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6 Essential Money Habits for Success

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Whenever I’m interviewed, one of the questions that inevitably comes up is “What’s your best advice for success with money?” or “What are 3 things you’d tell people just starting out?” or something to that effect. Basically, what’s the secret to being good with money?

I recently became fascinated with Leo Babauta’s new project, The Habit Course. In his introductory webinar and subsequent post on the myth of discipline, Leo discusses why a lot of what determines our success with our goals is the kinds of habits we create, or if we create any at all:

“When people talk about wanting discipline in their lives, they usually mean they want to be more consistent at something. Maybe that’s exercise, or meditation, or writing, or some other creative activity, or finances, or eating, or productivity at work. These are all doable without the concept of discipline. What you want is to build habits instead.”

I was most intrigued with the concept of triggers leading to habits–in other words, finding an action you do every day and making it a precursor to performing a habit you’d like to start.

Last week, I began doing this by creating a simple morning routine–taking a 15 minute walk with our dog every time my son would wake up and get milk. It’s become milk-walk, milk-walk, milk-walk, and the short stroll is so easy I can’t say “no.” In fact, it already feels like an ingrained part of my morning, like the day doesn’t feel right if I don’t do it.

I considered how I would apply the same concept to our money–what habits are necessary to have in order to achieve the financial goals most people want (more savings, less debt, travel, buying homes, retirement, etc…)?

I thought of six, so essential that removing them from consistent use would almost certainly make the road to financial nirvana more difficult. These are six simple, yet critical habits that must be cultivated and repeated as often as necessary until they’re part of how we deal with our money. The six are:

#1: A regular “review” routine.

Creating a routine that involves daily, weekly, monthly, and yearly reviews is a critical step in mastering money habits. Each lenth of time looks at different levels of detail, so it’s critical that each one is treated with the same level of care and attention.

How do you get started? First, define what you plan to do during each review, a kind of checklist you’ll use to get started and that will eventually become something you remember by heart. Some ideas for tasks can be found in my post on tracking your spending. Think of different perspectives–short-term, long-term, and what kinds of things you’d like to get feedback on at each step.

In terms of dealing directly with your money, this is the most important habit. It will pay your bills, track your spending, chart your net worth, and set goals for the coming year. It is both a habit of management and leadership–doing the daily chores required to keep your money on track and the long-term planning to define the track.

#2: Meet with all stakeholders regularly.

One of the primary ways my wife and I communicate about finances in our relationship is the monthly money meeting. We do this because our daily money interactions aren’t focused on long-term goals, net worths, or big-picture spending, nor would it be possible for them to be. Such a review is only realistic at the monthly level and with some prior preparation on my part.

My wife is one example, since our money doesn’t really impact people outside our relationship. For others, examples of regular stakeholder review could include family meetings to discuss allowances or agreed-upon goals for older kids, meetings with a sibling or parent that lives in your house to discuss the month’s rent and utilities, or a sit-down (or phone call) with a son who’s in college to review their expenses and tuition payments.

You get the idea…keep everyone in the loop as much as possible and you won’t have to point fingers when things don’t go the way you planned.

#3: Invest in “Quadrant II” activities.

Diet gurus and finance experts alike understand that choking off allowances for fun things might eventually lead to budget (or diet) failure out of resentment, so they make sure their clients are splurging a little in a controlled manner.

Extending this concept, I think we should be investing a percentage of our money in things Stephen Covey once defined as “Quadrant II” or “PC” activities–things that are important but not urgent, and things that increase “production capacity”–the ability for us, our things, or our relationships to keep producing whatever it is we want.

Examples of such investment are abundant, but might include:

  • Remembering to take your car in for an oil change when due and not skimping out on recommended maintenance because of added cost.
  • Investing in an exercise ball and some free weights to make working out an easier part of our daily routine.
  • Taking dancing lessons to spend one-on-one time with our spouses, develop rhythym and get some exercise, and to become open to learning things we may not be completely comfortable with.

There’s no set rule of thumb for how much is appropriate to spend on production capacity, but for whatever reason we try to use an 80/20 ratio whenever possible–80% is spent on making things happen, and 20% is spent on ensuring those things can continue to happen.

#4: Review your habits and spending with a frugal lens.

Every expense you make or habit you have is a potential area where money could be leaking without much control. This is true for expenses of any size, but especially with small, frequently recurring things that may seem like no big deal at checkout. This is how the infamous “Latte factor” came into being.

Looking at your spending from many different angles (long-term by month or year, by vendor, by category, by subcategory, by perceived level of necessity, etc.) can yield insights not available at the day-to-day level or even during your standard money review.

A lot of this behavior has to do with habits, but the bad kind. We may drive to get coffee when we’re upset, forget to cook dinner when we work late, or come home with new video games when we hit the mall with our buddies. After identifying the spending problem, the next key is typically identifying the trigger that causes it and trying to replace spending with something less damaging to our financial health.

#5: Make small, consistent progress toward your goals.

While it’s important to have ambitious goals, we tend to get lost in things that are too big for us to wrap our heads around or too far into the future. Money “planning” is done on a very broad scale; money “achieving” is done at the uber-micro level: tiny, everyday steps of progress that don’t seem to move us anywhere, but they do.

One of the habits I try to quantify and set up whenever I can is small, regular progress toward larger goals. A lot of this is done on an automatic level–withdrawals into savings or investment accounts, or for required monthly bills.

But there are many that can become habits we need to execute daily. For example, after our spending review revealed a lot of our discretionary spending was going to eating lunch at work every day, I realized I needed to start brown-bagging it to work.

That required me to create a habit of making lunch for myself every morning–a relatively meaningless task that lacks any immediate positive reinforecement, but the compounding effect of preparing that lunch every single day is huge on our checkbook at the end of the month, and as a result on our long-term goals.

#6: Help someone with time or money.

Lastly, I think it’s important that we take the time and commit the resources, if at all possible, to helping others. The first step is defining exactly what that means to you–whether it’s volunteering at a food bank on Saturdays, giving money to the Red Cross once a month, buying groceries for a sick family member, or something completely different or unique.

Using money and time for a purpose creates perspective that goes beyond ourselves and our immediate family; it gives it greater meaning. The ability to give a part of what we have affects the lives of others in a positive way, and creates good karma all around.

What’s your habit?

If you had to add one habit that’s made you successful with your money, what would it be? Share yours in the comments below the post!


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