Improve Your Finances: 5 Exercises to Use to Build Better Money Habits
This article was originally published on Beyond Your Hammock
Wouldn’t it be nice to finally be someone that other people look at and say, “wow, you really are great with money. I’m impressed!”?
Do you constantly find yourself wishing you had better money habits, but you just can’t seem to change your day-to-day actions?
Here’s the good news: you can absolutely transform your current habits and become that person.
People aren’t inherently “good” or “bad” with money. But we do have good and bad habits around our finances, and this is what usually makes the difference between someone who seems to manage money well and someone who tends to consistently struggle.
Instead of feeling like you have to change who you are, or beating yourself up for what you feel are weaknesses or shortcomings, you can simply focus on building better money habits.
Good money habits do take time and effort to build, and it’s not necessarily easy to change your behavior — but it is possible.
If you’re interested in building better money habits in 2020, try some of these activities and exercises that can help you improve how you handle your money and run your financial life.
1. Honestly Assess Your Recent Transactions
It’s really hard to build better money habits when the necessary actions to do so seem like no fun at all.
Take budgeting for example, or spending less. Budgeting is a way of tracking and managing your money, and can help with achieving the goal of spending less.
But most people associate these two habits with being deprived, losing out on something, or not getting enough of what they want.
If you feel that way about a habit, there’s not much motivation there to develop it.
That’s why we often share this exercise with clients to help them mindfully manage their money without feeling deprived or like they “can’t” spend on what they want. Here’s how to do it:
Pull up your bank and credit card transactions from the last 3 months and go through every single line item to:
- Highlight in green all the spending that you value and/or that makes you feel good
- Highlight in yellow things that you somewhat value, but don’t feel extremely excited about
- Highlight in red anything that, looking back at it, leaves you feeling a little negative/regretful
Then, identify all the purchases you highlighted in red. These are the things to stop spending on immediately since they don’t bring you value or might have been things you regret buying.
It’s an easy way to eliminate what isn’t worth the cost.
Next, take a look at what you highlighted in yellow. These transactions are a little harder to grapple with, because they might be important to you — but they’re probably not the most important line items in your spending.
This is why doing this exercise every 3 to 6 months can help you get a better understanding of not just your spending habits, but where and how you spend that makes you happy or fulfilled.
As you do this consistently, you might get more clarity on what items in the “yellow” category could be pushed down into the red. You might also solidify your understanding of what your priorities are, which can help you make better money decisions moving forward.
Finally, doing this even once is a great way to bring more awareness to your spending — and awareness is a key step in building better money habits.
2. Don’t Try and Willpower Your Way to Success
There are a lot of areas of life that require discipline in order to reach a set goal or accomplishment. Building better money habits is certainly one such area.
The people who do succeed in establishing new, improved habits are not necessarily the ones who resist the temptations that would cause them to veer off-course.
The people who are “most disciplined” tend to be the same people who simply don’t have as many distractions or temptations to deal with along the way.
It’s not that they’re better at turning down dessert when they’re trying to lose weight. It’s that they don’t put themselves in a situation to say no to dessert in the first place — maybe by not buying ice cream to keep in the freezer, so there’s nothing to tempt them.
It’s not that they’re better at forcing themselves through a hard workout at 5am when they’re trying to get stronger. It’s that they remove as much friction from the process of get-up-and-go-to-gym as possible and automate what they can — maybe by laying out their gym clothes the night before (or even sleeping in their gym clothes so they can literally get up and just go before they have to think about it).
It’s not that they’re better at naturally spending less and saving more. It’s that they are not frequently in a position of having to turn down impulsive buys or say no to things they would really like in the moment — maybe by unsubscribing from retail email newsletters and unfollowing social media influencers who often post about products.
We tend to think we can just will our way through hard things, but the reality is that willpower only gets us so far because everyone has a limited amount of it, and you can exhaust yours.
Instead of relying on willpower, try to engineer your environment, your schedule, and your routine so they you don’t have to engage directly with so many distractions that can lead you astray.
It’s not about learning to say no more or somehow push yourself to work harder (although a little bit of that can be helpful). It’s more about not putting yourself in that position in the first place.
3. Make Better Money Habits Visible and Hard to Forget
We usually keep our gym shoes by the hall organizer in our entry way. Why?
