful. Financial planning is no different than anything else in that we want to avoid the bad and embrace the good.
Trying To Eliminate Bad Habits
One of the first steps to take is to identify the bad financial habits you currently have and work to eliminate them. One of the most common bad habits I see is procrastination and I’m no exception, by the way. Procrastination should not be confused with being thoughtful and taking a proper amount of time to come to major decisions, but rather putting something off that you know you need to do. Specific examples that I see regularly include:
- Not putting together a will or trust (or if you have children, guardianship provisions!)
- Consuming instead of saving
- Keeping your long-term savings in cash
Another bad habit I see all too often is thinking you need to be constantly active to be a successful investor. As the blog has pointed out many (many, many) times, taking action based on headlines or short-term market movements will more than likely be counterproductive to your goals. The saying “patience is a virtue” applies perfectly to investments.
Small Steps To Better Financial Habits
The power of habit is so strong that negative pull from these examples is challenging to overcome. I’ve seen many people take the stance that they’ll start saving tomorrow, only to continue to put it off. The first step is to identify the bad habit and then work towards taking small steps to overcome its power.
Fortunately, the power of habit is equally as strong in the positive sense. If procrastination regarding your long-term savings is an issue for you, a good first step is to change your thinking; view savings as a bill to yourself that must be paid instead of seeing how much is left over at the end of the month. One of the reasons that workplace retirement plans can be so effective is that your savings are deducted straight from your paycheck before you ever have a chance to see them in your spending account. If people have the opportunity, I encourage them to pick a high savings amount and start with their very next paycheck so that they immediately get used to the lower take-home pay as a matter of habit.
Now, the blog is not in the business of giving homework, but I’m going to make an exception this time around. In the next couple of weeks, see if you can identify a current bad habit of yours and start working to correct it and/or see if you can start working at forming a good habit that will positively affect future financial outcomes. Don’t forget, we’re looking for little victories, not perfection. If you need any additional resources as to how improve your financial habits don’t hesitate to reach out, as we are here to help!