Post by: Dann Albright | Make Use Of | Published on: 10/05/2016
In their 1996 book The Millionaire Next Door, Thomas Stanley and William Danko outline seven characteristics of truly wealthy people. Surprisingly, those characteristics aren’t things like “inherited wealth,” “have a seven-figure salary,” or “are great investors.” Instead, many of them simply focus on developing better money habits that contribute to a financially sound lifestyle.
1. Set Specific Financial Goals
Goals are certainly motivating, but not all goals are created equal: a 1981 meta-analysis found that “specific and challenging goals led to higher performance than easy goals, ‘do your best’ goals, or no goals.”
So if you want to give yourself a good reason to improve your financial habits, you will need specific, actionable goals. If you haven’t read it yet, check out our guide to 5 mistakes to avoid when setting goals, and keep them in mind when you’re working on your money habits.
Here are a few specific, measurable goals to give you some inspiration:
- Only eat out once a week.
- Update a budget spreadsheet or app every day.
- Save $5,000 by the end of the year.
- Double last year’s 401(k) contributions.
- Save 20% of every paycheck.
2. Remove Barriers to Financial Success
Once you’ve identified those barriers, come up with a plan for taking them down. Maybe you can adjust your social media settings so you see more positive influences. Or use a gamification app to make job-hunting more fun. Or invest in some nice coffee-brewing equipment of your own that will pay off down the road. Attacking those barriers can be tough, but getting rid of them will reduce the amount of mental energy you need to solidify your habits eventually.
3. Start With Small Changes
We’ve talked previously about the power of micro habits, which are great ways to kick off new routines that might otherwise be difficult. Want to start spending less? Make a habit of quickly checking your bank balance on your phone before you make an unplanned purchase. It only takes a couple seconds, and it’ll help you make a more informed decision.
When you decide on a financial habit you want to start using — let’s say cooking dinner at home more often — think about a small step toward it that you can take. In this example, your small step could be spending an hour every weekend planning your meals. It won’t stop you from eating out, but it’ll help give you a reason to save your money. These small changes can make a big difference.
4. Build in Flexibility
People often neglect flexibility when analyzing their finances; you set up categories for all of your regular spending, figure out how much you should be saving, get it all set up in your preferred budget app, and plan for every last cent. But that’s setting yourself up for failure, because there will always be unexpected expenses.
5. Automate Your Finances
Possibly the best way to build great financial habits is to put the decision-making power in someone else’s hands. If you can put it in the hands of a computer, even better! A machine won’t ever be tempted by a new pair of shoes or the latest hit console game. Automation makes the process much easier and gives you one less thing to worry about.
6. Complete a Money Challenge
There’s something about facing a challenge that’s especially motivating for a lot of people. If you’re one of those people, taking on a financial challenge can be a big help in developing better money habits. We looked at a number of money challenges earlier this year, including the 30-day no-spend challenge and the 52-week savings challenge, both of which can help you establish better habits.
7. Strengthen Your Willpower
It’s commonly said that willpower is like a muscle — the more you use it, the stronger it gets. With habits, the wisdom goes both ways; willpower helps you stick to your habits, and developing habits means you don’t have to use as much discipline to keep from succumbing to temptation.
8. Improve Your Financial Knowledge
The best time to start building better money habits is now! Set a goal or two today, and think about how you can make it easy to meet that target. Use the strategies above to make it as easy as possible to get into a new, financially sound routine, and let us know how it goes. We want to hear about your new money habits!
Reference Article: http://www.makeuseof.com/tag/better-money-habits/