Why You Need to Make Financial Habits, Not Goals

By Andrea Cannon on 2 February 2017 0 comments

With any luck you're still on track with your financial resolutions and making strides toward your financial goals. While your financial goals may look pretty on paper, they won't mean much until you start building the habits necessary to meet those goals. And if you have already given up on your resolutions, don't fret. Focus on financial habits, instead.

By adopting good financial habits, you are committing yourself to achieving your long-term goals. Once you've begun a habit, it will eventually become second nature, and before you know it, you'll have made real progress toward your goals.

Track Your Progress

In order to ensure you are on the path to meeting your goals, it's essential to track your progress. This means that you need to create habits that allow you to track your progress. In order to develop a habit, there needs to be some form of reward that happens each time you perform the action. After a while, this repetition will form a new habit. This "habit loop" is how automatic behaviors and successful habits are formed.

Recognizing the progress that you've made every week or month by adopting a new habit will motivate you to continue the action. For instance, by skipping your morning cup of coffee, you may be able to save up to $150 per month. Consider placing a reminder of this somewhere you'll see it throughout the day.

How to Form Good Habits

The only way to form habits that stick is through repetition. Forming a healthy habit is great, but the only way that it's going to be effective is if you continually repeat the behavior. In many cases, it can be good to have an accountability partner who can help you meet your goals. In fact, the Dominican University of California found that more than 70% of people who provided a friend with weekly updates on their progress were successful in accomplishing their financial goals.

Develop Habits Early

The earlier you begin developing financial habits, the better chance you'll have of sticking to the habit on a long-term basis.

Setting a goal determines your end target, but it doesn't necessarily set steps to achieve that goal. On the other hand, when you start forming habits, they can create long-term change. Goals can seem like large, looming things at the end of a long tunnel, whereas habits are something that you can begin doing today. By focusing on financial habits, you can form sustainable behaviors that help you meet your goals in less time.

Good Habits to Adopt

There are certain habits that can help you achieve a broad goal. For instance, if your goal is to pay off debt, then you can start by paying more than the minimum on your credit cards every month. By adopting this habit, you can more quickly pay off your credit cards and move on to other forms of debt.

If your goal is to invest more, then you can get into the habit of automatically transferring at least $35 per week into your retirement accounts so that you can become a millionaire by retirement (adjust the numbers for your age and personal retirement goals).

In order to start building healthy habits, you will need to first create a budget to determine how much you can save and how much you can spend on the "needs" and the "wants" in life. Checking your budget every week is a great habit to form. This will help you to determine where you're spending your money and what can be cut from your regular spending.

Automate Your Habits

Saving money can make you happier both in the short and long run, so it's one of the best financial habits to have. However, it can be difficult to save, so it's best to sign up for an automatic savings plan, which can deposit a certain amount into your savings account every month. You can also set your credit card and other bill payments to be paid automatically. By automating your finances, you get a step closer to establishing healthy financial habits.

The Best of Both Worlds

In an ideal situation, you will build financial habits that can improve your financial status for life. You will also focus on your goals and set the achievable steps you'll need to take to reach those goals in less time.

There are a number of evidence-based strategies that show that maintaining your healthy financial habits can help you reach your goals without even thinking about it. Once you have visualized your goals and outcomes, it's important to identify the obstacles standing in your way so that you can create a plan and begin adopting healthy habits that will benefit you for life.

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