3 Ways to Create Better Financial Habits

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There's a wildly popular notion that it takes just 21 days for a person to build a new habit. But since the idea first went viral back in the 1960s -- thanks to "Psycho-Cybernetics," a book by plastic surgeon Maxwell Maltz -- many studies have thoroughly debunked the 21-day myth. In fact, the average period it takes to create a habit is 66 days, though we all take different amounts of time.

We also respond to different motivations. But when it comes to money, the temptations are practically universal. Do you spend more than you earn? Do you have trouble sticking to your budget? Do you often buy on impulse? Those are all bad -- but common -- financial habits. Let's consider how to build better ones.

Want to Change

Building a new habit, whether it is financial or not, starts with admitting your behavior is a problem and choosing to change -- which is often the hardest step.

"Like many other things can do to make our lives better, building good financial habits all starts with recognizing that we need to change our current behaviors," says JJ Montanaro, a certified financial planner with USAA. "Until we really believe that, and get really committed to it, lasting change will be difficult to grab."

It is hard to realize that you have a problem. We often do not recognize that there's a serious issue until it is too late and quite a big problem.

Have you noticed warning signs that you may have a financial problem? Do you pay off one credit card with an advance from another? Are you confused about where all your money vanishes to each month? Like Dave Ramsey is famous for saying, "Do you have more month at the end of the paycheck?"

These are just a few warning signs that you may have a couple bad financial habits. But spotting them is just the first step. What are the best ways to change the financial path you are on?

Have a System in Place

Your actions have to seem automatic. To stick with a new financial habit, it has to seem like autopilot. This is what makes automatic contributions directly from a checking account or your paycheck to a retirement plan so powerful.

"If you have been making bad financial decisions, then reduce the number of financial decisions you make," says Gregory Rogers, a certified financial planner with Cannon Beach Consultants. "Automatically contribute to your company retirement plan, an IRA or a even a savings account from your paycheck. Link your debit card to a spending account with a set spending amount. Once [the money] is gone, then you're done spending."

Automating your investing and saving is a powerful tool to help you build new financial habits. Additionally, investing consistently puts the uses the power of dollar cost averaging to work for you. If, each month, you contribute a set amount of money; you'll be buying more shares when prices are low and fewer when they go up. This averages out your investment costs and entry points over a longer period of time.

Find an Accountability Partner

Having an accountability partner can help you stay on the straight and narrow when it comes to making new financial habits. Have you told your spouse your financial goals? If you're not married, do you have a close friend you can confide in about how you want to save, invest or pay off debt?

"Sometimes we all need checks and balances, and having someone you can count on to keep you on the straight and narrow is integral to success," Montanaro says.

There's a reason that the U.S. has three branches of government: It keeps our system honest by providing checks and balances. Having an accountability partner can do the same for you. The person can remind you what you're saving for, can help you avoid overspending, and help you keep the motivation up to build financial habits that could take a long time to establish.

Think of the Money You're Losing

We all hate to lose money. And there is no easier way to do that than through poor financial habits. So make that pain a motivating factor to spur you toward new financial habits.

"One of the things that we have learned from behavioral economics is that people weigh a loss more than a similar gain," says Julie Heath, director of the Economics Center at the University of Cincinnati. "People tend to work twice as hard to avoid a loss as they do to realize a similar gain. Therefore, one way to develop better financial habits is to focus on the loss associated with not making a change like not budgeting, not paying off credit cards and the like."

%VIRTUAL-article-sponsoredlinks%Academic studies now show that we care more about what we track. One of the easiest ways to lose weight, for example, is to rigorously track your calorie intake and expenditures. We can say the same for our money. A budget and spending plan pays dividends.

Do you know where all of your cash goes? Too many of us have the bad habit of pulling out cash from the ATM and letting it burn a hole in their pocket. It's hard to account for cash if you're not careful. But tracking spending down to the last penny can help you recognize where you're making poor spending choices.

Far too often, people see creating good financial habits as a chore. We know we should do it, but it's easier for us to talk about it, and postpone real action. Stop putting it off: Commit to making a concerted effort to change your financial stripes.

Whether you put a system in place, find an accountability partner, or repeat something 21 times or more, you have to find what works for you. But keep experimenting with these tried-and-true techniques until you find the ones that help you make your smarter new financial habits a reality.

How long does it take you to build a new habit? Do you believe in the 21-day myth? Is repeating an action 21 times enough for you to create a lasting habit?

Hank Coleman is a financial planner and the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.
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