Seven Steps to Better Financial Habits

“The hard must become habit. The habit must become easy. The easy must become beautiful.”
~Doug Henning

Chances are, you made a number of firm resolutions at the start of the year—and, if you’re normal, you failed to live up to several of them.  Is there a better way to stick to your sincere resolutions to save more, spend less, or reach your investment goals?

Recent research on habits suggests there are several ways to improve your follow-through and make habits stick.  Use these seven tips and strategies to revive the financial goals you may have set on New Year’s Day – or 3 years ago – and improve your financial future!

#1: Start with a keystone habit.

A keystone habit is one that improves a variety of other habits by helping you see yourself in a different way.

When it comes to personal goals, this might be something like exercise. If you exercise, you tend to feel better about your body, eat more healthfully and procrastinate less often—a three-for-one deal.

Financially, an excellent keystone habit might mean saving regularly. Research shows that saving money makes people measurably happier! It gives them a sense of accomplishment and also a feeling that they are more in control and prepared for life’s challenges. 

#2: Start small.

Too often, we get overwhelmed and do nothing. Or we feel that we can’t improve our finances until we get that big raise or until our car is paid off. But look and see what step you can take, or what goal you can set to improve your personal economy. Perhaps the new habit is:

• Setting up an automatic transfer every month to fund your emergency fund. If you have no savings, even $25 a month will be an improvement! And when you realize you don’t miss it… raise it to $50, $75, and so on.
• Already have some cash on hand? It may be time to increase your credit card payments, or if you have no consumer debt, start your first dividend-paying whole life policy (with maximum paid-up addition riders to accelerate the cash value, of course!)
• Already have savings and life insurance? It may be time to start a new investment with the money you’ve saved, or get pre-approved to buy a home if you are still renting or a second home if you enjoy vacationing.
• Set a goal to read a financial book every month, or download The Prosperity Podcast and listen each week! Whether you are a multi-millionaire or just getting started, continuing to learn about wealth-building is an important habit to establish.

#3: Make a plan for following through. 

It’s not enough to state a goal or habit you’d like to adopt. You’ve got to follow through!

A study published in the British Journal of Health Psychology revealed what makes people follow through on adopting the positive habit.

The study assigned 248 adults into three random groups. The first group was thecontrol group. They were asked to keep track of how often they exercised over the next two-week period, but they were given no special tools or motivation to help them change their exercise habits.

Group 2 was the motivation group. They were asked to read materials on the health benefits of exercise. They were also told how regular exercise could lower their chances of developing heart disease.

Group 3 was the intentional plan group. There were told to track their exercise. Then they also read the motivational pamphlet and got the same speech as Group 2 (to ensure that Group 2 and Group 3 were equally motivated.) Then, they were asked to formulate a plan for when and where they would exercise over the following week.

Additionally, each person the group was asked to explicitly state their intention to exercise by completing the following statement: “During the next week, I will partake in at least 20 minutes of vigorous exercise on [DAY] at [TIME OF DAY] at/in [PLACE].”

After receiving these instructions, all three groups left. Two weeks later, the researchers compiled the surprising results:

• In the control group, 38% of participants exercised at least once per week.
• In the motivation group, 35% of participants exercised at least once per week.
• In the intentional plan group, an incredible 91% of participants exercised at least once per week!

Simply by writing down a plan that said exactly when and where they intended to exercise, the participants in Group 3 were much more likely to actually follow through.

Writing down your goals, and giving yourself a simple road map or strategy to reach those goals can help you with financial habits, too.

• Reach out to book an appointment for financial or tax advice today.
• Schedule the exam you’ll need to qualify for life insurance.
• Call your mortgage person and make a checklist of what they’ll need to approve you for your next home.
• Order or download Live Your Life Insurance or Busting the Retirement Lies and block off a couple of hours to read the book you’ve chosen.

#4: Bribe yourself. 

Pick something you want, and give it to yourself when you follow through on your resolution. This can be easily done with savings. If you have been saving for a vacation or a down payment on a new car, then the reward is automatically built-in.

If you are not “saving to spend,” when you reach a savings goal or other financial milestone, you can still reward yourself with a little splurge such as dinner at your favorite restaurant, or a day-off doing what you enjoy… art museums? A day at the beach? A hike to a mountainside viewpoint?

To help establish new habits, Katherine Milkman, a professor at the University of Pennsylvania, suggests linking your “wants” with your “shoulds.” She wanted to listen to the audio book of The Hunger Games, so she only allowed herself to listen to it at the gym. Suddenly, she was looking forward to sitting on the exercise bike! She then tested it in a study, and it worked for others, too.

Using this same “wants + shoulds” strategy, look for ways to link saving money with something pleasurable. Invite friends over for a potluck and a movie or board game at home, rather than going out to a restaurant and theater. Head to a park with a friend, family member or pet rather than going to the mall on the weekend. Donate to a favorite charity (something that people feel good about spending money on) to motivate yourself to save more money in the first place.

#5: Make it automatic.

There is a reason why taxes are collected BEFORE employees receive their paychecks or automatic deposits! We tend to “spend what’s left,” so it is critical to save – or “pay yourself” –  first!

• Open a savings account that is separate from your checking account (perhaps even at a different bank or credit union) and set up automatic deposits (just after your paycheck hits your account) is a great way to start.
• Save in a high cash value whole life insurance policy to build cash value you can leverage. The policy will also provide protection for your family, and/or a legacy for causes you care about.
• Paying on a mortgage also helps you build equity in the long run.

How much should you save? We recommend saving 20%. If that sounds intimidating, consider financial author David Bach’s story. According to BusinessInsider.com, he started saving only 1% of his income to begin. He soon increased that to 3% when he realized how easy it was to save, then 10%… 15%, and eventually, 20%.

 “If you are not paying yourself first now, that’s probably because you think you can’t afford to … But I can tell you from personal experience that once you decide to pay yourself first and then you make it automatic, it’s done — and within the first three months, you totally forget about it. You’d be amazed how effortlessly you can learn to live on a little less.”

#6. Replace a poor habit with a better one.

Since we are, as Dan Sullivan of Strategic Coach says, “already 100% self-disciplined to our existing set of habits,” try replacing rather than stopping a habit you wish to break.

Trying to break a shopping or spending habit?

• Try watching a movie or reading a book instead of shopping online.
• Add a habit of a 24 or 48-hour “cooling off” period before you buy something you see to break the dopamine rush of the purchase. (Most people report this slashes spending!)
• Adopt a new hobby, such as gardening, that allows you to now enjoy doing something you used to pay someone else to do. 

Choose the habits that lead to the results you desire!

#7: Don’t do it alone.

Get your friends to help you keep your promises to yourself. Some financial bloggers have made their debt reduction or other financial goals very public (yes, “debt blogging” is a thing), reporting their progress regularly. (Talk about accountability!)

Use your professional support structure as well. Ask your coach to keep you accountable to new habits, or ask your financial advisor to follow up with you in 6 months when you anticipate you’ll have your next $25k saved to start a new investment.

And if you fail to follow through despite all these tips?  Follow the advice of the great Stoic philosopher Marcus Aurelius: forgive yourself and try again. Research shows that self-criticism does not help us change our habits, so congratulate yourself for positive (if less than perfect) effort.

How Can We Help?

Contact Partners for Prosperity to

• increase your savings automatically
• protect your family
• grow your dollars steadily without stock market risks (ask us about alternative investments and private equity options), and
• turn your assets into regular cash flow that far surpasses the typical low-interest options.

We also offer a fee-based process if you would like Kim Butler to personally take an in-depth look at your finances. Learn more about our approach here.