7 Effective Money Habits And Mindsets To Help Your Personal Finance Journey
One of the most popular, best-selling business and personal development books is Stephen Covey’s The 7 Habits Of Highly Effective People. In today’s post we’re leveraging that idea of habits and effectiveness to discuss 7 effective money habits and mindsets to help your personal finance journey.
A habit is defined as, “an acquired behavior pattern regularly followed until it has become almost involuntary”.
Based on that, we’re looking to build effective money habits that help us take control of our money and life through regular practice of them until they become an automated tool in our personal finance toolbelt.
The effective money habits headlined below are:
- Open Communication
- Monthly Financial Review
- The Abundance Mindset
- Start Big Or Start Small, Just Start
- Pay Yourself First
- Invest In Yourself
- Never Stop Learning
Personal finances are personal to each unique situation but the best practice of developing effective money habits carries across the spectrum. Finding a system that works for you to help take control of your money and life will be a key tactic in your financial journey.
Open Communication
Communication is key at the workplace, around home, with friends and almost every area of your life. This holds true when it comes to having open communication with those who are impacted or involved in your personal finance journey.
Money doesn’t need to be a taboo subject.
As a teen or young adult, that might mean your parents. Once you get older that will likely include a significant other, friends, business partners and potentially your boss (asking for raises). If you have children, they’re included in this network as you look to educate them and share your own journey. As you build wealth and get closer to retirement, perhaps that requires a financial advisor too.
The number one person this applies to will likely be your significant other.
Money will play an important role for the rest of your lives. Getting on the same page is paramount. The stress and uneasiness that money can sometimes bring into a relationship is often alleviated with a simple, open conversation.
Here are some high-level tips that could help make those discussions more effective:
- Talk often and remain open to all viewpoints
- Try to keep the emotions out of it and stick to the facts
- Individual discretionary funds can help if one of you is more of a saver and the other is a spender
- Set a money discussion date or monthly budget meeting and review (more below)
Money is one of the leading causes for divorce and when times are tight financially, the pressure becomes even more heightened.
Make communication an effective money habit in your personal finance journey.
Monthly Financial Review
To continue the theme above on open communication, one of the other effective money habits you can introduce into your finances is a monthly review.
Life gets busy, priorities change and money can be a stressful focus area.
This review helps ensure your finances remain a consistent priority and top of mind on an ongoing basis.
Personal finances are personal so what one individual does for a monthly review might not be applicable or feasible to you. However, the practice of keeping a set schedule and performing your own monthly personal finance status check will become a great addition to your money management tool belt.
- Track your spending and budget through a service like Mint to ensure the past month’s spending was what you expected
- Check your credit score and report for free with services like Borrowell (Canada) or Credit Sesame (USA)
- Review all your bank accounts, savings accounts and investment accounts
- Update your debt repayment strategy if you have student loans, a mortgage or other consumer debt
- Go line-by-line through your credit card statements
- Consider reviewing your insurance and estate planning documents
- Forecast any upcoming big expenses or taxes if that time of year approaches
- Check out 89+ personal finance tips for more ideas or inspiration
The list could go on and on.
The scale of what you review is flexible depending on your living situation and priorities. The goal is that a monthly review through a set checklist or routine will support keeping an effective and efficient practice of making finances a priority.
The Abundance Mindset
One of the topics discussed in Covey’s The 7 Habits Of Highly Effective People book we referenced earlier is the idea of scarcity vs. abundance.
This mindset can be applied to your personal finances.
Scarcity
In a personal finance sense scarcity might mean the pie isn’t big enough for all of us. There isn’t opportunity for all us to get raises, promotions, open income generating businesses, diversify income streams or achieve our greater goals.
We might build up a disdain or appreciation for success of others. We might spend whatever we have with a justification of who knows what’s coming tomorrow and focus on the short-term gains. Or go the opposite route and use scarcity to develop a negative outlook on our financial future.
Abundance
This abundance mindset is centered around increasing income, taking risks, a willingness to change your life, an understanding of the countless opportunities and the motivation to chase what you want. This mindset extends not only to your own financial journey but others around you too.
Some examples of this abundance in terms of effective money habits would be:
- Testing side hustles to develop new income streams
- Starting a business to live life on your terms
- Supporting and appreciating others as opposed to taking that negative scarcity approach
- Increasing your professional income through a focused effort on growth
- Optimism for the future
There are an abundance of opportunities available that will help you best navigate life and support your personal finance journey.
Start Big Or Start Small, Just Start
Have you heard to term “paralysis by analysis”? The idea is that you over-analyze and flood your mind with so many options, pros, cons, do’s, dont’s and so on, that you essentially paralyze your decision making.
The same can happen when it comes to money.
The mindset of just starting can be applied to paying off debt, starting a side hustle, saving for your first home, investing for retirement and so on.
Whether you start big or start small, the effective money habit is to just start.
Taking that first step is often the most difficult. Sometimes you just need to get the momentum going and look to adjust the course as you learn more or figure out the best strategy for what you’re trying to achieve.
Don’t let paralysis by analysis delay your personal finance journey any longer.
Pay Yourself First
If you’re looking for an effective money habit to reach your financial goals and build wealth, look no further than the mindset of pay yourself first.
Investopedia, the Webster’s Dictionary of personal finance, defines pay yourself first as: “automatically routing your specified savings contribution from each paycheck at the time it is received.”
