When it comes to the many different aspects of personal finance, it’s tough to know where to start. We all approach managing our finances differently given our unique backgrounds, lessons, and personal experiences.
Over the years, we develop good habits as best we can. Even so, we can pick up some bad ones along the way. If you’re looking to get your personal finance house in order, here are the best personal finance habits to build.
On building habits
According to Stanford University behaviour scientist Dr. BJ Fogg, habits—whether they are good or bad—follow a three step cycle. They start with:
- A trigger that initiates a response, followed by
- A routine or action carried out in response to the trigger
- The cycle ends with a reward, which is gained from following through with the action
Actions that result in positive rewards create an incentive for the routine to be repeated. These actions, repeated over time, become second nature to the point we repeat them without even knowing it.
Automatically save your income
Ever spend hours on a working on a computer, only to lose everything because you didn’t save it? Going through this once is more than enough to get anyone saving their work on a regular basis. After realizing plenty of work being done (trigger), we save the file (action) so that we preserve our progress and can ultimately finish the task (reward). If you’re lucky, the program you’re working with might have the ability to autosave your progress.
Similarly, when you get paid, get in the habit of putting aside a portion of your paycheque towards saving goals. This can include paying down debt and building a reserve for emergencies or a nest egg for retirement. If you get paid on a regular basis, set up an automatic transfer that funnels money into a high-interest savings account. Automatically save your income so you don’t get caught in a bad position with nothing to show for your work in the end.
Set up automatic payments on recurring expenses
Striking the right balance between work, family, and extracurricular activities is no simple task. In the bustle of it all, it can be easy to forget about paying regularly recurring expenses. When you get your bills, get in the habit of paying them in full before they come due.
Making minimum payments on credit card bills can lead to a larger debt load and higher interest costs, negatively impact your credit rating, and make it difficult to reach certain financial goals you’ve set.
Missing payments altogether can have serious consequences. For example, failing to pay car or life insurance premiums can open up a gap in coverage or worse—result in a cancellation of the policy.
From Netflix or Spotify to cell phone or utility bills, set up automatic payments for the services you rely on so they don’t get interrupted.
The last word
Saving for specific goals and paying bills in full are two fundamental habits that contribute to the reward of a healthy financial outlook. Setting up the framework to automatically save when paid and to automatically pay when a bill is due simplifies the process to the point where the behaviour can become second nature. By setting up automatic transactions, you’ll end up preparing financially for the future without having to overthink the details.