What are your financial habits?

During the last few years of marriage and transferring from one country to the next, I developed a few habits of my own that you might be able to relate to:

#1: Think long and hard before purchasing what is not immediately consumed. (Having to relocate internationally every few months to 2-3 years stops you from accumulating physical things.)

#2: Check exchange rates all the time. (We are paid in US dollars while spending in other currencies.)

#3: Buy things in small quantities. (When you know you need to move in 10 months, you can’t buy a gallon of olive oil and expect to finish it.)

#4: Login to all of our online accounts once a month and track our net worth. (When I first quit my job to follow my husband, the mental burden of being a cost-center instead of profit-center pushed me to be very aware of our finances.)

#5: Not sparing expenses on traveling! (This is the main perk of living overseas! We will not skip a trip because it would save us money.)

#6: Make a lot of meals at home. (Not that we are cost conscious. It’s more because we couldn’t get the food locally to cure our homesickness.)

My list can go pretty long. Whether we are aware of it or not, we possess and develop new financial habits all the time- some are good and some not so much. You can be in the habit of “doing” something, or in the habit of “not doing” something. They form the basis of how we make financial decisions.

As human beings, we tend to migrate toward some kind of routine over time because of our limited brainpower to make every single decision like it’s the first time we’ve had to tackle it. Just imagine, if you had to reconsider which brand of cereal to buy from the 100 different selections available to you on the isle every time you walk into the store, you would soon get too overwhelmed. So we develop some criteria, or a system, to decide faster – the ones that are on sale, only the ones that have chocolate, or the ones that are organic with no added sugar, etc. Then after your first couple of grocery store visit, you’d figure out which one, two, or three brands meet your criteria, so overtime you will get to the isle, find the one you want, and walk away in 10 seconds.

That’s the power of financial habit. It allows us to skip the intensive processing stage and jump to action. It also has the benefit of helping us act when emotions are in the way. In the same grocery shopping example, imagine you have to do it after 10 hours of work and a disagreement with your boss. You are tired, pissed, and not thinking straight. But since you’ve developed your cereal habit, you can walk in, pick up the same cereal you’ve had for the last 10 years, and leave, without fighting your emotions and hunger while evaluating 10 different brands that fit your budget and taste this week.

Inherently we all have some kind of financial habits. Even if you are the spontaneous type, we can say that your financial habit is that you always make a financial decision on the spot depending on your mood. And that kind of behavior has its consequences, just like developing a planning habit does. Our financial habits, the things we do or not do without thinking too much, really determine our financial future, more than any one-time advice you get from the internet or an advisor.

So how do you identify good financial habits and determine which ones you should adopt? Below are three general guidelines to help you strategize.

#1. It’s not about just money. It’s about how you live.

Notice some of the habits that I mentioned earlier weren’t directly related to money management. However, I think it’s safe to say that every decision we make has financial implications. Money is just a means to an end. Eventually what is more important is how you want to live. It directly impacts how you distribute your finite resources.

It’s also important to note that money is not the only resource that you have. Your time, energy, and skills are equally important. Eventually how you live equals how you use your money, time, energy, and skills in away that matches your values and helps you reach your goals in life. For example, if you value sustainable agriculture, you should absolutely develop a habit to pay for those products, even though they are more expensive and time-consuming to find, (assuming you have enough income to sustain this lifestyle plus other goals.)

#2. Sometimes it’s not about what you do. It’s about what you don’t do.

Habits are difficult to break. If you already have a habit of doing something, it can be even harder to stop doing something than to change what you are already doing.

Investing is a perfect example. If you are used to following the market’s ups and downs to buy and sell, it will be difficult for you to continue to follow the news but do nothing. However, knowing when to do nothing is exactly what investing for the long-term requires. Not selling your investments when the market is going down can be a good financial habit that you should adopt.

#3: It’s not about what are the best habits. It’s about what suits you best.

There is no one set of best financial habits. They evolve as your circumstances change and as you learn more about yourself.

Fellow globetrotters would understand what I meant by evolving financial habits. As we move from one country to the next, there is the need to make adjustments to what we thought were good financial habits. For example, we developed the habit of eating in and little entertainment when we were posted in a border post in Mexico, but that’s due to the fact that we were there at the tail end of a cartel war. We could continue to live that way- a lifestyle that saved us a lot of money- when we moved to New Zealand, but we chose not to. We developed new habits to enjoy what a new country has to offer and made adjustments in other parts of life.

Some habits we developed overseas also followed us home. We have walked and taken public transportation to work in the past two years. When we relocated back to the US temporarily this year, we decided to live in the neighborhood that is within walking distance to my husband’s work place, even though driving is the way of life here. It is likely a financial habit we will continue even as we move because we’ve discovered that we enjoy not having to drive and having extra free time.

There are many books and information online that teach you how to develop good habits. I summarized them into the following four steps based on my experience.

#1: Awareness

You need to know what you are currently doing and not doing before you change or adopt a new financial habit. Also, only you will know the “why” behind your current behavior. As you think through the things you usually do and not do, write them down and question the reasoning behind them. Do they match your values and help you achieve your financial goals? If not, how can you change your current behavior and adopt a better set of habits? Sometimes you need your spouse or friends to point them out and help you brainstorm a strategy.

#2: Repetition

Once you identify the habit you wish to develop, you need to practice it over and over again. If you decide to keep a budget, do it every week for three months. If you decide to tune out the market noise, get your wife to hide the remote when you usually turn on the financial pundit show. There is no other way to make a one-time behavior a habit for the long-term.

#3: Monitoring 

In order to know what the impact of habit has on your finances, you need to monitor the result. If you are developing a habit of making coffee at home, check your bank statement once a month to see how many Starbucks receipts you have compared to the previous month. If you set up an automatic transfer from each paycheck to a savings account, check your statement once a quarter and see the balances go up. A positive result will reinforce your behavior, while a negative or neutral result can help you evaluate if you are doing it the right way, or if your new habit really helps you meet your goal.

#4: Accountability

In last week’s post, I discussed the importance of having a coach, and the reason is exactly this – a coach keeps you accountable by helping you implement and maintain good financial habits.

Sometimes you need someone to point out your bad habits and help you develop, implement and monitor a new strategy, whether this person is your spouse, your friend, or an advisor. Being on the hook is what makes many of our habits stick. You may have experienced that having a workout buddy makes it easier for you to keep to the workout schedule. The same can be said for maintaining a good financial habit.

So what are your financial habits? Do they help you reach your financial goals? Or is it time to establish new ones?