Our relationship with money — how we treat it, the habits we adopt, and how well we manage wealth — is something that builds and shapes over time, often unconsciously. Children learn about money and how to use it through their parents. Small comments that we don’t consciously think about have an impact on our financial health years down the road.
Unfortunately for us, our financial habits aren’t always good. Whether our parents lacked wealth management skills or we’ve fallen prey to stress and anxiety around money, these poor money skills ultimately impact our effectiveness and capability of building long-term wealth.
If you find yourself wrapped up in these bad money habits, how can you hope to successfully invest? How can you find true wealth?
In short, you can’t. We have to unlearn and reshape our bad financial habits if we hope to achieve financial success in any real way. Here’s how you can replace bad habits with good money management skills.
5 Steps to Changing Your Bad Money Habits for Good
Recognize your financial dysfunction.
As with the stages of grief, the first stage of transforming your money management issues is admitting them and identifying them. Once you recognize that a certain financial habit is negatively impacting your life, you can muster the resolve and will to change it. If we remain blissfully unaware of why we struggle with money (often blaming external factors) we will never be able to break free of the negative cycles that erode wealth.
So what’s your financial pitfall? Maybe you’re prone to impulse spending. Perhaps you treat your credit card as free money. You spend your whole paycheck or you’re waiting to invest until your bank account hits six full figures.
Bad money habits don’t have to devastate your bank account in the present to be bad. They can have long-term implications for growing your wealth.
So start with recognizing the behaviors and mental pathways that lead you to feel a certain way about spending, saving, investing, and treating your money. Once you see this habit clearly, write down why it has to change. What negative effects does it have on your life? And, ultimately, what do you want to be doing instead?
Be sure to check out: Wealth-Building Habits That Don't Cost a Dime!
Start with a budget and a plan for the future.
One of the biggest issues we have with money management is a “wing it” mentality. We don’t plan for how we will spend and save. We especially don’t think about building real wealth or investing. You can change this problem — including the impulse to spend using the money you should be saving or money you don’t have — by budgeting.
Sit down with your finances and comb over your last few months of spending. Where does your money tend to go? Where would you like it to go? This will help you recognize your pitfalls and where you can better manage and save your money. It helps us to be goal-oriented with our finances. When we have something to work towards, we are less likely to waste what we have.
Identify your triggers.
We all have a “trigger” regarding our finances. These are the circumstances or feelings that lead us to make poor decisions with our money. Your trigger could be stress, a false sense of security from a fresh paycheck, strong emotions, or false hopes (like gambling to get rich quick). What causes you to spend unnecessarily?
Think through your feelings and the times where you are most tempted to spend impulsively. Recognizing these momentary weaknesses for what they are can help you choose healthy, low-cost or no-cost outlets.
Look to a money mentor.
Everyone can benefit from a positive example in their lives, no matter your age or circumstances. Who has a healthy financial life built on a good foundation? Who do you admire financially? This isn’t about who has the most money, but rather, who is content because they have managed their wealth well.
These are the people you want to look to. It might be someone you know personally, but it could also be someone whose book or podcast you can pick up. Look to them for new strategies and habits to improve your financial health.
Stop avoiding money conversations.
One big reason for our lack of financial savvy and the development of bad money habits is our unwillingness to hold honest conversations about money. Maybe it’s the parent who never taught you how to manage money well. Maybe you would rather ignore the reality of your finances in order to maintain a false sense of security. Maybe you want to avoid conflict with your partner.
Regardless of the reason, avoidance when it comes to our money never leads to success. If we want to develop better money management habits, we’ve got to start talking about money in real, honest ways — even when it’s uncomfortable.
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