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Financial Habits

“We are what we repeatedly do.” ~ Aristotle

 

I am obsessed (at the moment) with habits – understanding them, creating them, breaking them, and using them to fuel my success. The Power of Habit (Charles Duhigg), Mini-Habits (Stephen Guise), and The Compound Effect (Darren Hardy) all have provided the impetus for this fascination with the powerful psychology of habits. Brian Johnson (optimize.me) and his Habits 101 (and nearly every course he teaches) succinctly and powerfully present the background and the practical wisdom for helping you identify and refine your habits.

 

In the course of actively creating new habits, it occurred to me that all of our interactions with money are likely running on habit – some of those are propelling us toward our goals (auto-saving to our 401k) and some are getting in the way (eating lunch out every time I work in the office.) Today as you go about your day habitually doing the things you do, try to be in the moment when you pull out your wallet or credit card and identify if what you are doing is habitual or consciously-chosen.

 

“Habit is a cable; we weave a thread of it each day, and at last we cannot break it.” ~ Horace Mann

 

To take it a step further, try to identify all of your financial habits and then classify them as either moving you toward your goals and dreams or pulling you away from them. This one exercise will prove very enlightening. Knowledge is power and once you have the knowledge, it is within your power to take action to break a bad habit, build a better habit, or create a new habit. Duhigg has some great resources on his website and the book is filled with great info – check your library as I’ll bet they have a copy (I was able to download one to my Kindle).

 

The real power, though, is in following Guise’s Mini-Habits advice (or as Martha Beck would say, “taking turtle steps”). Stupid small behaviors are so ridiculously easy to do that you can’t fail. His example was his workout plan of one pushup a day. So easy – why wouldn’t he do it? Boom, 3 seconds, and he has a win! What could your “stupid small” financial habit be?

 

“It’s not the big things that add up in the end; it’s the hundreds, thousands, or millions of little things that separate the ordinary from the extraordinary.” 
~ Darren Hardy, The Compound Effect: Jumpstart Your Income, Your Life, Your Success

 

Identify your habits; decide which you want to keep and which you want to ditch; replace a bad habit with an empowering habit; make it stupid small; make it a habit; win every day.

 

To your financial (habits that lead to) success!

Tana

 

Disclaimer: The views expressed herein are the personal views of Tana Gildea and are not to be construed as individual advice or the advice or opinions of Homrich Berg; They should not be considered recommendations as each person’s financial situation is unique to her; they may or may not apply to your situation. If you believe that something communicated may be relevant to your situation, Tana strongly encourages you to consult with your individual tax or financial advisor prior to taking action so that the totality of your unique situation is considered.

Savings FAQs

I get asked a lot of questions about savings so I thought I would answer them for everyone.
The number one question I am asked when I speak to groups – both from the group and as people come up to me afterward is “how much should I be saving?” My stock answer of “it depends” still applies! Everything always depends on your situation but here are some ideas.
Think about the 50/30/20 plan.

• 50% of your take-home pay goes toward your living expenses.
• 30% goes to wants, and
• 20% goes to savings. (I would break that up to 10% long-term financial freedom (aka your 401k) and 10% to short-term savings).

You can also think about reversing those numbers and doing 20% to wants and 30% to savings. In this model, the other 10% may be going toward a longer-term goal like buying a house, saving for children’s college, or starting a business. Of course, if you are making a very minimal salary, your living cost may be eating up more than 50% of your take-home pay. In that case, you really need to keep your wants small and make sure you are hitting that savings number. One of the best ways to create financial stability is through saving and that takes some short-term sacrifices.

As your income increases, try increasing your percentage to move from 20% to savings up to 30% to savings. Inch the percentage going to your 401k until you are maxing out the contribution. For 2017, it is $18,000 for those under 50 and an additional $6,000 catch-up for those over 50.
How much of my savings should I keep in cash (money market)? A lot of this depends on the number that makes you feel safe. At a minimum, you should keep 3 months of your living expenses in a money market savings account. If you want to take the other 3 months of expenses and put it in a 3 month CD, you can earn a bit more interest but you cannot take investment risk with this part of your savings. Once you have 6 months, you can start a fund for investing the savings above the 6-month level.

Should I pay off debt instead of saving? Generally, I would say no. Saving really needs to be a part of your cash flow plan both for the long-term (401k/IRA) and short-term. This is the area where you can think about that “30% to wants” category and cut that down in the short-term to focus on debt if you have credit cards or student loans. You can never get the time back for missed savings, though, so make savings priority one.

What if I don’t have the ability to save 20% right now? Make a plan! Often the cost of living increases faster than our income. My cell phone bill is more than my first car payment! Insurance is through the roof for everything. Kids are expensive! Look for small ways to save. Small amounts add up. Every time you are ready to click buy or throw something in the cart, ask yourself if you can do without that and put the money in savings instead. (It’s super easy on your bank app!) Five dollars at a time will add up and it’s better than nothing. Go through your expenses and look for ways to trim – can you cut that TV package back one level and send that money to savings? Gym membership? All the little 1.99/mo apps? Even moving the coupon savings from the grocery store each week to your savings is something. Do it right when you leave the store so you make it happen.

I hope these FAQs help answer some of your questions about savings.

To your financial success!

Tana