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Published On: Mon, Mar 28th, 2016

Why It’s Important to Change Financial Habits

Habits, whether going to the gym, eating healthy, or learning to read for an hour before bed instead of watching television, or saving money, are difficult to change and stick to. For that reason, many people try to put of developing them off to a specific time, such as New Year’s, a birthday, a raise, or after a big move, but like any other habit, it is best to start now. Any habit takes time to build, and in fact, research shows that while popular says it takes 21 days to build a habit, research on people actually building habits shows that it takes anywhere from 66 to 254 days. Building any habit is about sticking to it, even when automatic habits don’t form, and your financial habits are no different. 

How Your Habits Affect Your Life

Your financial habits affect every aspect of your personal life, because they affect how you live, where you live, what you buy, and how much money you have in case something goes wrong. Where most of us would like to think that we’re conscientious and save money as much as possible, the truth is that most of us don’t. In fact, one study showed that 62% of Americans had less than $1,000 in their savings accounts. Clearly, we have trouble with financial habits. 

photo/ Public domain pictures via Pixabay

photo/ Public domain pictures via Pixabay

And, if you start a budget, it’s not hard to see where money goes. The average working American spends $2,625 on eating out, $1,604 on apparel, $2,572 on entertainment, and $1,092 on coffee per year based on multiple studies, the average Californian pays slightly more, as local costs are higher than average. That’s a lot when you consider that most of those are unnecessary expenses. Simply changing the financial habits around saving, eating out, and impulse shopping could literally save you over $7,000 per year if your spending fits into the ‘average’. 

Using Good Financial Habits to Save Money 

No matter what you want to save money for, it starts with good financial habits. Building them can take time, and discipline, but you will quickly see your hard work pay off as cash adds up in your bank account. 

Savings Account – Set up an automatic savings account. Budget your funds, and decide in advance how much of your monthly paycheck you can afford to automatically deduct, and then set it up to do so automatically. Whether it’s $100 a month, or $800, you will quickly see money adding up. $100 a month is $1,200 a year, and $400 a month is $4,800 a year. Not everyone can save that much, but it does add up, and quickly. Plus, even a modest savings is better than none at all.

Cut Frivolous Expenses, and Save It – If you decide to cut eating out and coffee except for once a month and you’re suddenly saving $3,000 a year, don’t direct it into something else, save it. You can start out in a small way. Every time you decide to skip eating out for lunch or buying a cup of coffee on the go, try deciding how much you would have spent and put it into a savings jar. 

If You Have Bills, Scrimp to Pay Them Off – You should consolidate your debt where possible, and if you have smaller debts, like a small amount of money on one credit card, scrimp to pay that off as quickly as possible. Eating ramen and macaroni for 6 months, with no luxuries whatsoever might not seem very appealing, but when you can turn around and dump that money into a large credit card payment to reduce your overall debt and bills, it will pay off. Just make sure you treat yourself on occasion so you have something to look forward to. How much could you save? Based on ‘average expenses’, scrimping on eating out, beverages, bar visits, and impulse shopping could save you $250-$400 per month, that’s $2,500-$5,000 per year, without including cutting costs in other places.

Think Before You Buy – Instituting a one-week research rule before you can buy something will help you to cut down on impulse purchases. It will also allow you to research, find the best bargain, and make sure that you really need the item you’re buying. You can also plan your purchases well in advance based around end of season sales.

Your financial habits affect your expenses a great deal. Most Californians think nothing of spending $10 a day on food, snacks, and small impulse buys, but that adds up to $300 a month, and $2,500 a year if you subtract days when you’re more likely to be home. Creating simple habits based around making your own meals and beverages for work, skipping luxuries that you don’t need, and planning your spending can save you thousands a year. You can then direct that money into a savings account, and watch the dollars add up.

Author: Anwar Hussain

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  1. How Is It Important To Eat Healthy | Restore Good Health Lost says:

    […] Why It’s Important to Change Financial Habits – Habits, whether going to the gym, eating healthy, or learning to read for an hour before bed instead of watching television, or saving money, are difficult to change and stick to. For that reason, many people try to put of … […]

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