I’m a Financial Psychologist: 5 Ways To Break Poor Money Habits Now
Written by
Sean Bryant
Edited by
Amen Oyiboke
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Do you feel like you’re stuck in a financial rut? Are you trying to make better money decisions, but something always derails your progress? If so, you aren’t alone. This is a common situation, especially since it’s very difficult to break the money habits you’ve always had.
For example, if you grew up in an environment where healthy money habits were never discussed, you will not have the background knowledge or experience to create solid financial habits.
In a recent interview with CNBC, Charles Chaffin, co-founder of the Financial Psychology Institute and a professor at Iowa State University, discussed ways to break the poor money habits we’ve developed over the years.
Here’s a five ways to break poor money habits now.
Have Your Wake-Up Call
The first way to break poor money habits is to have your “ah-ha” moment. This is when you finally realize how much money you’re earning and where it’s going by creating a budget. Take the time to review your purchases and income from the past month. Place your expenses into different categories, such as rent, insurance, utilities, restaurants, groceries, transportation, and personal purchases.
Putting all of your transactions on paper might be the wake-up call you need to break your poor money habits. Using the information you found from your prior month’s spending, create a new budget for the next month to get your spending in check. You can use budgeting apps, Excel spreadsheets, or a physical notebook. Find the method that motivates you to track your spending.
Make It Tough To Spend Money
Out of sight, out of mind can be a powerful concept when breaking poor money habits. By automating transfers from your checking account into a savings account, you are less tempted to spend the money. For example, you can set up a 401(k) withdrawal before your pay is deposited into your account or automate a $100 transfer to your savings account.
With the money automatically pulled out of your account, you don’t have the decision to spend that money. An extra takeout order is no longer an option when you only have enough for gas and groceries. Although you don’t want to pinch pennies to pay for groceries, there are psychological benefits to having a scarcity mindset.
Involve Other Life Aspects
Oftentimes, financial goals are intertwined with other aspects of your life, such as your physical and mental health. By changing your entire outlook, you can make more progress toward your financial goals. Let’s say you want to eat healthier. By sticking to your goal of eating healthier, you will likely eat less takeout and eliminate junk food from your grocery bill.
Think about your overall well-being when breaking out of poor money habits. You don’t have to focus on just one goal. In fact, it can be easier to change both your financial and health habits at the same time.
Remove Stored Credit Cards
Humans are inherently lazy. It’s much easier to make a purchase on Amazon using a stored credit card than it is to walk to your wallet or purse and type in your credit card numbers. By removing stored credit cards, you are forced to think about the transaction and take additional steps to make the purchase.
The extra time you take contemplating the value of the item might be enough to deter you from spending money altogether. If you are still struggling with impulse purchases, think about the time you need to work to pay for the item. For example, if you make $18 per hour and want to purchase a $75 item, you must work over four hours. Is the item worth four hours of your time?
Keep Your Goals in Mind
Finding the optimal balance between short-term needs and long-term goals can be difficult. You know you want to retire in the future, but takeout sure does sound good tonight. Without putting your goals into perspective, they can feel meaningless. After all, retirement might be a few decades away.
Try to make your goals specific and measurable. Saying I want to save $5,000 for a vacation to Florida by the end of the year is more concrete than saying you want to travel somewhere this year. You are more likely to reach your goals when they have assigned numbers and end dates.
The more you avoid overcoming your poor money habits, the worse off you’ll be five or ten years down the road. Tackling your habits head-on might seem scary at first, but it’s necessary to change your habits and work toward your financial goals.
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