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There is an unfortunate trend in North America of people not saving enough to sustain themselves in retirement. On top of that, people are also not saving enough for an emergency or a rainy day. Too often, we rely on debt to get us through tough times instead of thinking and planning ahead.
This is something that needs to change. In a couple of decades, when people are just too old/and or disabled to work, but have a mountain of debt and no retirement savings, what will become of us as a nation?
I’m convinced that habits can be the single most effective thing to help you achieve something. When we think of habits, we often think of bad habits like smoking, chewing our nails or saying “um” a lot, but there are plenty of good and neutral habits that we have.
You don’t actually think about turning off a light when you leave a room; it’s a habit. You don’t have to make yourself close a drawer when you open it for something; that’s another habit. You can build habits to be incredibly positive.
So, I propose that you make a habit out of saving.
Review Your Balances and Spending
I’ve gotten into the habit of logging on to my bank account and credit card accounts when I first wake up and open the computer. Often I am already logged in before I realize what I am doing.
Knowing what your balances are (ie, how much you have in your account or owe on your credit card) is key to intuitively knowing when you may need to be a bit more frugal.
Ignorance is bliss, especially when it comes to overspending.
This brings me to my next point: make a habit of reviewing your spending. Every day, week, or in whatever pattern you find most effective, total up how much you’ve spent on different categories that week. Pay close attention to your weak spots. Mine is restaurant spending, so making a habit of checking how much I have spent does a lot to reinforce making dinner the next day.
Make a Habit of Transferring Money
It’s my habit to check my pay statement each payday to ensure that it is correct and I wasn’t under or overpaid. After that, it’s my habit to transfer a portion of my pay to a savings account that I can’t touch; whether that’s my RRSP, my emergency fund or my TFSA.
Because it’s a habit, it’s not something I have to convince myself to do. In fact, I’d have to set reminders to ensure that I didn’t just automatically do this if I wanted to take a different approach to saving.
Habits are powerful because they transform something that we aren’t used to doing, into something easy and intuitive.
Make a Habit of Questioning Yourself
Financially, many of us are impulsive. We’ll grab a pack of gum in the lineup at the grocery store that we weren’t planning on purchasing out of impulse. Maybe we’ll see an ad on television that makes us want a product and we’ll log onto our favourite online shopping center to purchase it.
Building the habit to question yourself, by asking whether you really need the item, want the item, or whether the ad or the marketers who arrange the supermarket product placement are just taking advantage of your impulsiveness.
You have control over your own spending habits but often we don’t question ourselves when we make a decision to find out what is underlying.
Making a habit out of analyzing each purchase, even if you do really need it, will help you control impulse spending and therefore help you save more.
How have you built habits to support a strong financial future?
I completely agree on the importance of reviewing spending! It’s easy to do and it’s totally eye-opening. Determining where your money is actually going is such a critical step in figuring out how to improve your financial aptitude.
I don’t think you can be an effective spender or saver without knowing where your money goes.
Starting young is key. Joining in the company retirement plan is key. Increasing your retirement contribution when you receive a raise is key.
If your company even has one, and if you work for a company 🙂
Saving for retirement from the first day you start work is key: compound interest is your best friend so the more you save early on the better, but it needs to be a tax-efficient method of saving like a retirement fund. The problem with that is you often lose the tax-free element if you withdraw the cash early, so once it’s in “the system” it’s off-limits to you till you retire. Another alternative is to invest in income-generating assets like property or dividend-paying stocks. Of course there are risks there too (a market crash could wipe you out, for example), so diversification is important to avoid all your eggs being in one basket. 10% of your gross income is is probably a good figure to aim for: in countries like Australia, pension contributions are compulsory and are set at 9%, and with the lack of retirement planning we see these days, it wouldn’t surprise me if other countries began to follow suit instead of leaving it up to individuals to make their own arrangements.
Many countries have mandatory pension contributions – Canada does too for our public social security pension plan.
So true. Always save before you change your lifestyle
I couldn’t agree more with number 3. Once we started questioning every single spend, our spending really went down. We’re going to try and ramp this up big-time for October as a challenge to ourselves. Great post!
Good luck in October!
When you already have the habit of reviewing your balance and spending, then possibly you will have a good financial status. I usually check my savings and tracking down my expenses just to make sure that I don’t overspend.
I agree 🙂
I completely agree with all of these. Reviewing spending habit is very important. In our household we do an in depth review every half year.
Do you do a monthly smaller review as well?