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.