Having good financial habits can help individuals wisely manage money matters, avoid debt, and achieve financial security, will you agree most of us have stuck in monthly fixed expenses, EMIs, and bills, and beyond that extra spending is the major financial insecurity concern?
If that is something you are going through- you certainly need to work on changing the bad spending habits that shape your daily finances- if that is something related to you then this article is for you.
Whether you’re a ‘Rich Dad or a Poor son’, having good habits leads anyone to a healthy and prosperous life.
Have you ever realized your habits are driving your life and you struggle to get hold of them? Have you ever questioned this yourself?
Most of our habits work their way, beyond our consciousness, from waking up to heading back to bed, this works how we have developed our habits over time!
In terms of finance, habits can vary from person to person. Some like to spend extra on food, online shopping, outing, and partying, while some on lifestyle or luxury items and spend just for making themselves extravagant.
If you are a believer in spending more than earning- you need to alter it “Earn More first -Spend More later” else no one can save you from upcoming financial stress.
Having bad spending habits leaves the spenders dwindled and unprotected at the time of financial need, trust it or not money makes money!
But NOT TO WORRY! Do you know it’s hard-wired in our DNA? We can dream to change anything with a little patience and practice.
But before start changing habits it is crucial to identify those habits and replace them with
Let’s First understand the Origin of Habits.
A scientific study, reveals every habit starts with a psychological pattern called a “habit loop,” which is a three-part process. First, there’s a cue or trigger, that tells your brain to go into automatic mode and let a behavior unfold.
“Then there’s the routine, which is the behavior itself.
Habit-making behaviors are a part of the brain called the basal ganglia, which also plays a key role in the development of emotions, and memories.
But as soon as a behavior becomes automatic, the decision-making part of your brain goes into a sleep mode of sorts and that becomes your habit.
It’s like – when a kid starts putting on her shoes, initially she cares about every single step from putting on socks to tying shoelaces very consciously, but when it becomes a habit, that gets automated even without thinking.
Another example of learning driving lessons is the kind of driving habits we start with and continues even when we get perfection.
In general, habits are those activities, which are driven majorly by external factors such as the time or location, and repetition of behaviors.
The same happens with us, financial habits come in many forms, you buy lunch every day at work, browse online stores any time you’re bored, spend exactly what you earn every month, buy luxury & plan out travel on credit cards, even without thinking, or calculating. You can turn yourself into bad spending habits.
Now we are clear about how behaviors become habits and let’s understand how to identify bad habits to replace them with good.
How to Identify and Improve Habits
Most people are not fully aware of their habits and identifying them is crucial in changing them. If you have learned that a particular habit is not good for you, then it’s a great start toward changing that.
Just spare some time of your day, sit in isolation, breathe easily, and think about which habits and routines put you under stress and make note of them. You need to think honestly because the solution is within.
Time for Adopting New and Better Habits.
Instead of focusing on the elimination of one bad habit, you should replace it with a better one.
If you have a habit that makes you feel happy, then try to turn it towards financial benefits. If you feel it is not that good, then check in on your financial situation.
Particularly, when you are in good spending habits– you are in a state to develop good financial habits to experience a positive long-term plan. Spending and saving intentionally ensure you are working toward your determination to do something long and short-term.
A Few of the Ways to Adopt New Habits.
Focus on Change One Habit at a Time.
First go for one habit to replace, until it becomes usual. Due to the sense of this motivation, you will be less reluctant to change another, so starting small is key to winning. For instance, if you desire to change your spending habits from bad spending habits to good ones- make it an aim to replace them at a time.
Identify the Trigger for The Old Habit.
Start looking for that environment, which influenced old habits. Often our behavior is motivated by emotions like boredom, loneliness, or frustration.
Acknowledge your daily routine, and your expenditures, seek friends’ or family members’ opinions for you, learn which opinion suits you, and make your decision.
Add new Behavior to the Cue. (Influence of Environment)
Now for changing the old habit, you must pick a new behavior that can be influenced by a particular environment. While getting bored, you can call your best buddies, and have a good time, instead of shopping.
Associate Good Habits with Positivity
Most of the habits are driven by beneficial behavior. You must link your new habit with financial benefits. Tracking progress is one of those habits, which in turn gives results beneficial to you.
Switching to good financial habits? Repeat the positive words you want to change.
Automate Good Habits
You can attach some of those habits to an automated system, which can’t be triggered by a specific cue. You can set certain monthly account deductions, for regular savings or insurance schemes.
Save first, spend later, and segment your finances into fixed expenses, savings, living & enjoying.
Good spending habits never mean to you stop living & enjoying but make a balance.
Enjoy your Improved Money Habits.
Despite being challenges, in the long term, changing old habits turn beneficial for your psychological and financial health.
A good financial habit will steer your life to attain financial security- if you then you have already achieved half of the way to being happy and wealthy!
Must Avoid Financial Habits
- Payday loans: Short-term loans with high-interest rates that often target low-income individuals who may not have other financial options. They can trap people in a cycle of debt and should be avoided unless you don’t have other options, even if you can’t avoid must have repayment calculations ready.
- Credit card debt: It’s easy to spend with a credit card but be aware it will accumulate debt on credit cards, especially if you carry a balance and are charged high-interest rates.
It’s important to pay off credit card debt on time and as soon as possible to avoid paying more in interest than the original amount borrowed.
- Investment scams: Beware of investment opportunities that promise high returns with little risk or effort. These are often too good to be true and could result in significant financial losses.
- Ponzi schemes: These fraudulent investment schemes involve paying returns to earlier investors with the money of newer investors, rather than from actual profits. Eventually, the scheme collapses, and investors lose their money.
- Overborrowing: Taking on too much debt, such as mortgages or car loans, can leave you vulnerable to financial instability and could lead to defaulting on your payments. Always borrow within your means and have a repayment plan in place.
Now let’s Through some Light on Good Financial Habits for Financial Security.
- Budgeting: Creating a monthly/weekly budget and tracking expenses is an essential habit for managing finances. Budgeting helps individuals understand their income and expenses and enables them to plan their spending accordingly and you will have hold-on habits equally.
- Saving: Think about the theory of “Saving First -Spending Later” Saving money regularly is another important financial habit. Setting aside a portion of your income for savings can help you achieve your financial goals and build an emergency fund.
You can also read in detail about How to Plan- Save- Manage Personal Finance
- Investing: Investing your money in a diversified portfolio can help you grow your wealth over time. However, it is important to research and understand the risks involved in investing before making any decisions. Again, don’t just invest but an ideal approach is to invest a segment of your savings in short and long-term investing.
- Avoiding debt: Developing a habit of avoiding unnecessary debt, credit cards, and paying off debts as soon as possible can help you save money in the long run and improve your credit score. Here are some good facts on dept trap study that could help you.
- Living below your means: Living below your means and avoiding unnecessary expenses can help you save money and achieve your financial goals, financial companies and brand out there wish to spend us more even with credit lending and then we trap in debt while paying high interest.
- Reviewing your finances regularly: It is important to review and track your finances regularly to ensure that you are on track to achieving your financial goals. This includes checking your credit report, reviewing your investments, and updating your budget as needed.
By developing good financial habits, individuals can take control of their finances and achieve financial security over time, in short one needs to identify your bad habits, work on them & plan as above!
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