Money habits: The small changes that add up to massive savings

Building better habits could be the key to financial success.

Building better habits could be the key to financial success. Photo: Getty

If you think willpower is the only way to curb your spending and boost your savings, then think again.

Forming strong money habits – those small daily or weekly actions that become so ingrained you don’t even think about them – is what will help you reach your financial goals.

Habits are different to behaviours

Dr Gina Cleo, who has a PhD in habit change, said habits are automatic and performed without intentional thinking, like putting on our seatbelt in the car or buying a coffee on the way into the office.

Behaviours, on the other hand, are conscious decisions, like what to cook for dinner or what is the best route to travel somewhere.

“The key thing about habits is that they’re always triggered by something else,” Dr Cleo said.

“So although putting on a seatbelt is the habit, it’s triggered by sitting in the car.”

Identify the trigger

Dr Cleo said when you are forming new habits you need to consider how you can trigger those habits.

Triggers can be a time of day, a particular place, the people we are with, or what we have just done beforehand.

For example, you could check your mobile bank app each day while you drink your morning coffee at the kitchen table.

Or you could move a set amount of money into your savings as soon as you spot your wage drop into your bank account at the same time each week.

“The trigger is getting paid and the habit is moving money into savings,” Dr Cleo said.

How long does it take?

Dr Cleo said it can take anywhere from between 18 and 254 days to form or break a habit, with the average time being 66 days.

She said the complexity of the habit and your personality will influence how long it takes to form or break a habit.

Consistency over intensity

Dr Cleo said the best way to stick with a habit is to focus on consistency rather than intensity, because small actions are still forming neural pathways in the brain that help you continue a habit.

“The trick with it (if you’re feeling unmotivated) is to do as little as you can, but to still do something,” she said.

“Taking small, consistent steps is the key to habit formation.”

Be accountable

Hard Line Wealth partner Cody Harmon said having an accountability buddy was a great way to stay on track with your money habits.

“Research shows people are able to more successfully follow a cash flow plan if there is some accountability there and they are on the hook a bit,” he said.

“It is just like a social contract with a friend; if you have said you will do something you are more likely to follow through.”

Mental money habits

Mr Harmon said a good mental money habit is to start to divide the expected life of the item or service you want by its cost.

He said this will give you a clearer picture of its true value for money.

“When you are purchasing things it’s not just about price, it’s about quality,” he said.

For example, you could buy a high-end dishwasher on sale that will last 15 years, or a cheap one that costs one-third of the price that will break in five years, Mr Harmon said.

“It (the more expensive dishwasher) lasts three times as long, it’s a better quality product from the start – [so] what item is truly cheaper?”

Don’t forget to automate

Mr Harmon said while habits are valuable, automating your cash flow should be the first step in controlling your finances.

That way, there is no friction between paying your bills on time and regularly saving.

“The most important thing is building an automated cash flow solution that works without you getting involved,” he said.

Habits to build

  • As you unpack your groceries, write the cost of each item on its container so you think twice about food wastage. Every time you clean out your fridge and throw away food you will literally see your money going into the bin. This should encourage you to eat what you have, rather than buying more
  • At the same time every week, sit down and review your banking app, making note of how much you have spent on variable expenses like food, going out and clothing. This way you can catch any areas where your spending has started to creep up before it gets out of control
  • Decide how much you will spend on variable expenses each week. Then, at the end of each week, say every Sunday night, transfer any unspent cash allocated to variable expenses into your savings account so you won’t be tempted to mindlessly spend it. These savings should be on top of your automated savings.

Habits to break

  • Online shopping when you’re bored can be very expensive. To help break this habit, you can plan an activity to do next time you’re tempted to online shop, like reading a book or watching a TV series. Unsubscribe to any emails you have signed up for from brands you tend to binge on, and unfollow them on social media so you cannot be tempted by sales or special offers.
  • Late fees on bills can really add up, so allocate a specific time every week to open and pay your bills.
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