Building a Habit
As we discussed in last week's article on how Small Amounts Add Up, behavior change, a core ingredient in building a habit, can be very difficult.
We asked consumer economics educators, Camaya Wallace Bechard, Ph.D., and Sasha Grabenstetter, AFC©, in University of Illinois Extension what their top suggestions are for building strong financial habits.
Sasha says pre-committing to a goal is a great way to create a financial habit. For example, "if you are wanting to save $500 of your tax refund, pre-commit before you receive it."
If you've already set a goal and you know where you will be getting the money from each month (or pay period), you've already pre-committed those dollars to your goal.
Camaya goes on to emphasize the importance of committing to things that truly matter to you as she states, "Let's face it, we are humans, and we can be selfish. [Your goal] has to be something you care about; not just something your mom or somone else tells you should matter. For instance, if you don't want to work when you're 65, then what do you need to do to make that happen?"
Commitment is more than a plan though. It takes a mindset shift and dedication. Knowing yourself, what's important to you, and your resources to create a plan that is both reasonable and actionable given your capacity is critical to staying committed to your goal.
Overcome Your Mistakes
Everyone makes mistakes - with money, with relationships, with all kinds of things... and, unfortunately, we tend to focus more on our failures than we do our successes. And sometimes our surroundings keep reminding us of those mistakes.
"Our past mistakes can be crippling and the people in our lives sometimes don't let us forget them," says Camaya, "so finding ways to move on from past money mistakes is sometimes hard. Just because I may have misused my credit card in college doesn't mean I haven't learned from it and am ready to make better choices."
Look for ways to use your financial missteps to your advantage. Ask yourself:
- What went wrong?
- Where can I improve?
- How can I do better next time?
Building confidence takes time and introspection. Learning from your mistakes can help improve your financial life, just don't forget to celebrate your victories.
Use Financial Tools Wisely
Credit can be a great financial tool, but it can also cause a lot of hardship if you don't know how to use it.
Sasha has some sound advice for using credit cards wisely, "Make sure you have enough funds to pay it in full every month, especially when starting out. You don't want to get in the habit of accruing interest and keeping a revolving balance."
Monitoring your spending behaviors over time is a great way to see how your habits help or hinder progress towards your goals. For example, if you don't monitor your financial accounts, it's hard to see if you're being charged extra fees for certain types of transactions (e.g., peer-to-peer expense-sharing, ATM fees, etc.).
Don't Get Discouraged
Along with not letting your mistakes downplay your commitment to your goals, it's important to acknowledge that life has a way of throwing curveballs at us that can de-rail our financial plans.
As Camaya says, "It is very easy to fall off track.. [and] it is completely normal to fall a little behind. For example, let's say that you just saved $500 for emergencies. Then, you find out Backstreet Boys is doing their 'third' farewell tour, and you just have to go because their music helped you through high school when you were having a tough time. It may be your last chance, so you borrow $200 from your emergency fund and came up with a plan to put it back."
In Camaya's example, the timeline for the emergency fund was pushed back a bit so that the surprise opportunity (concert) could be enjoyed. Remember that it's okay to re-prioritize your goals and shift around your timelines. Our values also change over time, so regularly checking in with your goals and re-committing to what's most important to you can help you avoid getting discouraged.
Financial tools and markets change as rapidly as technology does, so developing skills to manage money wisely requires lifelong learning. Your needs will also change over time so the relevance of financial education opportunities will vary as you get older.
A few ways you can stay connected with unbiased and low-cost or even free financial education opportunities and resources include:
You can also look for in-person and digital learning opportunities to learn every April, like Money Smart Week, during national financial capability month.