Creating Good Financial Habits

By: Charlestien Harris

When it comes to making or breaking habits, the experts are varied in their advice. One study says it can take anywhere from 18 to 254 days to form a new habit. Another study promotes the 21 /90 rule, which says that one must commit to a personal or professional goal for 21 straight days, after which it should become a habit. Once you’ve established that habit, you should be able to continue to do it for another 90 days. Whichever advice you adhere to, the bottom line is that creating good habits can be difficult, but if you can make it stick, it can have big, positive consequences. Now let’s talk about how you can start forming positive financial habits to put yourself on the road to financial freedom. Here are a few suggestions:

Live below your means. This is the first step to consider when building a strong financial foundation. It simply means spending less than you earn, and though it sounds simple, it can be tough for some folks to do.
Track Your Spending. If you don’t have a budget, then you probably don’t have any idea where all of your money is going. This is one of those good financial habits you absolutely must adopt if you want to get control of your finances. By tracking your spending, you will be able to identify areas of overspending. If you start tracking your spending habits now, you may be surprised to find where your money is actually going.
Pay yourself first. Paying yourself first is another key step in forming a good financial habit. Allocating a certain percentage, or a certain dollar amount, to come out of your paycheck each pay period, before you even see it can help you achieve financial freedom.
Pay more than the minimum on your credit cards. If you want to become financially free, you need to get rid of those balances. If you haven’t been successful in paying off your credit cards in the past, then you should commit to paying more than the minimum payment due. This habit helps you achieve the goal of getting out of debt.
Limit your use of credit. Credit is an awesome tool when you’re buying something big, like a house or a car. Very few people have $200K sitting around in cash to buy a house, so for those items, borrowing makes sense. Adopting good financial habits means avoiding overuse of credit to stretch your paycheck. Credit cards are probably the most common way people spend more than they earn.
Reconcile your checking account regularly. With online banking, it may be easy to ignore this step. After all, the balance is available to be checked every day. But the balance does not reflect upcoming charges or outstanding debits. If you aren’t fully aware of these, it could lead to an understated balance, or even overdraft fees. Balancing your checking account helps you to avoid these pitfalls, so you know exactly how much cash you have at all times.
Learn to say “No” to yourself and your kids. This step is really about getting control of impulse buying or what I call “phantom spending.” You’re out shopping, and you see some item you like, and you buy it because it doesn’t cost that much. If you do that several times a week, the spending can really add up. If you have children, learning to say “no” to them is equally important. How you spend money, and particularly how you spend it in front of your children, has important implications for the attitude they will have toward money when they grow up. Though saying “no” isn’t always easy, it’s a way of teaching an important financial lesson. It teaches your kids they can’t have everything they want when they want it, and that’s something they need to grasp in preparation for adulthood.

Good habits happen when we set ourselves up for success. We’re creatures of habit. We tend to follow the same patterns every day. So why is it so hard to form new healthy habits? Behavioral scientists who study habit formation say that many of us try to create healthy habits the wrong way. We often make bold resolutions to start forming habits without taking the steps needed to set ourselves up for success. The steps I mentioned above should help you to be successful when deciding how to proceed when it comes to achieving the financial freedom you desire.