Better Habits = Better Finances

They say it takes 21 days to create a habit, here’s a look at why it’s worth the effort when it comes to your money

As I write this, I am sitting in my exercise clothes in my kitchen, drinking my coffee. I will stay in these clothes – through for the next several hours, through a couple of conference calls – until I get myself down into the basement to exercise. Why? That’s the way I do it. For me, that’s a habit. You undoubtedly have habits of your own – we all do. It could be your morning routine, the way you wind down before bed, or countless procedures and processes in between. As a new report from Morningstar explains, adopting some new habits when it comes to your finances can be both stress-reducing and profitable.

Why? I’ve delved before (more than once) into the fact that when it comes to doing the correct things with our money, we know what path we should choose and what actions we should take, yet often we go in the opposite direction. That has everything to do with how humans are wired – our brains reward us when we indulge our impulses for instant gratification (hello, dopamine), but not so much when we rationally sock some money away for emergencies, retirement, college or other long-term goals.

Habits can help us with that. “Simple habits make our lives easier by helping us combat the multitude of decisions we make daily,” writes Morningstars Samantha Lamas. “For example, most of us brush our teeth every morning. Instead of waking up and pondering whether to brush our teeth, our habit makes the decision for us. Not only is this one fewer decision we must make, but it may also lead to better dental hygiene.” Now we just have to take the same and apply it to our money. Here are a few suggestions.

Pay your bills as they come in. Years ago, I did a large research study (5,000) on money and happiness for my book, The 10 Commandments of Financial Happiness. One unexpected finding was that people who paid their bills as they came in – rather than stacking them up and paying them, say, once or twice a month – were happier. That made sense to me. It’s no fun to move a big chunk of your money to your creditors all at once. Plus, doing it this way allows you to adapt on the fly. If you spent more, for example, on heat because of an unexpected blizzard or two, you could adapt and spend less on other discretionary items. I’ve been paying my bills this way ever since. When one arrives in the mail, I deal with it and file it away – similarly when I receive one via email, I just handle it in the moment. Yes, this requires having enough of a cushion in your checking account so that you’re not overdrawing. But I can attest, it’s a lighter, brighter way of doing things.

Save automatically (and not just in your 401(k)). Advances from behavioral finance have made 401(k) plans stickier and more successful. Auto-enrollment alone (when employers don’t ask you whether you want to be in the retirement plan, but instead put you in and force you to tell them if you want out) boosted participation from about 50% on average to more than 80%. But the real juice is simpler. The money is pulled out automatically – once you’re in, you don’t have to do anything. The goal is to make a habit of saving this way in other areas of your life as well. If you are saving for college, set up an automatic transfer. If you are saving for a vacation, set up an automatic transfer. It’s a habit that keeps on giving.

Set calendar alerts for important dates. I run my own business so I pay quarterly taxes. Each year – towards the end of December – I set alerts for the following year, about two weeks before each due date. They pop up and I don’t miss them. But other alerts are similarly helpful: For days that bills are due, open enrollment for the health insurance plan, tax time of course. Anything that you want to remember not to forget is worth making not just a mental not of but a physical one.

Jean Chatzky

Jean Chatzky

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