Developing good financial health doesn’t take place all at once. Generally, it won’t arrive in one gilded lump sum or appear with a surprise windfall. (Wouldn’t that be nice, though? Where art thou, long-lost aunt with the inheritance coffers?)
Instead of thinking of financial health as something that may eventually materialize off in the distant future, individuals could be better served by approaching it as an incremental habit—a small set of behaviors—that they can learn to enact in the here-and-now.
Financial health isn’t even synonymous with a person’s savings or how much they currently earn. It may be helpful to think of good financial habits as a future-oriented exercise routine that can start with small daily steps—something done today that’s motivated by longer-term gains.
Put another way, adopting small (and repeated) changes in behavior can be one way to start building good financial habits (all while slowly chipping away at those bad financial habits). What humans learn to do in small doses (and then keep doing) can shape which habits become ingrained down the road.
Habits can be defined as an established pattern of learned behaviors. One study shows that habits shape 43% of what humans do on a daily basis. Furthermore, the most successful people are not the ones with the most intrinsic self-control, but those who know how to instill habits that help them get to their goals.
Hopefully, this news comes as somewhat of a relief. No one needs to overhaul their finances in one fell swoop. Instead, the idea is to fold good financial habits into one’s regular routine—repeating them with enough frequency that the new behaviors start feeling second nature or automatic.
With time and practice, newly formed good financial habits may even supersede the bad financial habits, which folks may fall into when they’re tired. Here’s an overview of some good financial habits that people could starting doing:
6 Ways to Develop Healthy Financial Habits
1. Setting Financial Goals
One place to begin when striving to nurture good financial habits is to write out individual money goals. Financial goals can serve as “external” guideposts for kickstarting (and then sticking with) new habits.
First, goals may provide a roadmap for building out a financial plan. People often ask themselves questions, like:
• What should I save up for?
• Where should I save money?
• Should I invest now?
The answers to each of these questions will vary from individual to individual.
Still, putting pen to paper can be a helpful way to define specific financial goals to work towards in the short-term and in the long-term—such as,, saving up for a down payment on a house or squirreling away a percentage of earnings each month for retirement.
Plus, clearly defining one’s financial goals could be psychologically motivating. Individuals may feel more driven to set aside money, when they know it’s for purchasing a forever home or for booking that dream vacation.
It can be harder, by comparison, to motivate oneself to save in the abstract. A dash of self-interest can go a long way towards adopting financial habits that may help one to save more.
Some common goals include building up an emergency fund and putting aside funds towards retirement. Beyond these, additional goals could vary based on the individual’s interests and economic situation. For example, some might also want to save up to buy a house, start a college fund, launch a business, or to pay down high-interest recurring debt.
Savers may even want to up-level their financial objective by creating an inspiration vision or goal board on Pinterest. Many savers find that keeping financial goals visible keeps them motivated to continue practicing good financial habits.
Naturally, building good financial habits takes time. And, working towards a secure financial future is a marathon—not a 60-second dash. For many, saving for the sake of saving can feel too abstract, which may lead to burnout. Tracking progress towards more concrete goals can give some the fuel to keep exercising those good financial habits..
Not all goals have to be hyper serious. If someone wants to save up for a fabulous winter jacket or a new gaming system, they can build splurges into their budgets. When starting, mapping out future financial goals can be as good of a financial habit as cutting back on unnecessary costs.
One way to approach big financial goals can be to break down the end result—saving 20% of a home’s value for a down payment, let’s say—into bite-sized mini tasks. James Clear, author of Atomic Habits, recommends breaking down a goal into extremely small (and thus more manageable) actions. Here, the objective is just the act of enacting that action.
It can be a lot harder to stay motivated with a huge, seemingly overwhelming goal (e.g., “saving enough to buy a house”). Selecting an easier-to-tackle one (e.g., “saving $25 towards a down payment each week”) could be more motivating, because the person knows they can do it upfront.
Individuals may want to start even smaller, opting to log into their savings or investment accounts weekly—just to get in the habit of keeping finances front of mind.
2. Managing Debt
Anyone who wants to flex good financial habits may find it worthwhile to come up with a debt repayment plan. In an ideal world, this might mean paying off credit card balances in full and making all other necessary debt payments on time, such as mortgage installments and student loan payments.
Calendar reminders can help ensure that all payments get made on time. It may even help to arrange to have all payments due on the same day. Some lenders are willing to move a monthly due date.
This way, a person could develop the habit of making payments at the same time each month. It’s also possible to auto-schedule bill payments, ensuring that all bills get paid in one predictable monthly window of time.
Admittedly, not everyone is going to have an easy going at paying down debt right off the bat. It may take some work to get there—and, this work will look different depending on each individual’s scenario.
For some, it could mean paying off more than the monthly minimum payment on a credit card in order to move that monthly bill down towards zero. For others, it might look like researching repayment options for student loans. Maybe, it means mapping out a long-term debt repayment plan—increasing what gets paid back as the borrower begins to earn more over time.
Even the act of writing out a list of all debts is a powerful move. After all, it’s tough to build good financial habits without identifying all the money-consuming expenses to start chipping away at.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning 1% APY on your cash!
3. Paying Yourself First
What’s one easy way to make saving money a regular habit? By paying yourself first. Within a few days of that paycheck hitting an account, a saver could transfer a percentage of that money directly into their savings. (It’s possible to automate these transfers. More on that, below.)
Many people find themselves in a conundrum at the end of each month: they want to save, but they have no money left in their checking account.
For some, this could be because they aren’t earning enough to cover their costs. It’s difficult to save when all potential costs have been cut and the money is just not there. Folks who find themselves in this position may want to consider working on increasing their income.
