Keep More of Your Paycheck! 10 Money Habits to Adopt Now
This article is from our friends at LearnVest, a leading site for personal finance.
Many of the day-to-day things we do are just habit.
That $10 lunch habit? That $30-per-class spinning habit? While you may barely even think about them, costly habits have the potential to wreak havoc on your budget.
And, just like bad habits can get you into financial trouble, good habits can help keep you out of it—and help you spend wisely, save well, and, most important, reach your biggest financial goals faster.
After all, taking control of your money is about making it work for you.
Ready to get started? Our challenge to you is to adopt one of these new money habits today. (And, while you're at it, drop one that's been holding you back, too.)
1. Schedule Your Money Minute
Ever been surprised by the amount of money—or lack thereof—in your account? There's a way to keep that from ever happening again. LearnVest founder and CEO Alexa von Tobel takes a "Money Minute" first thing every day, where she logs on to her LearnVest Money Center and checks her account balances, recent transactions, and progress toward her goals. In just 60 seconds, she knows where she stands and what she needs to do that day to stay on track—and you can do the same. Simply set a calendar alert for a time that's convenient for you, and be amazed by how much you can learn in a minute.
2. Set Up Your Savings Automatic Transfer
To err is human—and let's face it, most of us would forget to put money into savings unless we automated the process. (Or we'd simply spend it on something else.) But automatic transfer is divine! In fact, it's one of the easiest ways to help your money grow.
Your to-do: Call the bank where you keep your savings account, or log on online, and set up a bi-weekly automatic transfer from your checking account today. If you prefer, you can even reach out to your employer and have a portion of your paycheck direct deposited into savings, bypassing your checking account altogether. How much should you sock away? Start with 1%–2% of your income, and set a calendar alert to review in a month. The most important thing is to start the habit. Once you have, the opportunity to watch the balance grow will become an addiction.
3. Adopt a Spending Mantra
It turns out mantras aren't just for yogis anymore. A recent report by behavioral economist Dr. Hersh Shefrin shows that creating a financial rule of thumb to guide your spending decisions can actually help make you a better money manager.
While scientists call them "heuristics," not mantras, they work specifically because adopting a personal belief we want to live by—even if we invent it ourselves—makes us feel guilty if we don't abide by it.
So, how you do you go about adopting a mantra? Think about one spending habit you'd really like to change: Maybe it's the $50 you spend on work lunches each week. Maybe it's the fact that you can't seem to get out from under your debt. Then create a mantra designed to combat it, such as, “I only splurge on entertainment after I’ve paid my credit card bill in full." Better yet, write it down and pin it to your bulletin board, or snap a pic and make it the background on your phone.
4. Share Your Money Goal With a Friend
Do you dream of traveling around the world, of owning a home, of finally being free of your student loans? When our dreams are big, we tend not to tell anyone in case we fail—but that may be a big mistake.
Research conducted by Dr. Gail Matthews from the Dominican University of California found that people who write down their goals, then give a friend weekly updates on their progress, were 33% more successful in accomplishing what they set out to do. Your to-do: Set your goal and find a buddy, whether that's a family member, co-worker, or new friend you meet at LearnVest LIVE.
Want to take things high-tech? Create a shared Google Doc or email chain, then set a recurring calendar reminder to update it with your progress every Sunday night.
5. Put Your Overspending on Ice
A credit card can feel like freedom to live the life you want, right now—the ability to pay for everything from grass-fed, organic beef at the grocery store to new skis for your mountain weekend. But we all know that without the appropriate cash behind it, that sense of freedom may be short-lived. The average American household that has debt carries over $15,000 in credit card debt alone, brought on by charging more than they can pay today.
Want to break the credit habit? LearnVest's Certified Financial Planners recommend freezing your credit card for two to three months—literally, submerging it in a bowl of water and gently setting it in the freezer. Then, fill the void in your wallet with a debit card, which you can link to the LearnVest Money Center to keep careful record of your spending. Just make sure you don't have overdraft protection, which enables the bank to spot you cash when you run out (and may charge you steeply for the privilege).
