Building better money habits

There’s an old saying that “One swallow doesn’t make a summer.” In other words, one instance of something doesn’t necessarily indicate a trend. This proverb applies to many areas of life, including our finances. One bad day in the stock market doesn’t necessarily mean your retirement savings are doomed. By the same token, just because you kept your coffee budget today doesn’t mean you won’t blow it on lattes next week.

Many swallows make a summer, just as many seemingly mundane choices shape our overall financial health.

As another year approaches, it’s natural to dream up new financial goals—some call them resolutions—such as spending less, saving more or giving back. And while goals are great, the habits that help or hinder us from reaching them are just as important.

“Habits are the compound interest of self-improvement,” writes author James Clear in his book Atomic Habits. Even small changes, consistently repeated, can dramatically help improve our financial lives and, by extension, the lives of others.

Harnessing the power of financial habits is simpler than it sounds, though it’s not always easy. The key is knowing how to get started.

Habits are behaviors that become second nature, meaning we do them without much thought. Habits are neutral in theory, but we tend to call a habit “good” if it supports our goals and “bad” if it undermines them. The first step in developing better financial behaviors is taking an honest look at your current habits.

“The key is understanding that your habits operate automatically,” says Omar Maldonado, Thrivent financial advisor at Blueprint Financial Group of St. Louis. “They either work for you or against you, without your giving it a second thought.”

Each of us has what Maldonado calls an “automatic way of being,” which includes our beliefs, assumptions and impulses. Maldonado works with clients to “consciously interrupt” negative patterns of behavior and replace them with new habits that more directly support their financial values.

Our automatic way of being is a mix of nature, or who we essentially are, and nurture, or how we were raised.

Money habits often begin in childhood. “Good habits can be part of your upbringing and who you are friends with,” says Tony Watson, Advice Services consultant at Thrivent. “If you establish good habits while you are young, you may be able to transition into saving for retirement much more easily, for example.”

Positive behaviors like putting a portion of each paycheck into savings, tracking your spending and donating to worthy causes yield exponential results when nurtured into habits from a young age.

But the opposite is also true. Watson observe show unhealthy money habits can create vicious cycles: Regular overspending leads to debt and interest payments, which lead to tighter margins and still more overspending. And so on.

Thankfully, whether you’re just starting college, buying your first home or already enjoying retirement, it’s not too late to build new financial habits. So how do you ensure your habits work for you and not against you?

Like many young families, Thrivent clients Craig and Mary Sengl had no shortage of expenses while raising their two children. The couple, from St. Charles, Missouri, worked hard to provide for their kids, putting them through private high school and college.

It wasn’t until they were empty nesters again that Craig and Mary had a worrisome revelation: They needed to save more for retirement—a lot more.

Craig admits the whirlwind of those early years distracted them from considering longer-term financial goals. “I was always worried we wouldn’t have enough money to do the things we wanted to do now,” he says. “I justified it by saying, ‘We’re investing in our kids! We’ll get to retirement someday.’ But I never thought about when ‘someday’ was. I didn’t want to think about it.”

Some habits are essentially mental—patterns of thinking—but these still can influence our material lives, down to the dollars in our pockets and retirement accounts. For Craig and Mary, building stronger and consistent financial behaviors required a new mindset.

The couple met with Maldonado and his partner, Brittani Joyce, to discuss their financial plan and retirement goals. The Thrivent team crunched the numbers and delivered a tough verdict: If nothing changed, they would only have a 20% chance of ever retiring.

“I don’t want to work till I’m 80,” Craig remembers thinking. So, they got to work.

The first step was organizing cash flow. By this time, Craig and Mary both had built successful careers; their problem wasn’t income so much as income allocation. Maldonado advised the Sengls to open several new checking and savings accounts, each with a specific purpose, such as “bills,” “groceries” or “vacation.” Then, every payday, they would assign funds to categories as needed, starting with fixed expenses and saving goals and followed by discretionary spending.

This new routine didn’t just give Craig and Mary a clearer picture of their money each month. Keeping discrete accounts also made it harder to move funds between categories and fudge their budget. When an account ran out, they couldn’t spend in that category until the following payday. Next, they set up automated transfers to their retirement accounts, ensuring they were meeting their savings goals each month.

Maldonado encourages his clients to automate savings transfers whenever possible: “It helps you build your wealth passively.” A common example is automatically contributing a portion of each paycheck to a workplace retirement plan, like a 401(k). The automation functions like a habit but takes little discipline to build or maintain.

Thanks to digital technology, we can automate all sorts of financial tasks, from investing and giving to scheduling appointments and beyond.

Of course, we can’t automate everything about our lives, nor would we want to. Often, developing new habits simply takes good old-fashioned time and effort. That’s when a coach can come in handy.

Greg Hicks is a coaching manager for Money Canvas^®, Thrivent’s free financial coaching program. He leads a team of coaches who work one-on-one with people who want more control over their finances. In three interactive virtual sessions, coaches help participants gain clarity about their cash flow, with the goal of promoting healthier spending and saving habits, such as the “pay yourself first” method.

Hicks enjoys drawing parallels between our financial health and physical fitness. “You can’t outwork a bad diet, and you can’t out-budget unmindful spending habits.” Our automatic way of being will happily run its course—unless we interrupt it.

Hicks and Maldonado agree that the early stages of building a new money habit can feel uncomfortable, like the first few workouts of an exercise routine. But with enough consistency, it starts to feel easier. You build strength and endurance. Suddenly, the new behavior comes more naturally to you than not doing it.

Thanks to an efficient financial plan, a handful of new routines and sheer willpower, Craig and Mary have made remarkable progress toward their retirement goals in just a few short years. “With discipline, you can save more than you think you can,” Craig says.

In fact, the Sengls have seen such success that they regret waiting so long to get started. “It’s doable, even late in life,” Craig assures us, “but it will be less painful if you start earlier.”

Resolutions are easily abandoned. Habits, once formed, tend to stick with you. Consider the new year another opportunity to invest in the financial practices and routines that can move you toward your goals and supporting the people you love, one step at a time.

Cameron Brooks is a marketing strategist at Thrivent.