Have you ever gotten into the car and before you put any thought into the drive, you were there?
Driving to work over and over builds a habit, making your commute nearly effortless. Harnessing this power in how you save can add some serious prosperity to your financial plan!
Savings habits can be broken into two themes: 1. Save more to put money in your pocket, and 2. Spend less to keep money in your pocket. These habits should result in more wealth, more confidence, and more prosperity.
Before we get to the habits, there are two major obstacles these habits overcome. The first is Parkinson’s Law – we tend to expand into our resources. If you go to Target with $20 in your pocket, you’ll spend that, and maybe more. The second is lifestyle inflation – as we earn more, we spend the difference. Luxury, once achieved, becomes necessity and that necessity is very hard to cut back.
Thankfully, there are two forces at work within these habits. The first is compound interest. Think of it as the interest on your investment earning interest, which could mean exponential growth if you wait long enough. The second is dollar cost averaging. By putting money in regularly, you’re not timing the market. You buy more shares of a stock at low prices and less shares of a stock at high prices. It helps your portfolio grow over time.
The first three habits put money in your pocket:
- Habit 1: Save often so you forget it’s gone. This beats Parkinson’s law. Start with your company retirement plan or an investment account. Adding per paycheck or per month helps keep that $20 working for you instead of depositing it into some bloated cash register.
- Habit 2: Get excited about accumulation. Bigger is better and the longer you let your nest egg grow, the more it can do for you. Set your goals – 100k, 200k, 500k… Keep it going! With compound growth, this will help you keep on track and grow a multiple of what you save.
- Habit 3: Increase your savings every time your income increases. This beats lifestyle inflation. If your income increases 10%, your savings should increase at least as much if you’re already on track. If you’re behind, save more.
The next three habits keep money in your pocket:
- Habit 4: Monthly budgeting is a must. Take time to be mindful of your spending. Being mindful of where your money is going is the first way to make sure you’re not spending too much or paying for useless memberships.
- Habit 5: Downgrade your purchases. Do you really need that red emblem on the car that makes it seem cooler for an upcharge? It’s easy to justify the upgrade but cutting out a little excess can be worth a lot of purchasing power down the road.
- Habit 6: Make your savings hard to get. This also combats Parkinson’s law and why retirement accounts are effective. Penalties make it unattractive to get into that account. Putting it in another bank or investment account you can’t readily access makes it harder, too. Hard access means you’re less likely to spend it.
The final habit is the key to your success.
- Habit 7: Keep up the momentum. It’s much easier to keep doing something. If you pause or stop, then you fight both Parkinson’s law and lifestyle inflation. If you need to spend some, that’s what it’s there for. Just keep going!
If you drive these habits into your daily/monthly routines, you’ll find yourself saving more, spending less and living with much more confidence!