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.
But good habits are hard to stick with — it takes a great deal of discipline, motivation, and self-control to develop and follow through with them. We’ve talked a bit about good money habits in the past, but now we’ll focus on how you can develop those habits. These principles will prove useful in your quest to build wealth, no matter which financial habits you’re trying to adopt.
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
Now that you have a goal, what’s stopping you from getting there? Maybe it’s your friends on social media encouraging you to spend more. Or your reticence to look for a new job even though you’re underpaid. It could be your coffee addiction that keeps you spending $5 every day on a fancy coffee. No matter the barriers between you and good financial habits, the first step is to identify them. Be honest with yourself.
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.
Sometimes they’re necessary ones, like computer repairs, medical bills, or phone replacement. And sometimes they’re not; maybe there’s an exciting new game release, or a great sale on Amazon that you can’t pass up. Make sure you’ve built in some flexibility to your budget, and don’t be too hard on yourself when you go over in a category or you don’t quite make your budget for the month. It happens. Achieving good financial habits is a long-term endeavor, and occasional slip-ups are to be expected!
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.
Automated investing apps like Clink, Acorns, and Betterment automatically take small amounts of money out of your bank account and invest them. Digit helps you save in much the same way. Having money automatically taken out of your paycheck and deposited into a retirement or savings account is a great way to reduce your financial worries and help you move toward your goals. Any way you can automate your money is going to be helpful in meeting your goals.
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.
Challenges like these are great for helping you build momentum with your new habit, much like the highly successful Don’t Break the Chain system of habit-building (if you like this particular system, there’s a motivational app that you should check out). To really increase accountability and the chances you’ll complete the challenge, make it public!
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.
Feeling low on willpower? Check out some YouTube videos that will give you tips on how to improve your self-control, watch a few motivational TED talks, or use one of these seven quick ways to be more motivated. Exercising self-control with money is hard, but the more you do it, the easier it becomes, and it’s one of the best money habits you can develop.
8. Improve Your Financial Knowledge
Knowledge is power. The more you know, the more likely you are to be able to make progress and meet your goals — this is true whether you’re working on an advanced degree or trying to establish better money habits. Fortunately, there are a lot of great ways to further educate yourself about money out there.
You could aim to listen to a great money podcast every day while you drive to work. Or subscribe to a few financial blogs that’ll help keep you informed and motivated. There are plenty of great personal finance newsletters out there that will teach you things on a daily or weekly basis, too. Keep learning about money, and you’ll be able to keep growing it!
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!
Have you tried to develop better money habits? What strategies did you use to make them stick? Share your difficulties and successes in the comments below!
Image Credits: Singkham/Shutterstock