It is important to identify and change bad money habits if you want to move forward with your life goals. For one, your finances are closely connected with your targets in life. You want to have your own house, you need to take out a mortgage loan which means saving up for a downpayment and taking out a loan from the bank.
Is early retirement what you want in the future? That entails saving for it early and putting more than the minimum for your retirement years. You would need to also look into investments and how to make your savings grow over time. This could have a lot to do with making compound interest work in your favor.
You also need to change bad money habits if you want to enjoy life at present. As you save for your needs in the future, it does not mean that you have to out off everything you want in life now. You have to start saving for the future but it does not mean that you have to put your life on hold. Addressing bad financial habits can give you the chance to improve your finances.
It is helpful to understand as well that habits are formed at an early age according to US News. As such, habits are deeply ingrained in people that it does take a while to correct them. As challenging as it may seem to be, there is always a way to successfully turn things around. Here are a few of the tips you can look at to help you correct bad habits.
Make an honest assessment of your money habits
If you want to change bad money habits, you need to start from a place of honesty. It is important that your first step is to make an honest to goodness assessment of your money habits. You need to be very clear about what your money habits are. As mentioned earlier, financial habits form very early in life and are something you keep repeating over time.
That being said, it might be hard to distinguish your habits at first because you are so used to doing it without any thought. It might take you a while to start listing them down but you just have to keep at it. If you try and go back to your most recent financial activity and purchases, you might be able to pinpoint some of your money habits.
Identify the ones you need to address
Once you list down all your habits, you need to start screening them so you change bad money habits. Start separating the ones that help you manage your finances from the habits that bring you down. It helps if you can list down all your financial challenges at present and determine why you are in that position. There is usually a good chance that your bad money habits are behind those problems.
Are you in deep credit card debt and falling behind on payments barely making the minimum payment every month? Look at the reason why you are in that spot. Did you suddenly give in to urges of shopping because you found out your favorite brand was on sale? It is also possible that you had to use credit to address some unforeseen emergencies that came your way.
If you gave in to impulsive shopping, then that is what you need to work on. One tip that works for a lot of people is walking away and thinking things through. Go over your list of priorities and financial goals and ask yourself if that purchase will help you get closer to your goals. If not, then you have to walk away from it.
Change bad money habits by addressing the root cause
If you are impulsively buying your way out of your finances, you could be spending faster than you earn which can lead to bigger problems down the road. You could be charging a lot on your credit card and be surprised by the amount you have to pay at the end of the month. It is possible that you are left to pay the minimum amount just to stay current.
You stay current but you could notice that your bill is not going down as fast as you want it to be. This is because your lender can start adding fees, penalties, and even interest on top of your bill. As long as you do not pay off your bill, you will have to keep paying for these and they will be added on your bill every single month.
Before you get to this point, you need to address the root cause which is your impulsive buying habit. Walking away is a good idea but you can also focus on something else. If you feel that urge to shop online, close your laptop or put down your phone and do something else. You can clean a part of your house, go for a run, or cook something. Do this every time so it becomes a habit and you can stay away from impulsive buying.
Start tracking your money closely
One of the best ways to change bad money habits is to replace it with good ones and monitoring your finances is a great start. The best tool you have for these goals is
. This means you have to list down all your sources of income as well as all your expenses every month. It could also include what you need to set aside for other funds such as for retirement and even for your emergency fund.
Once you have this document, you can easily pinpoint areas you need to address and work on and where your strengths are as well. If you have more than enough income every month, you can increase your fund savings. If your expenses total to more than what you earn, you would need to look into it and see how you can turn that around.
The idea is constantly monitoring your finances so you can make informed money decisions. Do you look for a side gig to augment your income or simply lower down your expenses for the month? It is a good idea to put all your extra funds in your emergency fund or pay off your credit card expenses before it becomes too big? Tracking your money closely is a great money habit to get into and can help you make better financial decisions as well.
Mistakes will happen
As mentioned earlier, mistakes will happen and it is up to you to decide how you will handle it. You have the option of dwelling on the mistake and feeling sorry for yourself or the opposite. You can acknowledge that you made a mistake, assess the situation, pick yourself back up, and learn from that mistake. Learning from challenging areas of your life allows you to grow as a person and makes you stronger and smarter.
It is important that you change bad money habits because it will keep you away from your financial goals. Identifying, correcting, and sticking to positive changes in the way you manage your money will be challenging but will be worth it in the end.