17 Micro Financial Habits for More Wealth and Peace of Mind
Have you heard about micro habits? A micro habit is a small and easy to adopt routine that can have a big impact on your emotional, physical, and financial wellness. A micro habit doesn’t have to take a lot of time, but the effort tends to snowball into really positive outcomes. Micro financial habits are little tasks to improve your sense of well being about money as well as your actual financial status.
So, for example, you probably floss your teeth each morning and/or evening. And, maybe you park farther away from your destination to get more steps in or make your bed every morning to get a good start on the day. Those are micro habits that improve your health and general productivity.
But, what are the micro habits you can practice to improve your financial well being? Below are 17 micro financial habits that should be easy to adopt. Some are best to do daily, others could be practiced weekly, monthly, or even quarterly.
There are a lot of different financial metrics you can track. However, net worth could be the most important number because it sums up both your assets and debts and you can look at it for where you stand today and also project how financially healthy you’ll be in the future.
Your future net worth is a particularly powerful number because it not only factors in your savings and debt balances, but also your projected rate of return, interest rates, savings rates, and more to provide a really nuanced view of your future financial health.
People who track their net worth monthly (a micro habit) report that it is a great motivator for doing better with their money in all kinds of big and small ways.
The NewRetirement Planner can show you your net worth over time, how it hopefully grows as you age. It is an investment to set up your plan, but the tool makes it is an easy micro personal finance habit to look at it on a regular basis.
The second most important number to track is your monthly cash flow. Have you spent above or below what you earned?
If future net worth helps you understand the big picture, cash flow let’s you know how you are doing today and it will help you see your financial strengths and weaknesses.
Budget and Live within Your Means: Duh, right? Yes. budgeting is related to cash flow and should be a no brainer. However, studies show that perhaps fewer than 25% of Americans actually maintain a written budget and balance it each month. (Keeping track in your head, the technique used by most people, simply doesn’t cut it. There is a very big chance that you are making mistakes about how much you have actually spent.)
Not everyone likes to talk about money. But, your friends and family can be a valuable source of information and solace. Asking questions about financial matters doesn’t need to be about comparisons or social climbing. Focus instead on learning about strategies people use, understand their financial values, and how they are feeling about their financial health. Don’t be afraid to ask those you are close to about financial matters. You are both likely to benefit tremendously.
Try something like, “Hey, can I ask you a question…
- What are you doing to prepare for retirement?
- Are you doing anything differently now with inflation? Or, what do you think about the debt ceiling?
- Are you worried about recession?
- Where do you learn about money? Where do you get reliable information now?
- Do you track your spending or budget every month?
- How much money do you allot to your teenagers or college students every month?
- Do you use a financial advisor? Accountant? Lawyer?
- Will your kids fund their own college or are you paying for them?
- What are your parents’ plans for retirement? Will you need to support them at all?
- Do you invest your own savings or use a financial advisor?
So, the next time you meet up with a friend, try a financial conversation starter.
People save and invest their money in different ways. Some wait till the end of the year and plunge a bigger sum into their 401k or IRA. Others save monthly.
Saving and investing monthly is probably the preferred micro habit. The consistency is key and it enables you to take advantage of the concept of dollar cost averaging.
Dollar cost averaging is the concept of investing at regular intervals into the same stock or fund over a long period of time. Studies have shown that this results in a better average rate of return than trying to time the market.
The number of shares you purchase will vary each month. You’ll buy less when the price is higher and more when the price is lower. Over time, your average cost per share will likely be lower than if you had tried to outsmart the market and buy at the lowest possible time.
It is important that you find sources of financial information that appeal to you so that you’ll consume them on a regular basis. But, don’t stop there. You will want to make a point of applying what you learn to your finances. So, set aside time to regularly learn about money and also find the time and tools you need to evaluate and apply what you learn.
- Follow the financial press. Scan the financial headlines of your favorite news outlet. And, read one article. And then, think about how to apply to your situation.
- Read a book about money, retirement, and other financial topics.
- Subscribe to the NewRetirement newsletter for weekly articles.
- Attend a class. Check out the NewRetirement classroom.
- Join a group. Try the NewRetirement Facebook or Reddit group. (Even if you don’t ask a question or comment, you’ll learn by hearing what other people have to say.)
- Listen to a Podcast. The NewRetirement Podcast has a variety of guests including Noble Prize Winners, authors, and regular people who have retired early and have tips to share.
- Try YouTube videos. NewRetirement subscribers have enjoyed Joe Kuhn’s and Rob Berger’s channels.
Apply what you learn. Use the NewRetirement Planner to try out what you learn in terms of your own financial situation and goals.
Ideally you have defined – either on your own or with the cooperation of a financial advisor – your ideal target asset allocation, how much you have invested in different types of assets with different kinds of risk levels. You want some money in cash, some in low risk investments, and other dollars in higher risk financial vehicles.
As things happen with the economy, your allocations will stray from your targets. So, it is a good idea to periodically review if your current asset allocations match your prescribed splits.
Controlling your spending will result in better financial outcomes. But, that is easier said than done. However, if you can apply a micro habit to your spending, you may be able to reduce or improve what you buy.
Here are a few micro financial habits that are specific to spending:
Break down the expense into a per usage cost: When faced with a big purchase, it is useful to think about how much value you will get from the item on a per usage basis. This technique can make big numbers more meaningful. For example, if you are buying a car, divide the purchase price by the total number of days you will use it over the next X years.