Essentially the first person or bill being paid when you receive incoming money is yourself and your financial goals. Those goals are of course personal and unique to your situation. However, the mindset is the same.
The money comes in and is automatically being distributed to exactly where you want it to go.
That might be some combination of your 401k (RPP), savings account, student loans, mortgage, IRA/Roth (TFSA/RRSP), HSA, RESP, day-to-day chequing and other accounts.
This post on paying yourself first covers 4 steps to helping you take this approach:
- Determine Your Financial Goals
- Create A Budget or Monthly Financial Outlook
- Automate Paying Yourself First
- Analyze & Review
You’re no longer waiting until the end of the month to put whatever is left towards debt repayment, saving or investing.
The first priority is YOU.
Invest In Yourself
You’ve likely heard this remarked before but the best invest you can make is in yourself. You’re the most valuable, flexible and highest ROI asset you’ll ever own.
“Ultimately, there’s one investment that supersedes all others: Invest in yourself. Nobody can take away what you’ve got in yourself, and everybody has potential they haven’t used yet.” – Warren Buffett.
The benefits of doing so are boundless.
Whether it’s a personal or professional investment, the potential returns provide an open book of opportunities for you.
So how can you invest in yourself?
To name a few possibilities: courses, conferences, mentors, books, blogs, podcasts, health and wellness, career changes, moving locations and vacation. The point is you’re investing resources (money and/or time) into your own development or wellbeing to provide longer term gains and benefits.
Read about the learn, pursue and regroup strategy in this post on investing in yourself.
Never Stop Learning
As you progress through your personal finance journey there is an endless amount of information and knowledge to ensure you never stop learning. That holds true whether you’re at the beginning of the road to mastering your money or approaching retirement.
The digital age has made accessing information easier (and more cost-effective) than ever before.
Engaging, thought-provoking and timely personal finance content is being shared across multiple touchpoints from hundreds, if not thousands, of places daily.
From blogs and podcasts to books and news outlets, no matter the topic, you can find content covering it. Investing, frugality, making more money, retirement withdrawal, career growth, saving for children’s educations, etc.
Here are some starting points to track down that information:
- Check out 30+ of the best personal finance podcasts
- Here are 7 must read personal finance books for Canadians (and everyone else)
- These are the personal finance resources and content that saved my financial life
If you’re interested in continuing to build your financial knowledge (and you likely should be), adopt the effective money habit of never stopping learning.
In Closing…Effective Money Habits
The 7 effective money habits above are just a small example of how you can take control of your money and life throughout your personal finance journey.
Personal finances are personal so you need to find what works for you.
Whether that’s being totally hands-on or taking a more passive approach, the goal is to build habits and systems that support and best fit your situation and finances.
Keep moving forward and making momentum.
What effective money habits are making the momentum with your personal finances?
Do you agree or disagree with any of the 7 habits above?
Let me know in the comments below.
Here are some other posts to help you take control of your money and life:
- 89 Personal Finance Tips – Budget, Save, Make, Invest & Better Manage Your Money
- Waking Up At 5AM Changed My Life – Win The Morning, Win The Day
- 15 Smart Money Moves You Can (Easily) Make This Month
- How To Make $1,000 Quick: 9+ Fast Ways To Earn Money When You Need It
- 35+ Rewarding Side Hustles That Almost Anyone Can Do To Earn More Money
- 17+ Of The Best Free Money Apps To Get Cash Back, Make Money, Save Money & Invest
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This is so good. I especially liked the abundance mindset. That one concept seems to derail far too many people and families from progressing financially.
Amen! Agreed on that concept of scarcity being a real pitfall. I lived that way for so much of my younger adult life. That one mindset shift has caused me to take more risks, invest in myself, push myself and reap the rewards. Lots of room to go and improve on, but slowly trying to keep inching ahead.
Appreciate you checking out the post Tim!
-Scott
Solid list.
You got me thinking, and I might have to add a monthly family financial review meeting. My wife and I discuss money frequently, but it would probably help to get the kids in on the discussion, as well.
I’m a huge fan of Never Stop Learning, I think this is the most important thing we need to be mindful of in our lives. It is relatable of course to finances as you have mentioned but also how live our lives. Always learning means we are being complacent and settling into a rut, we are exploring the world around us, challenging ourselves.
Couldn’t agree more Chris! Whether it’s your finances, career, relationships, sustainability, hobbies, etc., never stop learning is a great mindset to continue to master and improve. I love “exploring and challenging” as you said…based on your Instagram and blog, you’re clearly exploring and pushing yourself!
Appreciate you checking out the post.
The abundance mindset is the one I struggle with here as well. Need to start thinking differently. Thanks for these great tips!
Cheers FP! That abundance mindset was a big one for me too. Took a while to push past the idea of saving for trouble instead of saving for opportunity, fearing the unknown instead of embracing it and being motivated to push forward for more!
Reading through your article was super refreshing, because SO many people write articles on “Oh, start a photography business!” or “Oh, walk your neighbors dog!” But see, that’s not everything involved. There’s a huge limiting mindset that you have to get over first before you can really break through and crush your goals. Thanks so sharing.
#1 is so key. I’m trying to do remove the taboos about money with my friends and family by being open. I also view reviewing your finances as a way of communicating with them. Talk to your money! Thanks for the tips Scott.