Ah, the sweet smell of financial freedom. The kind of freedom that forever banishes the bank account balance scaries. The kind where the paycheck hits and actually lasts until it’s time for the next one (and then some). We’ve all made a few money moves that we’re not stoked about (hey, we’re only human). But developing these healthy financial habits can help move you toward the warm glow of economic peace-of-mind no matter where you are on your financial wellness journey.
The psychology of developing healthy financial habits
It wasn’t until after college that I decided to make my bed every morning. Unfortunately, the first attempt failed pretty miserably. After a week of diligent daily bed-making, I woke up later than usual and left the sheets tangled together in a heap of failure as I hurried out the door.
That’s the thing about forming a new habit; it’s common for people to slip up a few times along the way. It all comes down to basal ganglia—a neat little structure in your brain that aids with voluntary movements and supports habit formation (good and bad) through repetition.
In other words, even if you don’t perfectly execute your new goal initially, keep going—your brain is still practicing, learning how to make the habit stick.
So, I started setting my alarm to go off five minutes earlier, and after a few more months of (mostly) sticking to it, making my bed each morning became as second nature as brushing my teeth. According to neuroscientists at MIT, my basal ganglia fired enough times before and after going through the motions of making my bed. Even when I wake up thinking about a million things besides making the bed, my basal ganglia fires on autopilot to remind me.
You can take advantage of the habit-forming structures of your brain to develop healthy habits for your finances, too! One famous study suggests adopting healthy new habits may take just 66 days. If you think about it in the long run, that’s nothing compared to a lifetime of financial freedom!
Healthy habits to fast-track financial freedom
Take inventory of your finances
The first step to developing healthy financial habits is getting honest with yourself about what your bank accounts look like (and it’s not all that bad—in fact, it feels empowering!)
It’s totally normal to feel anxious the first time you go through your account statements, so here are some tips to push through that initial wall of anxiety:
- Check your finances when you feel most ready. Aka, don’t check your credit card as you’re trying to fall asleep at night, or start building a savings plan when you’re procrastinating that big assignment. Find 5-15 minutes to “open the books” and focus on your money (it’s like setting your alarm clock 5 minutes early to make your bed!).
- Put your sympathetic nervous system (the one that fuels anxiety) at ease by spending a few minutes taking deep, mindful, controlled breaths.
- Observe the information in your statements without judgment or emotion. What’s already spent, is spent. But this information can turn into tangible goals to set for yourself.
- Remind yourself that you’re making progress just by taking the time to look in the first place. Remember, your brain needs time to turn this into a habit!
Review your spending and saving habits
Start by sitting down at regular intervals to scan your bank statements and search for opportunities to cut back and save. Start with low-hanging fruit such as:
- Subscriptions you don’t need or unused memberships
- Restaurants and dining
- Online shopping
- Look for less expensive alternatives (i.e., working out at home vs. the premium exercise class)
After enough time, you’ll become more comfortable taking inventory of your spending, and your anxiety about it will begin to subside. Find the cadence that works best for you. Initially, you might want to do it for a few minutes daily. Eventually, you might graduate to doing it less frequently, like once a week or every time you get paid. But take your time getting to that point.
Make savings goals
Once you take inventory of your spending and see all the opportunities for smarter spending, you’ll have extra money available to save. Suddenly it becomes a lot more realistic to boost your savings account. The next healthy financial habit is setting savings goals for all that extra cash.
Start by setting a goal for an emergency fund. Even if you save a tiny amount each month, you’ll be amazed at how quickly it accumulates over time. And when life throws a wrench in your plans (let’s be real, life has a lot of wrenches), you’ll be grateful that you built a financial cushion to fall back on. Experts recommend having 3-6 months of expenses in your savings account, but $1,000 is a good place to start.
Once you’ve got the emergency fund in motion, you can make savings goals for things you want—the things that bring you joy and fulfillment. Whether it’s an upcoming vacation, a new car, or moving to your dream city, it’s important to include room in your budget for things you value. Then, with the right plan in place, you can make it happen.
Create a budget
Like many, you might see budgeting as a restrictive financial habit, one that took something away from your day-to-day joy.
But your budget should also cover the fun stuff. This will also help you feel less guilty about it when you spend on it. Budgeting takes on a whole new meaning when you start stressing less about money because it takes all the guesswork out of making ends meet and still having fun.
There are many different methods for budgeting, but Julep recommends sticking to the 50/30/20 method, which allows you to budget 30% of your income for things like restaurants and entertainment. Who said you can’t be financially responsible and still have fun?!
Parting with your hard-earned money is hard enough, but when you have nothing to show for it right away? Well, that’s just downright difficult.
But don’t beat yourself up if the sound of investing gives you anxiety—blame your brain (and then retrain it with a healthy habit!) Our brains are wired to want immediate feedback and to protect and conserve resources. While these biases certainly helped our ancestors survive long winters and avoid wasting valuable resources, they don’t always serve us when it comes to healthy financial choices.
So, thank your brain for trying to protect you and feed it more information about investing. Soon enough, your brain will get on board as it sees that investing is the key to long-term financial longevity.
For most people, investment accounts will fall into one of two main buckets:
- Retirement accounts – a retirement account, such as a Roth IRA or a 401k, allows you to grow your savings in a tax-free investment account that you can start drawing upon when you retire.
- Brokerage accounts – brokerage accounts are your gateway to playing the stock market. It will allow you to invest in stocks and mutual funds.
Check your progress regularly
Make a habit of celebrating successes and rewiring your brain when things aren’t working for you. Did you hit that monthly savings goal? Heck yes! Do something special to acknowledge your achievement. Accidentally overspent on lattes last month? Shake it off, reassess your coffee budget, and recommit to making your coffee at home a few more times next month.
Review your monthly bank statements or daily transactions to find creative ways to cut spending. Once you start developing good money habits, the bad ones will naturally fall by the wayside!
Financial stress is all too common, and it can sometimes be challenging to see a path to financial freedom and security — especially when you go at it alone. But change and growth are possible, and it’s important to remember that even small behavior changes can significantly improve your financial and mental well-being.
Julep is not a financial institution, financial advisor, or credit repair company, and does not provide credit repair services of any kind. The information provided is for general educational and reference purposes only. The information is not intended to provide legal, tax, or financial advice. We do not propose any guarantee that the information provided will repair or improve your financial profile. Consult the services of a competent licensed professional when You need financial assistance.