Six steps to building good financial habits
Adopting good financial habits isn’t always as easy as it sounds. Otherwise, we’d all be doing it already.
With the impact of COVID-19 still being felt, 42% of us now want to put money aside for unforeseen events in the futurei. Whether we’ve been affected or not, we recognise that saving regularly, consistently paying off credit card debt and paying bills automatically, and on time, can offer the best protection against times of financial uncertainty. And they can set the foundation for ongoing financial security.
How habits are formed
One method of forming habits is a three-part process called a habit loop. Let’s use the example of saving for a weekend away:
First, a cue triggers our brain to perform the behaviour
Cues can be the time of day, the environment you’re in, a sound, an object, or even a day of the month – like payday. Keeping an image of your mini-break on your phone adds extra inspiration.
Second, you perform the behaviour
The image means you’re regularly reminded to access your banking app and move surplus money from your current spending account to your savings account.
Third, you look for a reward
Seeing your savings getting closer to your goal makes you feel good – think of it like a micro-reward. The big reward comes when you can book and go on your weekend away!
By repeating this process many times over, eventually, it becomes habitual. To help you start forming good financial habits, try the steps below for more success.
6 steps to building good financial habits
Make your own fresh start
Why do we always start a healthy eating plan or new exercise regime on a Monday? It’s called leveraging the context. And while we find it easier to form new habits during a significant life change like moving house or having a baby, there’s nothing to stop you finding opportunities in your day-to-day routine to instil your new habit. For example, you could:
- Review your household costs one at a time, be it health insurance, electricity provider, phone bill or by consolidating your super. By committing to review one provider at a time, you can start building good financial habits as you go.
Piggyback to an existing habit
It’s often easier to tag a new habit onto the end of an existing one. Think about how much easier it is to remember to floss after you’ve brushed your teeth. For example:
- When doing your yearly tax return, why not review your financial goals for the coming year?
- When it’s time to renew your car insurance, take some time to check you’re getting the best deal from your utility providers too.
Make it easy
If we think something’s going to be hard, we often give up before we start. Keeping our approach simple and making sure we have the tools to succeed, can help. To do this, you could:
- Tackle one area of your finances at a time to avoid feeling overwhelmed.
- Dedicate a consistent time each week or fortnight to do your financial admin and block it out in your diary.
- Use technology like banking and budgeting apps and direct debits to make things quicker and more automated.
Cues and rewards
When we start a new habit, it’s important to use cues to remind us to perform the new habit and feel rewarded for doing it.
- You might decide to tackle your finances every Wednesday straight after dinner. Then you can reward yourself with a yummy dessert afterwards.
- Don’t underestimate the power of ticking something off a list. This simple act can make you feel great.
Practice and repeat
It takes an average of 21 days to form a habit when we’re focused and want to achieve it. Regularly practicing your new good financial habits is key to making them stick. You could:
- Pop a daily, weekly or fortnightly reminder in your phone or diary. This can help until you remember automatically.
- Mentally commit. If we have enough time to be on social media, we have enough time to form good financial habits.
Use meaning for motivation
Think about the meaning behind your new habits to help stay motivated, both while forming the habit and once it’s part of your routine. For example:
If you’re saving for a house, it doesn’t just mean having your own place to live. It’s creating a home, providing security for yourself and your family into the future, and it shows you have the willpower and commitment to achieve long-term goals.
COVID has made us value feeling financially secure, and staying on top of your money can be hard. However, with a little work and commitment to creating good habits, you’ll soon be on the road to taking control.
We can help you set good habits and stay on track to reaching your goals.
i AMP Financial Wellness Report, Behavioural Architects, August 2020