on March 8, 2022
In his book Atomic Habits, author James Clear discusses the power of making small, incremental changes. Through tiny, persistent modifications, sports teams can become powerhouses, entrepreneurs can build successful businesses, and musicians can win Grammys. This isn’t about making lofty goals and making big, sweeping changes for a little while; it’s about making small, everyday changes that you’ll stick to for the long term. After all, what good is goal achievement if you only revert back to your old ways as soon as the “mission is accomplished”?
This approach of building positive, everyday habits translates well to the financial world. To become wealthy, you don’t have to win the lottery, get lucky in the stock market, or start a successful tech company in Silicon Valley. The more reliable way to gain wealth (in the financial sense) is to start practicing good habits, and then stick to those habits.
Start making small changes, grow accustomed to those changes, and then push yourself to do more and pave the way for even more positive change. When it comes to making improvements to your financial habits, you might try any (or all) of the following 5 tips:
1. Save a portion of each paycheck…
One of the easiest ways to create financial security is to designate a certain amount of your paycheck to an emergency savings account. I have discussed the importance of regularly depositing money into an emergency savings account on this blog, but suffice it to say, this is a vital aspect of financial security. Without a pool of readily-available savings, fixing a broken-down car or paying for new windows suddenly feels like a catastrophe. Besides, you can simplify the entire process by setting up automatic bank transfers every two weeks or every month.
2. …or invest it
In addition to funneling money into a designated emergency savings account, you can also earmark a certain amount of money each month for investing. Many investment companies allow you to make automatic banks transfers, so you can regularly supplement your portfolio without having to think about it. You’ll probably want to review your transfers every so often, but simply setting up an automatic investment transfer is a good start.
3. Track your spending
It is easier than ever to track the dollars you spend each month. You could use an app, such as Mint or Good Budget, or you can rely on the built-in tracking features of your credit card (which often break down expenditures into categories such as groceries, gas, shopping, or bills). These tracking programs aren’t flawless, so it’s a good idea to review them from time to time and make any necessary corrections. Additionally, it’s smart to sit down once a month and analyze your expenditures. Where does most of your discretionary income go? Are you spending more on to-go orders than you realized? Shopping? Where could you make some spending cuts? Getting into the habit of tracking and regularly reviewing your spending will pay off in a big way in the long run.
4. Practice a pause
Another useful habit is learning how to “pause” before a purchase. Whether you’re in a retail store or shopping online, take a few moments before you get out your credit card to ask yourself whether A) you really need the item and B) if it makes sense to do some comparison shopping before buying it.
Too often, we buy things because we see they’re on sale or are part of a limited time offer. There’s a reason advertising is a multi-billion-dollar industry! It’s effective. By taking your time with purchases and doing your due diligence, you allow yourself time to change your mind. Simply pausing to consider each purchase is a great way to stop the natural tendency to impulse buy.
5. Check in with your advisor
You don’t have to build financial security and wealth on your own. Checking in with a financial advisor on a regular basis is a great way to ensure you’re on the right track and are making good decisions. Make these check-ins a regular part of your year, and they will soon become part of your system of good financial habits.