A habit by its very definition is a recurring pattern of behavior that is often unconscious and accomplished through repetition. Notice that it says nothing about bad habits or good habits. That is precisely why it is absolutely possible to train yourself to habitually save money and do things that grow your money rather than deplete it.
Just like smoking or shopping can be habit-forming in such a way as to drain your pockets and bank account, making a conscious effort to form a habit that can do the opposite will put you in good financial health.
Three Baby Steps of Forming Good Money Habits
If you grew up with bad spending habits that have carried through to your adult life and you just don’t even know where to begin, here are a few easy steps to get you on the right path.
- Any change that you have in your pockets, purse, or you find while cleaning should automatically go into a money jar somewhere that is easily accessible but not in plain view. Your money will grow but you won’t be as tempted to grab it and empty it going out the door.
- Cut out one thing in your budget. Just one. Like that gym membership that you really meant to use but didn’t, or the 498 channels of cable that you rarely use.
- List all your bills and the ones that you pay faithfully every month put them on an automatic payment system with your online bill pay through your bank.
This won’t bring you immense wealth in the next month; however, it will begin a habit of discipline that you can customize and strengthen as you go.
Two Toddler Steps for Saving Money Habits
Forming a habit can take up to two months, so keep up with whatever three baby steps you have chosen, and each weekend, spend 30 minutes on setting the foundation to better control over your finances.
- Organize your bills and mail area.
If there is one place you can count on to find a “hot mess” in someone’s house, it will likely be where the mail is tossed or collected. Advertisement flyers mixed with insurance policy renewals and bills mixed with junk mail…the pile becomes overwhelming in a matter of days. Have a convenient place where you can quickly stack and sort the mail without going into any majorly complicated system. A simple small wastebasket for ads and junk mail, a basket for magazines, a folder for coupons, and a big envelope or accordion folder for bills. You don’t have to do anything more than simply separate them for now.
- Take your cards out of your wallet.
Yes, both credit and debit. Money can be spent faster when you really don’t see it because you can fool yourself into thinking, “I really haven’t spent that much.” Resolve to pay yourself a set amount each paycheck and give it to yourself in cash to keep in your wallet. That will be your spending money. When it’s gone, it’s gone. It is much easier to keep track of what we have to spend when we can actually see the bills and see how quickly it dwindles. You can do the same for groceries and gas. If you do all three, keep three separate areas in your wallet to keep them apart. You don’t want to spend all your gas money on a night out with friends and have to use your grocery money for gas for the rest of the week.
One Big Grownup Step
Have a list of all your bills, the account numbers, any balances owed, and the estimated monthly contribution you need to make to pay it or to catch it up.
On a separate sheet, list the bills from smallest to greatest total balances on revolving credit such as credit cards, car loans, or other finance payments. Focus on the smallest amount due first and pay that off as quickly as possible. If you have a furniture payment where the total owed is $500 and all the other credit payments are higher, focus on sending them as much as possible to pay it off in as few months as possible.
Once you pay off the smallest loan, you will have that amount of money you used to have to pay that to pay on the next smallest credit balance along with the regular monthly amount you already pay.
As you can see, by dong this with all your credit accounts, you will quickly “snowball” the money you make into making bigger and bigger payments so that by the time you are left with your biggest loans, typically your car loan and mortgage, you can really sock it to them and get them paid off much faster than expected. By using this habit forming payment system, you will quickly reduce your debt and feel much better about your money.
Money saving habits will bring about such peace in your life that you will find that the “chore” of forming a good habit really ends up being the simplest thing in your life.
This is a guest contribution by Steven Weinberg. Steven is insurance expert and writer for CarInsuranceCalculator.info, licensed agent in 46 states and blogger.