Change Bad Financial Habits to Good Habits
“Take care of the small expenses; a small hole sinks a big ship’ – Benjamin Franklin
The road to achieve financial freedom or success in general is not easy but is achievable. The only hindrances are – laziness, fear, not having money, not having time, lack of training and self-limitations. These are categorized as bad habits.
In psychology, habit is any behavior repeated regularly, which requires little or no reasoning. Habits are effortless. When they are good habits they make life easier, but when they are bad habits they harm us.
When it comes to finance, we can find bad habits such as:
- Spending all the money that comes
- Invest money in a product without proper knowledge
- Impulse purchases
- Accumulation of bad debt
- Buying unnecessary things
Why do we continue with bad habits even though they are hurting us?
The reason is eliminating a habit is very costly, requires a lot of energy and willpower.
How do you eliminate a bad habit?
The best way to eliminate one habit is to replace it with a good habit. At first, it will require an effort but it is a lesser effort than if we directly eliminated the bad habit without replacing it with another. By substituting one for the other when the conditions that caused the bad habit occur, you have a good habit to perform instead.
These are the steps to eliminate bad habits:
Establish a financial goal
This is the same as getting into a car and driving without a destination. We must stop to reflect on our financial situation, establish a budget, a plan to eliminate debts and implement objectives that encourage us to save. We should not wait for someone to solve our problems. We should establish financial goals and a plan to help us achieve them. Eliminate from your life the excuses of the type – I don’t have money, I don’t have time… and adopt a proactive attitude.
Set a plan to save money
Don’t save and think that you will save when you have more money. Start saving now, with small amount, and you will be surprised at how your savings grow over time. Don’t save what you have left over, because then you’ll never have anything left over, pay yourself first. Set a realistic goal, and each month devote a portion of your income to savings, automate this action in the bank, the money you don’t see will not be spent.
Create an emergency fund
Have emergency fund of at least 2 or 3 months of your current expenses, 6 is much better. This financial cushion will allow you to solve an unforeseen event without having to borrow money.
Money is not to be spent but to be invested. Sometimes we don’t invest waiting for the right moment, out of fear or because we don’t know the product. It’s never going to be the right time, start investing as soon as possible, automate a monthly investment and give yourself time to reap what you sow, always think in the medium to long term, make your savings profitable with the compound interest method. Lose the fear of investing, you can start with small sums of money, the market offers options to make our savings profitable.
Invest in yourself
Remember that greatness is within you and your money will grow as much as you grow as a person. Do courses, seminars, have self-discipline. It has been shown that, if you are not able to control yourself, you will not control what happens around you. We all have talents and abilities, we just have to find them.
Maintain expense dairy
It is necessary to put conscience to the small daily expenses. We think that a coffee, a magazine, a coke, some gum … are not important. But if we add all these small expenses for a year, they will sum up to a lot of money, which can be saved or invested to earn more money. Start by keeping a strict daily control of your expenses, this will allow you to make a monthly budget. Say no to impulse purchases, to consumerism and to buying what you don’t need.
Use credit card smartly
Don’t pay with credit cards, wait until you have the money to pay for it. But make good use of them.
Identify bad financial habits that are hurting you
Set good habits in motion. Start slowly, and you see each new good habit consolidating so that the bad one does not appear again. Once the bad habits have been eliminated, create more good habits that will benefit you.
Take care of health
If you are not physically well, how are you going to improve your finances? Eat well, meditate, exercise, take care of your body as it is your vehicle in this life. Get up early, successful people have many habits in common and one of them is that they are early risers and know how to take advantage of the magic of early mornings.
Hi, I am Nikesh Mehta owner and writer of this site.
I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business.