Because we see them every single time we walk out the door, and it reminds both my wife and I of our goal to incorporate a lot of movement into our lives.
Whether that’s a gym workout, an hour skating at the local ice rink, taking a really long walk or hike, or doing some active stretching and yoga inside, we have a visual cue to remind us that we want to maintain an exercise habit.
You can do the same thing to help you build better money habits. Provide yourself with a visual cue that either reminds you of your goals or intentions, or makes it really hard to forget the habit you wanted to build.
For us, the biggest visual cue is the shared budget we maintain in Google Sheets. We like to track our spending manually and we log every purchase we make when we make it.
That might sound tedious, and it does take some time and effort. But the payoff is that Kali and I are both frequently, consistently looking at our budget and our spending in real time.
We’re very much aware of how much we’ve spent, what we bought, and how much money is left to use throughout the month. It’s a visual cue that helps us think more critically about our money decisions and supports our efforts to spend in a way that aligns with our values and goals.
Here are some other ideas of what you might do to make the money habit you want to build more visual and easier to remember:
Get a piece of paper and write down the goal you’re currently working on — and how much you need to save on a daily, weekly, or monthly basis to achieve it.
Stick it somewhere you can see it. Bonus points if it’s in a place that could prevent you from engaging in a bad habit instead of the actions that will help you accomplish what you want.
For example, you might stick your note on your computer screen — so you can see it when you’re tempted to do some online shopping.
Or you could fold the note into your purse or wallet, so that every time you take out your credit card you’re reminded of what you’re working toward.
If you’re more visual, find an image that represents what you want instead of writing out the numbers. You can even make a complete vision board to capture all the details of the things you want to accomplish and how you’ll get there.
4. Go Through a “No-Spend” Week or Month
This is a good exercise to try as a “pattern interrupt.” If you don’t usually think twice about your daily spending, try not spending anything at all.
Do it for a day. Then a week. See how many days in a row you can not spend.
If you want to take it to the next level, see if you can go an entire month without spending on anything beyond the essentials or your fixed expenses (like bills, your mortgage or rent, and groceries).
While some people take this to an extreme and do hard-core “no-spend weeks” for the exclusive purpose of saving as much money as possible, I think the most important thing here is the idea of breaking a mindless habit (spending whenever you want) and replacing it with more conscientious decision-making around how and why you part with your hard-earned money.
A no-spend week or alternatives like shopping bans on certain items or categories of goods is a good way to practice planning, discipline, mindfulness, and commitment to a goal — which are all necessary ingredients to building better money habits in general.
5. Automate It
The reason so many people struggle with building better money habits — or any kind of behavior change, even when the change leads to beneficial or positive results for us — is because we’re human.
We’re not perfect, and we don’t live like robots, making completely rational, best-for-us decisions every second of every day.
Often, that’s because we’re asked to choose what’s “best” for us on a broad, overall, long-term scale… but we have to choose that in the moment, when we’d really much prefer something that’s “best” for us right that second.
Which is why we choose to sleep in rather than get up early and exercise. Or why we select the cheeseburger over the salad. Or why we spend on what we want now rather than saving for the lifestyle we want in the future.
Ideal decisions are hard to make in moment-to-moment situations, which often prevents us from building better money habits that we say we want.
Knowing this, there’s a pretty straightforward solution: make less decisions. Automate instead.
Anytime you can pre-commit to an action (like having 401(k) contributions automatically withheld from your paycheck) or automate a decision (like putting $1,000 per month into your long-term savings or investment account via an automated transfer that goes through after your direct deposit hits), you make it much easier to stick to the beneficial habit that you want to maintain.
Look for ways to build in automation into your financial life, so the burden isn’t 100% on you to make great decisions 24/7.
Bonus: Better Money Habits Recommended Reading
If you’re interested in learning more, or understanding how you can more successfully create habits in your life, I highly recommend checking out the following books and blogs:
- Atomic Habits by James Clear (or check out his blog at jamesclear.com)
- Thinking, Fast and Slow by Daniel Kahneman
- The Power of Habit by Charles Duhigg
- Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard Thaler and Cass Sunstein
And of course, if one of the better money habits you’re looking to build is to spend less and save more… look for these titles at your local library first 🙂
Want more financial advice you can actually use? Check out Beyond Your Hammock, a fee-only financial planning firm that specializes in helping 30- and 40-somethings get clarity and start building wealth.