Enjoy this guest post (and giveaway!) by Brent from VOSA. Brent’s a world record holder, inventor, engineer, entrepreneur, world traveler & eternal optimist. You can read more of his writing about personal finance, entrepreneurship and travel at VOSA.com.
Left sock, right sock. Left shoe, right shoe. Right shoelace, left shoelace.
That’s the routine I’ve followed when putting on my shoes for as long as I can remember.
It’s so engrained into my mental and muscle memory I literally have a hard time doing it any other way even when I try.
Now I’m sure there are some behavioral psychologist reading this saying “claaaasssiiic O.C.D.”.
O.C.D. or not, habits like this rule our lives more than we know it.
Just think about how you put on your shoes, or the first three things you do every morning when you wake up, or how you respond when someone ask you “how are you?”
Chances are, that you too, have some standard routines that you weren’t aware about until just now.
Don’t get me wrong, habits are a great thing. They allow us to save mental capacity for when we have to make bigger and more important decisions than which sock and shoe I should put on first or weather you should brush your teeth before or after your shower in the morning.
Studies have proven that willpower is a finite element that you can exhaust over the course of a day.
This is why you’re more likely to eat that piece of cheesecake at 11 PM after a long and stressful day compared to 9 AM when you’re putting out fires and savings lives at your day job.
How Habits Form
Knowing how habits can govern your actions can help you financially. In this post I’m going to focus on four different sneaky ways to use habits to save more money.
Make sure you check out the end of the post as I’ll share with you how you can get your hands on an amazing piece of software that, when coupled with your new habits, can help increase your net worth by $200.00 in just one money and $3,300.00 in nine months. Did I mention that you’ll have a chance to get this potentially life changing software that normally sells for $60.00, for free? More on that later.
The following feedback loop describes how a habit is formed:
A habit is a result of a trigger (cue) which prompts your brain to take a specific action (routine). This action is what’s considered the habit. Then you are rewarded. The reward is what reinforces the behavior over and over until it becomes a habit.
Make Saving Money A Habit
Understanding this feedback loop can help you develop some sneaky ways to make saving money a habit that you don’t have to think about rather than a dreaded chore that you have to do.
1. Don’t spend your change. I’m not talking about having a loose change jar that collect the change you have left over at the end of the day. I’m talking about adding a trigger to only spend your bills and to save all of the coins that you accumulate. I personally employed this method for 8 years and saved $2,127 which I used to buy James Bond’s watch.
2. Automate your savings and check your balance weekly. Sign up for an online bank, like Capital One 360, that has an automated savings plan feature. No matter how much you’re saving right now, set it to automatically transfer $1 per day to your savings account. $1 per day doesn’t sound like much because it’s isn’t. (If you honestly cannot save $1 per day make it $0.25, or $0.10 as any increase is more money saved.) The reason I’m suggesting one dollar is because each month you will save around $30. Psychologically, it’s a lot easier to save $1 per day rather than $30 per month.
Here’s the important part. Log into that account once per week at the same time and look at your balance grow. It should feel good to see that balance go up each and every week. This positive feedback will condition the brain to love saving money and before you know it you will be bumping up your automated savings plan to $2 per day, $3 per day or even $10 and $20 per day.
3. Couponing and consolidating the savings. Don’t worry, I’ll never encourage you to start extreme couponing where you’ll end up with 37 bottles of ketchup because they ended up being $0.16 each. There is almost always such a thing as “too much of a good thing”. What I am suggesting is spend a little bit of time to check to see if there is a coupon that you can use to save money on an item you’re going to be buying. When you find a coupon, make sure to reward yourself (and your savings account) by transferring the amount of money you saved into your savings account in order to consolidate the savings.
4. Bank the bonus. Yes, the entire bonus. This goes for raises too. When you’re fortunate enough to receive a bonus make sure to send then entire bonus amount to your saving’s account right away. If you get a raise, adjust your automate savings plan to funnel the raise directly into your savings account each pay period. Again, by monitoring the growth of your savings account you will be reinforcing the positive trigger by making these hard decisions not to spend your bonus on a night out at a fancy restaurant or on that pair of shoes you “just have to have”.
Remember, trigger -> action -> reward. Those are the steps you need to take in order to carve a new neurological pathway that becomes a habit.
By purposefully setting up new triggers you can essentially retrain your brain to save more money and feel great in the process. Where this gets ridiculously powerful is when you realize that by identifying, and reversing, your spending triggers you can really rake in the savings.
A Tool to Help the Budgeting Habit
Now that we’ve spend some time talking about spending less and saving more money… do you actually know how much you made, how much you spent and how much you saved last month?
Chances are, since only 32% of American have a budget and track their income and expenses, you don’t.
I encourage you to sit down once and for all and create a budget, assign a task for each and every dollar you earn, save for a rainy day, roll with the punches (your budget has to be flexible) and live off of last month’s income.
The best way to do this is to get the uber popular budgeting software YNAB (“You Need A Budget”) otherwise knows a “why-nab”.
This tool allows you to gain total control over your money, to spend less, to save more and become awesome at managing your money.
The proof is in the pudding as the median YNABers (as they affectionately refer to themselves) increases his or her net worth by $200.00 in the first month alone and by $3,300.00 after just nine month.
YNAB (“You Need A Budget”) normally sells for $60.00 but, today is your lucky day, as I dug deep into my wallet and picked up 10 licenses which I’ll be giving away! Click here to enter the sweepstakes.
Editors Thoughts/Questions: Habits are so challenging to break so I love what Brent has shown us today. Creating and following a budget was a key element in my wife and I forming good habits with our money.
What good financial habits have you developed? What bad financial habits are you still working on? Anyone else have experience with the YNAB software to share?