6. Tell Yourself You Deserve More
Ever told yourself "I deserve it" when agonizing over the price of takeout after a long day, or trying to justify a new outfit after crushing a presentation at work? We've all been there—treating ourselves at the expense of our financial health.
But that's the old you. Instead of deserving every gadget, weekend getaway, and expensive spa treatment that crosses your path, the new you knows that you deserve more. You deserve to be safe if you lose your job, free of bad debt, and saving for something big that will truly make you happy. The next time you're tempted to spend, ask yourself: Do you deserve this $40 candle, $25 dinner, $150 pair of sneakers, or do you deserve more? Once you start asking, you'll be surprised how often you choose to invest in your future instead.
7. Make a Master List
Ever stepped into Target to buy toilet paper and milk and walked out a hundred dollars lighter? A survey from the National Endowment for Financial Education found that 70% of shoppers admitted to making an impulse purchase in the last month—and that more than 70% of those buyers regretted it later. That's why you need a plan before ever setting foot in a store.
We'll start simple—with your groceries: According to a study by market research firm The NPD Group, 72% of shoppers who grocery shop with a list never—or only occasionally—impulse-buy extra items. Here's how to be one of those shoppers: Open a document in the notes app on your phone, in a draft of your email, or in a notebook that never leaves your car. When you realize you're low on paper towels, bread, socks, whatever, add the item to your master list. Whenever you set foot in a store, carry said list—and if an item you want isn't on it, don't let it leave the store.
8. Let a Bad Day Be a Blip
So, you're trying to sock away the three to nine months of living expenses you should have in your emergency fund and you meant to steer clear of using your credit card—but you slipped up. First, don't get discouraged, as even science says this won't set you back in the long run if you don't let it.
In fact, a study published in the European Journal of Social Psychology shows that for some people, it takes a few weeks to hammer home good practices; others need months. But no matter how long it took each individual to cement his or her new habits, not a single one was completely derailed by a slip-up here and there.
After all, if you eat a single cookie, you won't wake up fat. But remember, when trying to forge a new, responsible financial you, creating a new way of doing things takes time, and a small money mistake today is just a chance to do better tomorrow.
9. Build a 15-Minute Buffer
When Charles Duhigg, author of behavior-change manual The Power of Habit: Why We Do What We Do in Life and Business, decided to turn his mid-afternoon cookie into a better habit, he distracted himself from the baked goods and waited 15 minutes to see if his initial craving disappeared.
Duhigg's methods aren't reserved for cookies—you can do the same with your spending. When you feel a financially irresponsible impulse, immediately do something else to take your mind off of it: If you're tempted by the massive sale at your favorite store, take a walk in the other direction. If your online shopping cart is overflowing, click away and read an article about something unrelated.
Then, set a 15-minute timer. When it goes off, check in with yourself: Does that initial impulse feel as urgent? If it does, you can follow Duhigg's advice for your next steps, but that 15 minutes may very well set you up to resist.
10. Use Advanced Savings Strategies
We know, we know, you feel smart for having a savings account at all—and you should! But simply setting up a savings account is for beginners. Whether you're saving for a down payment on a house, a trip around the world, or a new car, there's a more advanced way to save: personal escrow.
A personal escrow account is a separate savings account established specifically to save for a major financial goal. Why not pile all of your savings into one account? So you can see your progress toward different things you're saving for at the same time. (Plus, this way you may not dip into to your emergency fund when you take that big vacation or embark on those home renovations.)
Experts recommend setting up multiple accounts to work on multiple goals (yes, your European getaway gets its own account) and establishing automatic contributions to each. Link them to the Money Center to track their growth, and you could be biking in Provence before you know it.
What will you leave behind in 2013—and what good habit will you embrace this year? Tell us in the comments!
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About The Author
LearnVest empowers people to live their richest lives, with daily newsletters packed with tips and stories on managing your money and boosting your career, a budgeting center for keeping track of your expenses and income, and affordable, personalized financial plans from a team of certified financial planners.