When I first started driving, seat belts were optional. My parents never used them (I’m not even sure they had any in the car), so neither did I.
But when my daughter was about five and I’d clicked her into her seat, she reminded me to put on my seat belt. From that moment on, I decided that I had to show her that it was an important habit for both of us.
Habits come from what we think of as “normal”—what we’ve witnessed or heard and then believed to be correct. We lean into our comfort zone and pull away from that which makes us uncomfortable. We’re human, it’s what we do.
You might already have great money habits if you had lots of examples to learn from growing up. But even those of us who had less than stellar examples can build positive money habits—by becoming more aware of our finances and learning to make the best decisions possible in each situation.
It doesn’t have to be tough or even complicated. You can create and establish meaningful money habits by examining each area of your money life and taking small steps that bring you closer to your ideal.
Let’s say for example that you want to buy a car. In the past, you might have made the decision without examining the details of its financial impact. Maybe that was what your parents did and has become a habit for you. To make decisions that are more thorough, there are some questions that you’d want to consider before proceeding with the transaction:
1. Will you pay cash or finance the cost? Where will the money come from? What impact will using that money for a new car have on your overall financial picture, e.g. will you have to dip into your long-term savings or decimate your emergency fund?
2. If you’re financing, how much of a down payment will you make? What is the best rate available and for how many years? What monthly payment can you afford?
3. Will your new car add to your monthly fuel cost or lower it? By how much?
4. How will your auto insurance premiums be affected—and are you getting competitive rates from your current insurance carrier?
5. Should you adjust the deductible and/or coverage for the new vehicle?
6. What does your warranty cover and what out of pocket maintenance and repair costs do you expect over the next several years?
Just the seemingly simple decision to buy a car forces you to look at its impact on your finances from multiple angles: cash flow (present and future), savings, debt and risk management.
Looking at your past habits vs new more insightful habits, you will make better decisions in which you will have greater confidence and control.
After conducting your analysis, you might decide that you can’t afford a new car right now, but you’d like to buy within the next year. You might choose to build a new money habit by setting aside what would have been your monthly car payment so that you’ll have a heftier down payment when you’re ready to buy.
By asking yourself some simple questions on the front end, you begin to wire new thought processes when making financial decisions. New thought processes will lead to new habits. You already do this for lots of other things in your life, from taking a road trip, to deciding to learn a new skill.
Think of all the money-based decisions you need to make in order to live with more comfort and ease and apply the steps outlined here.
It will start driving the right money habits in your life.