Buy value: You can buy something cheap that is not going to last. Or, you can spend more money up front and make a purchase that will endure for a long time, saving you money in the long run.
Factor interest costs into your purchase: If using credit, calculate the real cost (with interest) of the purchase. A $100 sweater purchased with a credit card at 21% interest and not paid off for a year, will actually cost:
Use discounts or coupons and intentionally apply the savings: Always look for a coupon or discount code when making a purchase online. And, consider applying the savings to your retirement fund.
Prioritize and say yes to what’s important to you: Too often people think that budgeting is too rigid and no fun. However, sticking to a budget is just another way of expressing what is important to you. Maybe you can’t go to the movies and out to dinner, but you can do the one that is the most important.
Set a regular time to pay bills: Being haphazard with bill paying can mean something slips through the cracks. Consider setting a regular time for this task, something like the third Tuesday of the month. Name a reward you’ll get after doing the task and it will be something you look forward to.
Use only cash for discretionary purchases: At the start of each pay period, determine how much you are allowed to spend randomly and withdraw that amount in cash. Only use cash on applicable expenses so you know you won’t over spend.
Apply a Waiting Period: We all come across things we want to buy. And, it is easy to give into our whims. So, it may be a good idea to set a rule for yourself to wait 48 or 72 hours before making purchases over a certain dollar amount. If you still want to buy the thing after the waiting period, great. However, you may find that you no longer want or need it.
Look for a better deal: Making a purchase? Shop around, you may find a better deal.
Most people think about savings goals as a big sum of money to be amassed by some point future date. However, it is probably more useful for you to set shorter term micro savings goals that are easier to achieve.
Here are a few ideas of micro savings habits:
Connect your savings rate to your income: Instead of saving a target dollar amount, you might want to save a target percentage of your income.
Increase your savings rate over time: As you age and hopefully earn more and a greater percentage of your income can go to savings.
Save an amount equal to something you habitually buy: If you are a regular latte (or anything) buyer, document how much you spend on that habit and pledge to add the save amount to your savings each month.
Take a few minutes to contemplate your money and your attitudes toward money. Ask yourself about your financial values and how they play into your handling of your spending, saving, and earning. Try doing this at regular intervals: every time you are at the grocery store or when you are making dinner, for example.
A focused mind works better than a confused one. Goals focus you on what is important.
You will do better financially if you have written financial goals and you think about them on a regular basis. Run through your goals in your head once a day. Even though you aren’t really doing anything but thinking, this is a proven technique for getting ahead.
It is also useful to remember your goals whenever your are involved in a financial transaction. So, if you are at the grocery store and contemplating the $7 carton raspberries, remember your financial goals and make the decision in light of your overall priorities.
Research suggests that good things happen in people’s lives about 3-5 times more often than bad. However, bad events have 5-10 times the impact.
You can magnify the impact of the good by focusing on it. Try to incorporate a practice where you end each day with what you did well. Include good financial decision making and practices. This technique is proven to increase more of the desired behaviors.
We ask ourselves financial questions every single day:
- Can I afford a vacation? A new car?
- Should I get married (or divorced)?
- Should I get more (or less) insurance? Will I be able to afford retirement healthcare?
- Do I really need to worry about inflation?
- Should I pay down my mortgage or invest more for retirement?
- How much should I have in emergency savings?
- Will I be able to help my parents, pay for private school, buy a vacation home?
You can look up articles and get advice, but the real answer is dependent entirely on your values and your individual financial situation.
If you want a personalized answer, it is a good idea to adopt a habit of running scenarios against your own financial plan. The NewRetirement Planner excels at this functionality. You can run scenarios and compare the outcomes to help you make an informed decision you can feel really good about.
Save more is a mantra we hear all the time. But, we don’t talk as much about earning and what you can do to earn more during your lifetime. Side gigs, investments in real estate, starting your own business, and just working toward a higher salary are all viable ways to get ahead.
If you aren’t spending time thinking about how to earn more, then you probably won’t earn more.
14. Beware of Mental Accounting
Mental accounting for how you spend your money can be perilous.
For example, research has shown that when people discover they have “extra” money, they spend it, on average, in three different ways.
So, if you find a $20 bill in a jacket pocket, you won’t just splurge on coffee for you and a friend with it, you will splurge on coffee and buy a bottle of wine and apply the funds toward the gadget you wanted to buy. So, the extra $20 you didn’t know you had turns into $60 of spending.
With inflation, the coin jar is just not going to boost your savings adequately. If you deal with cash at all, consider adding all dollar bills in addition to your pennies, nickels, dimes and quarters. It will add up to a bit more that you can apply to your retirement fund every month.
Most people don’t really evaluate their spending at all. However, online banking makes it easy to assess your transactions daily even. Just looking at how you spent your money can be a powerful way to shift your behavior.
Whether you like to admit to it or not, you probably dawdle away some time every day on an online game. What if you switched your Wordle or online poker habit to time spent playing with your financial future? No, I don’t mean day trading. You can play by exploring decisions and strategies in the NewRetirement Planner. Run a scenario wildly different than what you have planned and see what you learn and might want to apply to your actual plan. See if you can retire earlier and what might happen in a worst case scenario.
Whether you think about it or not, you probably have a micro habit that contributes to your success. Share it with us on the NewRetirement Facebook group!