Creating Strong Personal Finance Habits

I learned the art of habit-building from James Clear’s book Atomic Habits. His book focuses on four key principles which we will apply to habits related to personal finance. As with any resource, this is not comprehensive (what truly is?), rather, it will help you make changes to your financial system that will help you toward long-term success!

How to create a good habit:

1. Make it Obvious
2. Make it Attractive
3. Make it Easy
4. Make it Satisfying

How to break a bad habit:

1. Make it Invisible
2. Make it Unattractive
3. Make if Difficult
4. Make it Unsatisfying

How can we apply these to personal finance?

1. Make it Obvious
   • Bookmark your financial tools right in your web browser. Put relevant finance apps on your phone in an easily accessible location.On the contrary, hide the apps if you tend to over-check.
   • Sign up for monthly credit report emails so you can stay up to date on your progress. Your monthly alert will keep your credit score (and overall financial health) at the top of your mind.
2. Make it Attractive
   • If you need to make a splurge purchase, you can contribute the equivalent to your savings or investments. Let’s say I want to splurge and buy a new watch for $500. When I buy the watch, I will also contribute $500 to my Acorns investing account. If you are saying that you cannot afford to contribute $500 to a savings account in addition to splurging $500 for a want, then you should reconsider whether you can actually afford this splurge. This is also known as “habit stacking.”
3. Make it Easy
   • Reduce the number of steps between you and moving towards your goals by automating everything you can! If your savings are automatic, you don’t even need to make it a habit to be successful.
   • Learn how to log onto and navigate your financial apps easily on your computer or phone. It may be as simple as fidgeting around with it while you’re in line at the grocery store or waiting at the bank. Keep your passwords organized for these important accounts too. How many times have you simply not checked an account because you forgot the password and didn’t want to reset it? Make it easy for yourself to stay on top of your finances by making your accounts easily accessible.
   • Create a system that allows you to complete your desired financial habits in 2 minutes or less. For example, it might be looking at your budget every Sunday evening to comb over your past week’s spending. In this process, you might mark down what was necessary and worth it versus what wasn’t worth it. That way you can build a better sense of how much utility your money has in bringing happiness to you and your loved ones. You might spend 2 minutes a week reviewing your debt balance to make sure that it’s going down rather than up.
4. Make it Satisfying
   • Reward yourself when you complete habits. Didn’t make any non-value-added purchases this week or month? Treat yourself to something that brings you value or do something free that you find fun, like going on a hike.Create a habit tracker or track your net worth. Having something visually in front of you that you can control with your daily actions gives you a great sense of empowerment when viewing your progress over time
   • Don’t miss twice. Missing twice in a row vastly increases your odds of forgoing the habit completely. Do your very best to get back on track as soon as you’ve broken a streak.

How to break a bad habit:

1. Make it Invisible
   • For a while, I had the Amazon app on my phone and whenever I was bored, I would open it up and scroll just like I would on social media. I spent a lot of money that way and accumulated a lot of unnecessary things. What helped me was simply deleting the app.Delete or move any apps that rely on your impulse decision making (Insta-cart, Amazon, or other shopping apps).
   • If you have problems with credit card debt, cut them up and get rid of them. You may keep the account open, but do not keep, carry, or use credit cards.
2. Make it Unattractive
   • Buy toys with cash. Not necessarily physical cash, but don’t use borrowed money. Swiping a card is so easy to do these days. Paying cash is an immediate action, and watching the cash instantly disappear from your account is much more painful than seeing a minimum monthly payment amount on your credit card statement. Strictly from a financial responsibility standpoint, you should always buy toys with cash anyways. Paying $400 a month for 5 years for a boat is far more attractive than buying it for $20k cash, which makes it easier to fall into monthly payment traps for toys that are essentially depreciating assets.
3. Make if Difficult
   • Contrary to “making it easy” and reducing the number of steps between you and your financial goals, you can increase friction between yourself and bad financial decisions. If you get yourself in trouble by making impulsive decisions on Amazon, then remove your credit card from the app and force yourself to manually input your credit card information every time. You can do this with all your splurge apps like fast food apps, etc. You can take it one step further and remove your credit cards from your browser autofill and sign out of your Amazon account after each purchase, forcing you to sign in to make a purchase.
4. Make it Unsatisfying
   • I’ll admit it. I love fried chicken. If you give me a bucket of fried chicken it will be gone faster than you can say “financial freedom”. Sometimes, if I don’t control myself, I overeat and then sit there afterwards contemplating my life (with a happy tummy at least). One thing that helped me a lot was shifting my mindset. I think about how many miles I have to run to burn those extra calories. That feeling doesn’t stop me from eating fried chicken (life is short), but rather it brings down my crispy-heaven driven impulsiveness to a reasonable level. That helps me gain perspective. If you have trouble with impulsive spending, think about how many hours you have to work in order to pay for this item.

It is important to point out that having good habits in personal finance that pertain to tracking your progress won’t immediately improve your financial situation, however, it will make a huge difference over time. It will also provide you with the awareness, motivation, and encouragement to help you keep the momentum moving forward. It also helps you set targets (either on paper or mentally) about where you want to be for your next self check-in. For example, you see that you have 1 month worth of expenses saved up in a savings account. That’s really encouraging, so you make a note to try to get to two months by a certain date. Leave a comment below about some financial habits that you’ve implemented. How do they help you in the big picture and what do you do to stay on track?