Struggling with your financial habits? Here's how you can fix them

I tried really hard, he protested. This friend was talking about his inability to build good personal finance habits. He had been told several times that if he made something into a regular plan, a routine and easy decision, he would be able to stick to it. Much like the lifestyle change that wellness coaches talk about, wealth creation also requires changes that can stick for the long run. Good financial habits contribute significantly to long-term wealth. Even if one knows this theoretically, why do we fail to make and keep good financial habits?

Building habits

The habits we talk about are quite simple and commonsensical. At the first level are simple habits that take a few minutes of effort. Taking one look at the bank and credit card statements at the end of the month can show what the major heads of income and spending have been. Anything amiss strikes the eye if one makes it a habit to browse the transactions routinely, even if once a month.

That insurance premium that still got deducted with the standing instruction, even after the policy had matured, caught my eye. I should have put an end date to the deduction, but I had chosen the option to pay until I stopped it. Looking at the printed grocery or shopping bill, to just run your eyes over large ticket items can detect errors even in this day and age of electronic billing and payment. I was once being charged for 99 batteries instead of 9, due to a clerical error! These are simple checks to be informed about our money. These days, when no one makes or tracks a household budget, such habits are helpful.


At the second level are habits that require effort to streamline the current and ongoing financial activities in a household. Saving a small portion of the income before spending it is an extremely valuable habit. It creates a small saving that grows into a significant amount over time. Investing surpluses without letting them lie in the bank helps deploy money regularly. Creating a list of investment choices right at the start of the year, into which all monthly surpluses go, is a good habit. The research and selection is done once, and the mental load of making fresh decisions every time there is money to invest is reduced. An annual review is more than adequate for most households, unless there is a very high risk event in the family or the markets, like a job loss or the crash of a financial institution.

Making it a habit to pay off dues on time is a mark of good housekeeping. Unless the finances of the household are dire, payments to rent, utilities, fees, maintenance, insurance have to be set up for auto debit from the bank account. The payments for loans for consumables, house or vehicle impact credit history and scores. Even more important is the discipline to reduce, or payoff in an accelerated mode higher cost loans like personal loans and credit card dues. Learning to spend within means is a financial habit that is acquired early and persists through most households. Borrowing, especially for an expense or a depreciating asset, can become a habit that drains the income of a household and impacts the ability to save and build assets.

Looking long term

The next level of financial habits that are beneficial for long term financial health are those that involve taking long-term decisions and sticking to them. Saving and investing regularly with defined financial goals in mind is a habit that enables funding of life goals, such as retirement. Adequate funding of such goals require the sacrifice of excess expenditure and the discipline to not utilise the corpus that is being saved for other interim uses. Investing this corpus wisely and sticking to the planned strategy over a long number of years is enabled by a well-honed discipline shaped by habit.

Why is it difficult to form and keep good financial habits? We find it very easy to slip back to what we have been doing, as a source of familiarity and comfort. The brain requires a few iterations over a period of time, before something becomes a habit. We are wired to conserve energy. Additional effort seems like a difficult task before habit makes it an easy one to accomplish. It is easy to dismiss the monthly review of bank statements as a boring task for which one is unable to allocate time. Some astute investors devote a specific time slot in their week, or weekend, to complete all the financial tasks of that week. They are able to do this because of a combination of factors at work.

Set yourself up for rewards

First, do not define the task as a huge one, but keep it small and specific. Something large and unwieldy creates its own resistance to start. Second, append a new habit to a familiar existing one. That draws from the familiar into the new one. Third, work on making it pleasant and rewarding. Association with something pleasant keeps it from breaking. Fourth, make it an identity and a matter of pride as you find yourself sticking to it over time. Waking up early in the morning when the rest of the family is fast asleep offers a window for framing a financial habit of reviewing the bank statements. Appending the task to a hot cup of coffee or tea, sipped leisurely on the porch or balcony, offers the benefit of association so the habit sticks. Getting a warm breakfast at the end of the task feels like a reward and an affirmation of the discipline to review the finances of the family regularly. The review can be just logging in to see the balances to begin with. It will slowly graduate into setting up payments, making saving decisions, managing balances, reviewing loans and paying off, and revising investment decisions.

These are just some example, but do try variations that set you up for beginning and sticking to a personal financial habit that will benefit your household. Much like the weekend trek, run, yoga session or dining out, a small financial habit can also be fitted into your routine of healthy habits.

Not all of us are wired to follow routines: like my friend who tries and fails. We can, however, trick our brain into believing these are not boring and repetitive tasks that must be monotonously done, but quick checks that only take a few minutes. As we attempt one new little thing a week, before long we know all the accounts, flows, investments and loans, having seen them one by one over time. It just grows on you and gets simpler. Just what a habit is capable of doing and becoming.

The Author is Chairperson, Centre For Investment Education And Learning