Does it mean that with a higher income, you will not struggle with financial debts, you will achieve your financial goals, and you will experience financial peace of mind? 

Not necessarily.

A higher income only provides the possibility of achieving financial peace of mind. Effective financial habits guarantee the reality of realising it.

The Covid19 pandemic has layered additional stress on an often-unspoken part of our lives – personal finances.  We are constantly hammered with news about businesses shutting down, unemployment and inflation rates creeping up.  Some of us struggle to meet our financial commitments.  Others are concerned about losing their income totally.

The solution that many look for is to source more money to appease these financial concerns.  Some look at negotiating for higher incomes while others look to create new avenues of income.  These solutions, while logical, begs a question.

How will the new income be managed?

If it is managed in the same way as prior to the pandemic, the new income may just be a short-term band-aid solution.  The solution needs to treat the problem and not the symptom.  The solution is to manage the new income differently with effective financial habits.

In the book, “Millionaire Next Door” by Thomas J Stanley & William D Danko, the authors interviewed first-generation millionaires.  The authors reveal interesting characteristics of these millionaires. One stands out. The millionaires are frugal. The millionaires have effective spending habits.

What are habits? According to Charles Duhigg, in his book, ‘The Power of Habits’, it is a choice that we deliberately make at some point, and then stop thinking about, but continue doing, often every day. In other words, a habit is a routine or behaviour pattern.  Some habits like brushing of teeth and washing of hands have become so routine that is done almost automatically without us even thinking about it.  An effective habit is a set of actions that are performed in a consistent and regular basis to deliver a sustainable positive outcome. 

How then can we start a new financial habit? More specifically, a new spending habit?
To start and maintain an effective habit, one needs to follow a four-step process.

“You’ll never change your life until you change something you do daily.
The secret to your success is found in your daily routine.”
~John C. Maxwell

Step One – Self-Awareness

The first step requires us to ask ourselves, “Why is this habit important? How will this habit benefit me? How will I be when I maintain this habit?”  Answer honestly.  If you desire to manage your finances more effectively, then you need to be clear about why it is important to start the habit now and what benefits you will enjoy when you do so.

Armed with the clarity of why you want to start the habit, draw a plan of action that includes when you will start and how you will track this habit.

Identify in your plan, the distracters and how to manage them.  Examples of distractors are online advertisements and sales promotions.  Do you spend more money because of these distractors?  Distracters are like Superman’s kryptonite.  They weaken you.  Identify and remove them completely! 

Step Two – Self-Motivation

This step looks at how to sustain motivation.  Visualise what you will do and how you will feel when you successfully start your first action.  Spend 30 seconds when you wake up and 30 seconds before you sleep to do this. Your new powerful life deserves one minute of your mind time.

Step Three – Action, Action, Action

Take the first small step.  Your first step should be a relatively easy one.  Start by tracking your daily spending habits.  Use a mobile app to track your daily spending.

Ensure your key in every expenditure, immediately.  Be it for meals, shopping, entertainment, transportation, utilities, or health & fitness activities.  Do this for 30 days to trace your spending pattern.

Observe your patterns.  Reflect on the pattern.  Ask yourself questions like, “Do I need to spend this money?”  “Are there alternate options?”  “When can I use these options?”  “How can I make spending harder for myself?”  “Should I set limits for my debit cards and cashless payments?”  “Should I cut my credit cards?”

Repeat this daily tracking actions and reflections for 60 days.  This will give you a broader pattern of your spending behaviour.

Step Four – Reward Yourself

Starting a meaningful effective habit is never easy.  That is why we need to reward ourselves when we are on the right track.  A reward can be a pat on your back.  An honest conversation with the person in the mirror to say how proud you are.  It could be sharing your feat with a loved one, to get more positive reinforcement. 

Make the reward meaningful.  When you manage to save money, treat yourself to a meaningful gift.  Buy yourself a book on investment or enrol in a class to widen your financial knowledge.  Have fun in the process.  Don’t make acting on a habit feel like a miserable chore.

Be Careful!

Do not swing the other way.  Just because you have saved money, do not splurge on expensive gifts that you can’t afford.  Your reward should not wash away your efforts.  In fact, it should catapult you to the next level.

Success is about repeating a process that works.

Repeating this will allow you to experience your potential power within. Mirror the four-step process diligently to other financial habits. Habits like:
• Recording and tracking your monthly expenses,
• Increasing your monthly savings,
• Increasing the value of your savings and increasing your income. 

If you are feeling stressed about your financial future, start by organising your personal finances. Choose to start an effective habit.  Start by tracking your daily spending.  Then inculcate additional effective financial habits to your life.  These steps will lead you to protect and strengthen your personal financial fitness and help you experience financial well-being.

Don’t you think you owe it yourself?