Which Financial Habits Will Help You The Most?
One of the many keys to effectively changing your life is prioritization. Everyone has limited resources, whether those resources are time, money, or energy. Since you’re likely limited by your time and energy, it only makes sense to focus your resources on creating those financial habits that will have the biggest impact on your situation.
Try this process to focus on your most important new habit:
1. Where are you feeling the most pain in your financial life? What keeps you up late at night? Is it the lack of savings? A non-existent emergency fund? Too little income to pay your bills each month? A bleak retirement future?
Addressing the most stressful financial challenge in your life can be an effective place to start.
2. Which new habit would have the biggest impact on your finances? Knowing that you need to work on your savings doesn’t necessarily highlight the optimal habit to adopt. Consider the impact each potential new habit would bring to your life. Many people focus on motivation but that goes up and down. I often encourage individuals to identify their why of setting goals. For example, you may have a goal to save $1,000 in 3 months so you will not lean on credit cards. If someone focused on motivation alone, they would only work on their goals when they felt like it. Don’t let that be you.
Make a list of all the potential habits you could build that are related to your target financial concern.
Prioritize your list based on the likely outcome from incorporating that habit into your life. Eliminate the bottom 80%.
Reexamine the 20% that remain. Visualize the impact each of the remaining possibilities will have down the road 1 month, 6 months, 12 months, and 5 years down the road. How will the habit impact your life 25 years from now?
Choose the habit that makes the most sense after carefully considering the future. If you’re torn between 2 or more habits, consider which would be the easiest to implement. Never underestimate the power of momentum. You can swing back around and pick up the other habits in the near future. Give yourself credit for what you are learning along the way. Keep in mind the more you work at something, you are crafting that skill.
3. Seek to be average at first. Bring all the parts of your personal finances up to an average level before attempting to be a high achiever. The worst aspects of your financial life are causing your greatest financial discomfort.
In other words, eliminate consumer debt, have an emergency fund, save at least 10% of your income, have adequate insurance, and be consistently saving for retirement before worrying about the purchase of a vacation home or the installation of a swimming pool. There are no hard rules to follow, you start with what you can handle at this time. For example, if you can’t save 10% of your income, save something consistently each paycheck even it is just $10. Consistency will build the habits over time and you will be able to add to your savings.
If your habit doesn’t address a fundamental, personal finance issue, be certain your target habit is in your best interest.
On a 1 to 10 scale, bring each part of your finances up to a “5” before attempting anything on a grander scale.
4. Do you have what you need to put the habit into place? If not, can you get what you need or start small enough that the habit is viable? If you’re 75lbs overweight and spend every evening on the couch, you’d have to start small if your desired habit was to run 10 miles each day. You’d need running shoes, too.
Some financial habits might require you to gain a significant amount of knowledge or have a starting point that is currently beyond your reach.
Determine if the habit is possible with your available resources and expertise. It’s possible another goal might be more appropriate.
Time is a limiting factor for everyone, and there are only so many hours that can be applied to building and performing a new financial habit. Ensure you’re spending your time wisely and effectively. The most important habits are often the least appealing. Focus on positive habits to best enhance your finances.
I often encourage clients to focus on what stands out for them the most. For example, after reading the article, there may have been one or two new nuggets that stood out for you, start there. Remember to start small and congratulate yourself often with the small steps you are choosing to make. Over time you will be happy with the strides you have made by taking that first small step. Yes, small steps count. I am cheering for your success.
For more guidance, make sure to subscribe to the YouTube channel and the monthly newsletter. In addition, if you need more one on one help you can schedule a discovery call to see how Empower, Money, Balance can help you.
