7 Steps to Forming Financial Habits

What are your habits?

Do you eat from the vending machine each day, go to the same place for lunch with your co-workers, and fall into bed at the same time each night?

Maybe you've made a habit out of spending on impulse, avoiding a budget, and staying up as late as possible.

Someone famously said:

“Watch your thoughts, for they become words.
Watch your words, for they become actions.
Watch your actions, for they become habits.
Watch your habits, for they become character.
Watch your character, for it becomes your destiny.”

And Aristotle noticed that, "We are what we repeatedly do. Excellence then, is not an act, but a habit."

It's pretty clear that the habits you adopt will shape who you are.

When it comes to your finances, the two habits that define your financial health are your income/savings and spending habits. In fact, everyone that you know who is in great financial shape has dialed in these two important habits.

If you aren't happy with your finances, then simply adjust your income/savings and spending habits habits. Here's how to adopt a habit:

Making a habit

Use these seven steps to create a life-improving habit.
1) Decide on the ONE financial habit that you would like to develop. It's tempting to pick up 3 or 4 habits, but choosing just one new habit is realistic and doable.

Here are some healthy habit ideas:

Set aside $5- $25 into savings.
Bring your lunch to work instead of eating out. 

Leave your money at home when shopping and give yourself 24 hours to think about it. 

Bring a list for shopping and put back anything not on your list.
Set up a retirement fund/401k. 

Work with a budget for 30 days.


2) Write your new habit down on paper. Also include your 3 main motivators for developing this new habit, the obstacles you'll face, and your strategies for overcoming these obstacles.

Here's an example:

My new habit is to work with a budget, tweaking it each Saturday night. 

My 3 main motivators are:
* To feel confident about where my money is going
* To have more money at the end of the week
* To set money aside for my vacation 

The obstacles I will face are:
* Getting distracted by tv at Saturday night
* Finding other items I want to buy, not in my budget
* Not having my spouse's support.

I will overcome these obstacles by:
* Setting an alarm for 6pm saturday night as a reminder to shut off the tv
* Giving myself 24-48 hours to decide if I really need the impulse buy
* Asking my spouse to join me so we can get in financial shape together. 


3) Commit fully to your new habit, in a public way. This could mean posting it on Facebook, setting up an online journal or simply announcing it at the dinner table. Put yourself in a position where you'll be embarrassed to give up on your new habit.

4) Keep track of your progress. You could keep a detailed journal or simply make a check mark on each calendar day that you successfully completed your new habit.

5) Keep yourself publicly accountable. This means either status updates on facebook or verbal status updates at the dinner table. Your friends and family are able to offer you support, so don't shy away from those close to you.

6) When you fail, figure out what went wrong so that you can work it into your plan in the future.

7) Reward yourself for your success.

Once your new habit becomes second nature, feel free to add a second habit by going through the same 7 steps.

Habit forming depends on the person, for some it kicks in quickly after 3-4 weeks and for others it takes a few times of falling down and getting back up to realize how much we want it.

 If you are setting aside 2% of your salary for retirement, then the habit to live on less may take less time than the habit to make your lunch at night for work the next day. It will depend.



Flickr pics/CC
Money-5
Status update
Fail