For others, it’s a matter of spending all of the money that’s left lingering in a checking account. This bad financial habit is also fairly understandable. If the money is just sitting there, it may feel like it’s just waiting to get spent.
One solution, then, is to move this money away from the very place from where it tends to do this magical disappearing act—by shifting some funds, earlier in the month, to an account dedicated to saving.
These good financial habits adhere to one of the most famous pieces of financial wisdom out there: “Spend what is left after saving, do not save what is left after spending.”
4. Automating Finances
It can be a good idea to save money right after getting paid—before the cash sits in checking long enough to spark the urge to spend it. So, why not save automatically upfront? Automating can make saving money less of a chore.
A person interested in saving more might begin by automating just one transaction. For example, they may opt to have $50 moved from a checking account to a different savings-oriented account each month. If that money remains unspent each month, those monthly automatic savings would total to $600 at the end of the year.
Automating savings can work, because it’s easy to burn through cash idling in a checking account on unmemorable or unnecessary expenses throughout the month. Shifting the money away from the checking account can make it a little more difficult to spend those funds—potentially stopping a bad financial habit before it starts.
There are even ways to build out an entire financial infrastructure through automation. In addition to moving money into savings accounts, money can be moved automatically into retirement accounts or other investment accounts. Also, automatic bill-pay is a very useful form of automation.
Also, there are numerous ways to set up automatic investments. A workplace plan, like a 401k, may already be doing this. For someone that’s on their own, mutual funds make auto-investment really easy. Alternatively, a robo-advisor service automatically invests contributions on behalf of the investor.
Utilizing these services may be more difficult for those paid on an irregular schedule, such as freelancers and business owners. Instead, they may want to set a calendar reminder each month (or twice a month) suggesting that they move money into savings. The idea is to mimic the habitual nature of the transfer, even if—logistically—it stays manual.
5. Investing Early and Often
“I invested too much money for retirement,” said no one ever. Arguably, there’s no other financial goal that requires more habitual action—spread over decades—than saving and investing for retirement.
It can be tempting to push off planning for retirement until tomorrow. After all, when someone’s in their 20s or 30s, retirement is likely decades and decades away. Psychologically, it’s simple to presume that this day is so far off in the future that it’s just not worth thinking about in the now.
But, for many, retirement can be one of life’s biggest expenses. While saving today to pay for tomorrow’s costs can feel frustrating, it may be helpful to reframe this as a good thing: hopefully, everyone gets to live out decades of their Golden Years in retirement, enjoying themselves.
When figuring out how to become financially independent, it can behoove individuals to invest early and often. Even if it’s only $25 or $50 per month, small amounts can add up. By investing earlier than later, money has more time to grow and for interest to compound.
Compound returns are earnings on both the original amount invested (the principal) and the money earned via investing (the profit). The more months (or years) a person invests, the higher the potential for profits to compound.
Luckily, there are easy and affordable ways to get started investing. First, open an account, like a brokerage or a retirement account. (Pssst, investing in a 401k also counts as investing.) Then, investors can purchase investments like stocks and funds, or whatever else might be appropriate for their goals.
It is important to note that all investing is inherently risky as the stock market goes up and down on a daily basis. For more guidance, investors can use an automated investing service, like the one provided by SoFi.
6. Tracking Spending
If there was ever a commandment about controlling spending, it would be Know Thyself.
When building a personal budget, it can be helpful for individuals to get a good grip on the money that’s coming in and going out. It’s a common mistake to set budget categories with aspirational numbers pulled out of thin air, only to have a budget fall apart later on when faced with reality.
Folks new to budgeting may initially want to calculate how much money they spend in each of the major cost categories—housing, debts, transportation, healthcare, food, etc. To do this, some prefer to track spending patterns.
Keeping track of purchases throughout the month could help with not forgetting how much has been spent with each new swipe of the card. In the digital age, spending can be so frictionless—simply punch a credit card number into a website without ever leaving the house (or even changing out of pajamas). So frictionless, in fact, that purchases can quietly stack up—often without notice.
Some saver’s may want to journal, keep a spreadsheet, or use an app to track their spending. This can be done on a daily or weekly basis. But, to solidify tracking expenses as a habit, individuals could do this action at the same time each day or week—creating a regular routine out of it.
For example, one person may choose to write down their spending in a journal at bedtime, and another may choose to fill in their Excel spreadsheet each Sunday morning alongside their coffee.
Finding Tools that Work
Building good financial habits can be rewarding. There are more technological tools than ever to help with budgeting or expense tracking. From digital apps to automatic investing, building healthy financial habits has never been more accessible.
SoFi Checking and Savings® is an online bank account that blends the best features of the most helpful financial tools and apps, enabling users to track spending and their progress towards savings goals.
SoFi also provides members with weekly spending updates, which can nudge new savers to check in routinely on their finances. And, as a cash management provider, SoFi never charges account fees (subject to change).
Building good financial habits can require having the right routine and finding the tools to get you there. Even small changes, over time, can add up to healthier financial habits.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
FINRA / SIPC . SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
The SoFi Money® Annual Percentage Yield as of 03/15/2020 is 0.20% (0.20% interest rate). Interest rates are variable subject to change at our discretion, at any time. No minimum balance required. SoFi doesn’t charge any ATM fees and will reimburse ATM fees charged by other institutions when a SoFi Money™ Mastercard® Debit Card is used at any ATM displaying the Mastercard®, Plus®, or NYCE® logo. SoFi reserves the right to limit or revoke ATM reimbursements at any time without notice.
Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“SoFi Securities”).
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.