American Money Habits – How Can We Improve Financial Wellness?

The ways in which we make, save, and spend our money are influenced not only by what we learn, but also by the habits we build over time. We all establish habits – such as washing our hands, brushing our teeth, or saying please and thank you – that can serve us well in life.

We also, unfortunately, may learn some habits that don’t serve our best interests.

Given the trillions of dollars spent on advertising to encourage us to buy the latest gadgets and expensive name-brand clothes, the reality is that many Americans have built financial habits that make it challenging to save and invest for important long-term goals – such as putting our kids through college, saving for retirement, or even paying off a house to create financial stability.

We have compiled a list of good and bad financial habits that many Americans share, along with suggestions on how to build new and better habits.

The list is far from comprehensive, but should serve as an important metric to help you think about building – and teaching – good financial habits to contribute to greater overall financial well-being.

Good Habits

1. Looking for items that are on sale or discounted.

Buying necessary products at a preferred price can be a boon to your budget.

2. Shopping at wholesale warehouses.

Leveraging wholesalers like Costco, Sam’s Club, and Walmart to buy needed resources like toilet paper, frozen food, or laundry detergent in bulk; saving 10%, 20%, or even 50% off retail prices.

3. Seeking gas-efficient cars.

Driving a more efficient vehicle not only reduces your carbon footprint, but can also save you a significant amount in gas costs, and leave your budget less vulnerable to fluctuating gas prices.

4. Finding ways to trim home energy costs.

More and more Americans are using energy-efficient appliances and light bulbs. Some are even taking bigger steps, like implementing solar power to save money and reduce environmental impact.

Bad Habits

1. Mixing up “want” and “need.”

Many Americans struggle to distinguish between “want” and “need” when it comes to making major financial purchases. Over the past 30 years, we’ve come to think that we “need” cell phones with unlimited data, three televisions with expensive cable plans, and the latest designer clothes and accessories.

2. Breezing past small expenses.

We have found that many Americans feel so cramped for time that they believe they “need” to purchase expensive gourmet coffee, eat out for meals on a regular basis, or pay for premium parking as they rush to work and appointments.

Being so busy, most of us don’t stop to really question whether these expenses (which add up over time) are necessary, or whether we could adjust our schedules to eliminate them; we simply keep paying for the things that enable us to rush around in a whirlwind.

3. Failing to create a budget.

Only 1/3 of Americans actually take the time to build and balance a simple budget. Many of us inadvertently spend all of (or more than) our paycheck, and we aim to cut back on spending only once the money in our account is depleted, or we see our credit card balances rising.

4. Putting off saving for later.

Far too many Americans put off saving $100, $50, or even $25 a week for long-term goals – like college tuition or retirement – in favor of thinking they will save for those future goals once the other things they “need” are paid for.

For many, that “someday” in the future continues to elude us, cutting the window shorter and shorter for future savings.

Changing Simple Habits for Major Returns

1. Pay Yourself First – This one, simple idea can have a profound impact on your overall financial security. The concept is to pay yourself before paying any bills, buying monthly necessities like groceries, or spending on luxuries.

How does it work? Every pay period, take some money (a small amount to start) from your paycheck, and put it in a savings account or contribute to a tax-free retirement savings plan – such as a 401(k), IRA, or similar plan.

In this way, you are making a habit to “pay” or allot money for your own financial stability on a regular basis.

Even as little as $25 a week (less than $4 per day) can have a huge impact over time.

2. Create an Emergency Savings Fund – According to more than 7 years of research – with nearly 1,000 employers and 200,000 employees – one of the most important things you can do to improve your financial well-being is to save up sufficient cash to be prepared for an unexpected emergency.

Having a cash cushion of one, two, or three months of expenses can provide you a major sense of financial empowerment, and reduce your overall financial stress immensely.

Remember: do not dip into this money for anything other than a true emergency, like a sudden illness or unexpected job loss.

3. Make Small Changes – Introducing a few small habits into your normal routine – such as packing a lunch, limiting your Starbucks trips to only once a week, or carpooling to work with a friend or co-worker – can have a tremendously positive effect on your overall finances.

For instance, packing a lunch for work every day can potentially save you $50 a week, which quickly adds up to savings of $2,500 per year; or more than $75,000 over the course of a 30-year career.

4. Choose Wisely on Big Purchases – The reality is that for most people, 40% to 60% of their earnings go towards paying for major expense items; including housing, transportation, health care, education, and taxes.

If you can focus on improving your ability to distinguish between what you “want” and what you truly “need” in these core areas, you will open up your opportunities to save, invest, and start getting your money to work for you.

Of course, it would be great to have a big home and drive a luxury car, but if you are not in a position to pay cash for such items, think long and hard before reaching too far to finance things you cannot yet afford.

Managing debt payments – no matter how large or small they seem – will impact your ability to save and invest for your long-term goals, and will leave you working twice as hard to pay for things you cannot afford just yet.

5. Focus on What Matters Most – While it’s easy to think of ways to save money on a variety of items, be wary of going too hard, too fast with your thrifty goals.

Attempting to be a penny-pincher in all aspects of your life is like going on an extreme diet; it soon becomes difficult to stick to such abrupt and extreme behavior changes, especially since your current habits have developed over years and years. If your goals are too lofty in the beginning, you may be making it more difficult for yourself to succeed.

Try making a list to prioritize the things you normally spend money on – then design a budget in which you allow yourself to spend more on the categories that matter to you, and challenge yourself to buckle down and save on (or even cut out entirely) the things that don’t.

Habits take a long time to develop, so it only makes sense that it can take some time to change them. Modern Americans share many beneficial financial habits, like driving eco-friendly cars and shopping wholesale, which have contributed to shifting the American population from a negative net savings rate during most of 2000-2007 to a positive savings rate today.

Unfortunately, today’s average American also practices some detrimental financial habits, including neglecting a budget and procrastinating on long-term savings. The good news is that with a little bit of knowledge, realistic goal-setting, and a solid plan in place, it’s not hard to teach ourselves – and others – to practice better financial habits.

Remember to be patient with yourself, as changing any habit takes time and determination. Start small – save a few extra dollars each week, pack a lunch more often, or limit your monthly coffee budget – and as you see the positive impact from these minimal changes, you’ll find yourself motivated and confident to make even bigger changes to improve your financial wellness overall.

Contributed By: Andy Meyer, CEO of Financial Fitness Group. Andy Meyer is an accomplished leader with over 20 years of senior management experience growing software and technology based companies. Companies have included Websense, Epicor, Cisco and multiple mobile start-ups. He has extensive experience in general management, marketing, sales, business development and public relations. His efforts have directly led to exits including IPOs and raised growth capital for multiple companies.

He earned a bachelor degree in Mechanical Engineering from Georgia Tech and an MBA from the University of New Orleans.

Tags: Finance, Financial Wellness, money habits

Category: Family Finances