Habits are like stepping stones. If we follow a daily routine without deviation, we tend to arrive at predictable outcomes. A person who establishes a habit of routine exercise at age thirty (other things being equal) can expect a more active and healthy lifestyle at age forty and beyond. A daily routine of inertia — the proverbial “couch potato” lifestyle — often leads to predictable results as well.
Financial habits are no different. Using credit cards to finance a lifestyle you can’t afford, routinely paying bills late, spending every paycheck to the last penny, saving little for retirement or a rainy day — such habits are hard to break. They also lead to predictable results. Some people step away from full-time employment with enough money to fund a comfortable retirement. Others struggle financially for the rest of their lives. Although income is part of the equation, poor financial habits are often the real culprit behind monetary struggles later in life.
Consider these three suggestions for establishing a healthy financial lifestyle.
- Lock up the credit cards. If you have difficulty controlling credit card spending, try living a “cash only” lifestyle for a few months. Open your safe deposit box and insert the plastic. Researchers have shown that people tend to spend more when they use credit cards instead of cash. Pulling hard currency from your wallet or purse may cause you to feel the “loss” more keenly. After a few months, you may find that new habits have been formed. At the very least, you’ll learn that it’s possible to survive without credit card debt.
- Make saving automatic. As the old saying goes, “Out of sight, out of mind.” Figure out how much you should be saving each month, then have that amount deposited directly to a savings account for emergencies or paying off debts. Saving for retirement should be automated as well. If you don’t see the money in your checking account, you’re less likely to use the money for “wants” instead of “needs.”
- Track your costs. The very act of logging your expenses — whether using a sophisticated computer application or simple paper and pencil — can be very revealing. Getting a clear understanding of where your cash is going is often the first step toward regaining control of your finances and modifying detrimental behaviors.