December 30, 2016
Most people have at least one bad financial habit. Whether it's impulse shopping, forgetting to pay bills on time or putting off building that emergency fund, balancing what you want to do and what you "should" do is never easy. The new year is the perfect time to identify potential financial weak points and replace bad habits with productive ones.
Start by identifying your bad habits. Sometimes a bad financial habit is easy to identify. For example, there might be a growing stack of bills in the kitchen that you willfully ignore. Others may be subtler, or perhaps they've become so ingrained that you do them without thinking twice.
Not sure where to start? Looking through your previous months' expenses can help you identify expensive trends or one-off purchases that are part of a larger theme. Online or paper bank statements can make this particularly simple. If you have a budget, you likely already compare projected spending with actual spending on a monthly basis, if not, this might be a good time to start.
You might recognize a few of these common bad financial habits in your life:
Ultimately, all of these lead to spending more than you earn and in some cases, bad habits can have a cascading effect.
Try to figure out what's driving your behavior. You might need to figure out what triggers your behavior and the reward you perceive afterward before you can change a habit. However, triggers and rewards aren't always obvious.
For example, you might buy big-ticket items when they're on sale because you want to feel like you're accomplishing something by "saving" so much. Perhaps you could foster a similar feeling of accomplishment by investing the money in a tax-deferred retirement account and calculating how much it'll be worth after years of compound interest.
Aim for these healthy financial habits. What habits should you try to adopt? Budgeting is certainly a worthy activity, but also consider the following mix of behaviors and specific objectives that can help keep your finances in order.
You might consider asking others for input during this process. Especially if you're having trouble identifying a bad habit or finding the motivation to change, sometimes an outside perspective can help.
Bottom line: Make a resolution to replace your bad financial habits with healthy ones this year. Start by identifying the habits you want to change and trying to figure out the trigger and reward that surround the behavior. Then, try to replace that behavior with something positive. After identifying and trying to change your personal financial habits, you might want to consider the financial practices you share with a spouse or significant other.
Recent Practical Money Matters
This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.