Mind Over Money: The 5 Keys To Building Good Financial Habits: Part 1

When you’re getting ready to change, you’re in the stage known as Contemplation. You’re intending to change some time in the next six months. You’re not sure if you can do it. You may see many obstacles but you do realize there are good reasons to change.

The next stage is called Preparation. You’re planning to start the new behavior in the next month.  You’re committed to the change.  You’re making a plan.

When you reach the Action stage of change, you’ve recently changed the behavior but it’s still challenging.  You may be tempted to go back to your old ways.

If you have been doing it, you’re in Maintenance. You’ve changed the behavior for more than six months.  It’s more of a new habit now.

Dr. Johnson applied these stages to financial behavior and came up with 5 Steps to Building Good Financial Habits:

1. Not yet ready: Precontemplation

Think about the benefits. Would setting aside $25 per week in savings or increasing your contribution to your 401(k) make you feel more secure? Or feel like a better role model? Think about the payoffs.

2. Getting Ready: Contemplation

Start to add up the benefits. What will happen if you put more money toward debt instead of buying those new shoes? What will happen if you take control of your 401(k) instead of leaving it to chance? What’s going to happen if things stay ‘status quo?’

3. Ready: Preparation

Make a commitment. Set a date. Create a very specific plan. If you are going to start investing in your 401(k) on January 1, talk to HR about the steps you’ll need to take.  Tell friends and family. Post it on Facebook. Public commitments are much stronger.

4. Doing it: Action

Get support. Changing financial behavior is hard. You need the support of people who care about you, or get professional help.

5. Have been doing it: Maintenance

Now that you’ve been engaging in the new financial behavior for several months, it’s time to celebrate. Get yourself a reasonable reward. Use the success as a springboard for the next financial goal.