Is there a habit you want to break? Such as eating junk food or spending more time on social media? We’re positive you do. Today, let’s talk about making new habits. Money Habits. These are good money practices that you can develop for your long-term benefit.
According to Behavioural Finance, a habit is also a type of bias. This is because, people prefer sticking to an action or a practice and not changing it.
The same applies to money habits as well. It is biased behaviour towards certain money actions. For example, your spending pattern towards shopping every month.
Did you know around 40-45% of your daily actions are habits? That means you function on autopilot for almost half of your day!
We’ve all at some point tried to improve our health with better sleep, regular exercise, or a healthy diet. According to a research, stated in Forbes, on average it takes around 66 days to develop a behaviour, or in other words – a habit.
It boils down to which habits you choose to let go of and which you pick up. With one money habit at a time, you can even achieve financial freedom.
Are you looking to stay ahead of the curve when it comes to your money habits? Whether you’re just starting out or have been managing your finances for years, understanding why money habits are important in the long haul, is key to achieving financial success.
We agree it may be difficult to get out of a bad money habit, but not impossible.
There are plenty of hacks online on how to quit a bad habit or pick a good habit. The underlining statement in all is that focused commitment is key to building a new habit.
Before we talk about money habits for you to work on, let’s start with financial goals. These short-term and long-term financial goals are the foundation of your money habits.
Money habits are essentially recurring actions that will help you achieve these financial goals.
Why Are Financial Goals Important?
Provide direction
Financial goals give you a clear direction and a purpose for your money. They help you focus on what’s important to you. This in turn gives you motivation to work towards achieving them.
Help you prioritize
Having financial goals helps you prioritize your spending and avoid overspending on non-essential items.
Measure progress
Financial goals help you track your progress toward your financial objectives. By monitoring your progress, you can stay on track and make adjustments as needed.
Provide a sense of accomplishment
Achieving financial goals gives you a sense of accomplishment. This further pushes you to continue working towards your next goal.
Provide a safety net
Saving for an emergency fund or retirement is also a financial goal. This provides a safety net and financial security in case of unforeseen circumstances.
Improved financial well-being
By setting and achieving financial goals, you can improve your overall financial well-being and reduce financial stress.
Financial goals offer a purpose and direction for your financial decisions. They help you choose your money habits for the long run.
For example, Sharan has a financial goal to buy his own car in 18 months. But, he has a bad money habit of playing online rummy. He spends approx. 5,000-7,000 INR. every month.
The ideal next step for Sharan is, to stop gambling and invest this in a SIP that will contribute to his car payment.
Money Habits help prioritize your spending and provide a sense of security. They also help you track your progress toward achieving the financial future you envision.
Ten money habits for Long-term Benefits
Create and stick to a budget
Creating a budget helps you track your expenses and ensure you are living within your means.
Save regularly
Even if it’s a small amount each week, saving regularly can help you build up a solid financial cushion.
Invest for the long-term
Rather than trying to get rich quickly, invest for the long term and let the power of compounding work in your favour.
Avoid debt as much as possible
High-interest debt can quickly spiral out of control and limit your financial options.
Live below your means
Spending less than you earn can help you save more and avoid living pay-check to pay-check.
Regularly review your financial goals
A review of your finances and goals helps you stay on track and make any necessary adjustments to your financial plan.
Track your net worth
This helps you understand your overall financial health and can be a good metric for measuring progress.
Increase your financial literacy
Learning more about personal finance and investing can help you make better financial decisions.
Automate your financial life
This can help you save time and ensure that you are consistently taking steps to improve your financial well-being. Set automatic transfers into FDs and SIPs every month. Even though you may forget, the money gets automatically transferred.
Be mindful of your spending habits
Always ask yourself whether a purchase is truly necessary or not. Determining whether you’re spending on a need or want depends on whether you are spending on things that align with your goals.
Long-Term Benefits of Good Money Habits:
Financial stability
By living within your means, avoiding excessive debt, and saving regularly, you can build financial stability.
Reduced financial stress
Consistently making good money habits a part of your life can help reduce financial stress and anxiety.
Improved financial standing
Good money habits can improve your credit score. This can help you qualify for loans with better rates, as well as renting an apartment.
Flexibility
Having sufficient savings and financial resources can give you flexibility. When it comes to life decisions such as when to retire, you have the flexible choice to decide.
Increased wealth
Consistently saving and investing your money over the long term can help you grow your wealth. This gives you the financial freedom to pursue the things you care about.
Improved quality of life
Having good money habits can improve your overall quality of life, enabling you to prioritize the things that truly matter to you.
Good money habits can have a profound effect on your life. From financial security and flexibility to overall quality of life, good money practices add up over time.
By making these practices habits, with regular action, you can build a solid financial foundation that will benefit you for many years to come.
Sticking to these good money habits requires discipline and consistency. Here are some tips to help you make the journey easier.
Tips to help you stick to Money Habits
Set clear goals
Define specific financial goals and the steps needed to achieve them. Keep these goals visible and review them regularly.
Track your progress
Monitor your spending and savings regularly to make sure you are staying on track. There are a number of apps and tools that can help with this.
Hold yourself accountable
Find someone who will hold you accountable for your financial goals. This could be a friend, family member, or financial advisor. Or the best idea would be to hold yourself accountable.
Celebrate small wins
Celebrate when you reach a savings milestone or when you make progress toward your financial goals. This can help motivate you to continue.
When an action included in a routine is rewarded, it in turn acts as a “cue” or a push to perform the action again. This is a cycle that shows the relationship between routine, reward, and action.
Apply it to any money habit to understand the importance of rewards.
For example, if you set your reward for starting a SIP as going out for coffee with a friend, you are more likely to look forward to that quality time every month.
Avoid temptation
Stay away from situations that might tempt you to overspend or make impulsive purchases. This could be as simple as avoiding the mall or unsubscribing from promotional emails.
Practice mindfulness
Take time to reflect on your spending habits and ask yourself whether you’ve done enough to achieve your financial goals.
Ultimately, sticking to money habits requires commitment and a willingness to prioritize your long-term financial health over short-term gratification
In a nutshell
Setting, following, and sticking to money habits might seem challenging, but in reality, is not. It all starts with a single step.
They say every drop makes the mighty ocean. Similarly, small actions and habits over time result in big money benefits over time.
Any long-term change is going to take time. Don’t forget to be kind to yourself as you get on this journey of financial stability and growth. There might be ups and downs. At times, you won’t be as consistent as you’d hope to be. Remind yourself that you are prepared with the tips at hand, and you’ll keep going.
Let the action points you’ve learned today be your guiding path. Stay on track and accomplish every financial goal you set off to tick off. What’s better? You’ve got Vittae to guide you.
Now, go get started.
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