It is tough to manage your finances as you try to reach for your goals but developing healthy money habits might just be what you need.
One thing you need to understand when it comes to habits is that it takes quite some time to form. You need to be motivated to get started but your dedication will determine whether it forms part of your habit. Habit formation takes a while to become a part of your everyday life. It is not a goal you can successfully reach in a matter of days.
Take your favorite athlete for example where you see them perform and play your favorite sport at an extremely high level. They might have the potential when they were just starting out but they needed to create a habit to improve their craft. This meant spending countless hours in practice in order to improve and perform at a high level. The longer they do it, practice becomes a habit they get used to. They do this without thinking much about it because it has become a habit to train.
The same thing applies when you want to manage your finances better for the year. You need to develop healthy money habits if you want to take better control of your money management efforts. It might seem easy enough at first but it takes a lot of work and dedication. There will also be times where you need to make sacrifices down the road if you want to manage your finances better.
During the past few months, taking on debt might have been the norm. In fact, CNBC shares that about 51 million people added to their credit card balance due to the health crisis. This is one good reason to start getting ahead of your debt situation and regaining back control of your finances. Here are a few things to consider to start creating healthy financial habits.
Identify areas you want to change
If you want to improve your finances, you need to be very specific about the changes you are going to make. You need to identify areas you want to improve and change. Do you want better control over your expenses? This could probably be due to the fact that you are quite an impulsive spender and you always end up with huge debt payments every month.
You could also be struggling with your retirement savings. Retirement might be decades away but it does not mean that you can put off planning for it. One of the things you have to remember when it comes to retirement planning is to start as early as you can. Once you do, you get the chance to retire close to your target age.
Before you develop healthy money habits, it is important to identify what you want to change. It will give you a clear direction on how to craft your action plan.
List down an action plan
Once you identify the areas you want to improve on, the next step is to put together an action plan. One important component of your action plan is consistency. To help you get started, anchor your plan on simplicity and ease of execution. The idea behind this is to start with easy and baby steps to help you get started.
If one of the healthy money habits you want to build up is saving for your emergency fund, start with a small amount. The easier it is to save, the higher the chances that you will be doing it over and over again. This consistency will help you build up that habit. As you set aside the money over and over again, you will notice that it becomes a part of your routine.
You do not have to overwhelm yourself and start saving hundreds of dollars every month. Start with a small amount and increase that as you go along. Remember that when your income increases, put more into savings rather than ramping up on your lifestyle expenses or what is referred to by Forbes as Lifestyle Creep. This can help you get to your goals much faster.
Create a definite schedule around your plan
The biggest difference between a goal and a dream is having a deadline. If you do not put an end date on your goals, there is a good chance that you will not work hard on it. You can always postpone it and push it to a later date. If you do not put a target date to any of your future goals, you will not find the need to work hard today.
If you simply want to retire in the future but never put a target year or age, you will find it very difficult to plan ahead. As a result, you might not develop healthy money habits because you are not driven to achieve your goals. Also, having an end date will help you create a more detailed schedule to help you get to your goals.
If you want to completely pay off your credit card debt in under a year, this means you have until December to do it. You then work your way backward and see how much you need to pay every month. With that, you now have an idea of how much you need and what you need to do to save for it. Do you cut down costs, look for a side hustle, or both?
What can help you develop healthy money habits
Now that you have an idea about some of the tips that can help you create healthy habits when it comes to your finances, here are some tips to help you
Automate some areas of your finances
Creating a habit from the very beginning will take a lot of dedication and attention to detail. You need to be consistent with the action to help integrate it into your lifestyle as a hobby. You cannot simply save a few dollars every week and call it a hobby. Creating a habit takes repetitive action and that takes a lot of discipline.
One thing that can help you is automating some areas in your finances particularly payments and savings. You can enroll specific payments to come out of your account automatically every month. This lowers the chance of overlooking and missing out on payments. You can also do the same for your savings. Check how you can automatically send and save a specific amount each month to your other accounts so create that habit of setting money aside.
Regularly check your progress
Consistency and habit go hand in hand that is why it makes sense to regularly check your progress. This helps you stay on track as you aim to create that healthy habit. There will be times when you might start to fall off the wagon. If you are not able to catch that during the early part of the process, you could find it difficult to get back on track.
Keep it simple
As mentioned earlier, you need to start with easy tasks to help you stick to your plan. If you want to create a habit of saving money, start with a small amount. You then increase that as you go along. If you begin with a huge amount, it could force you to skip other payments and face interest and fees the following month. The money you saved might only be used to cover that increase in your succeeding payments. Keep it simple and small and when you get the hang of it, increase it gradually over time.
It is a great financial goal to start and create healthy money habits for the year to help you manage your finances better. This will not only help you pay off debt at a more steady pace but ensure you are on track to reaching your goals.