How To Develop Good Financial Habits That Lead To Wealth!
Good financial habits are the basis to creating wealth. Building financial freedom is not something you learn overnight, it takes time and a foundation of solid habits that you perform day in and day out.
There is no such thing as ‘getting rich quick.’ Yes, you can win lotto, but most people blow their winnings because they don’t have the knowledge behind them on how to properly manage their newfound wealth.
When you’re trying to build up good financial habits, keeping it simple is the way to go. You want to set yourself up with the best possible chance for success by starting with habits that you can actually achieve and most importantly, maintain. This in turn builds your self-confidence and increases your motivation towards the journey of financial abundance.
HOW TO CREATE NEW HABITS?
By definition, a habit is an acquired behaviour that is regularly followed until it becomes almost second-nature. It’s a bit like driving a car, when you first learn, it’s a process that requires hours of practice. However once you’ve mastered the skill, you’ll find yourself arriving at home without remembering much of the drive, and that’s because you were on auto-pilot.
The key skills you’ll need to develop to form and keep your new habits are willpower and discipline. When a particular action becomes a habit, a neural pathway is formed to reinforce this behaviour. When you nurture those actions that lead to wealth creation, they’ll soon become second nature, leading you to automatically (habitually) do those things that can help you achieve financial success.
Now we’re all creatures of habit, just take a look at your daily routine – you probably brush your teeth, have your morning coffee and take the same route to work every day. So why is it so hard to form new healthy habits?
It can take anywhere from 18 to 254 days for a person to form a new habit and an average of 66 days for a new behaviour to become automatic. There is no one-size-fits-all approach when it comes to creating new habits. It generally requires trial and error until you find what works for you.
As previously mentioned, keeping it simple will give you the strongest possibility of maintaining your new habits. The reason why most people give up so easily is because they skip a day or two and think there is no point in continuing.
If you forget now and again this does not impact your ability to form a new habit – what is important is that you stick with it and remain disciplined.
Most people struggle to create good habits because they make bold goals that are unsustainable. If you’ve never been to the gym and you expect yourself to go five times a week without fail, then you’re in for a shock.
For example, if you’re wanting to save for a house deposit then begin with putting away a small percentage of your income, and once you become familiar with that you can re-evaluate your budget to identify where you can cut back spending in order to save more. The satisfaction you’ll get from actually saving what you say you will is unmatched.
Do it every day
Like real estate is a long-term investment, so is creating new habits. As mentioned, on average it takes 66 days for an action to become habitual. Building good financial habits isn’t as glamorous as most people think, it requires small steps each and everyday that over time will build up to a massive shift.
Make it easy
It’s all about working smarter, not harder! You are more likely to form a new habit if you clear the obstacles that might stand in your way. Humans are especially sensitive to small friction in our environment, so by reducing any distractions you’ll be more likely to form a new habit.
For example, if you’re wanting to learn more about wealth creation through property investment, then perhaps an e-newsletter about real estate might be the solution for you. Positive real estate has a weekly email that’ll give you the education you need to build your property portfolio.
In our fast-paced world, most people jump onto the next thing without properly acknowledging and celebrating their wins. Rewards are an important part of habit formation.
Rewards teach us which actions are worth remembering in the future. Your brain is a reward detector. As you go about your life, your nervous system is continuously monitoring which actions satisfy your desires and deliver pleasure. Feelings of pleasure and disappointment are part of the feedback mechanism that helps your brain distinguish useful actions from useless ones. Rewards close the feedback loop and complete the habit cycle.
GOOD FINANCIAL HABITS EXAMPLES
Building a financial plan is a great place to start when it comes to beginning your journey of creating good financial habits. It can help you with everyday money decisions, and provide you with guidance when you get to the stage of deciding what types of vehicles you’re going to invest in to create wealth.
Your plan should include the following attributes:
- Specific goals that define what you want to achieve and which are aligned with your values and your personal situation.
- Clear, actionable steps that lead you towards your goals.
Identifying why you want to create good financial habits
As with anything in life, in order for it to stick you need to have a really strong reason why. You should have solid reasons that will encourage you to keep going when things get tough. Understanding your why will also help guide you in certain areas down the track.
For example, if you choose to invest in real estate to build your wealth, you will likely have to make decisions about buying, selling or renovating. Having clarity around why you are aiming for financial success will aid you in this decision making.
Most people want to create wealth so that they can retire and live life on their terms. With the cost of living rapidly rising, retiring stress free is becoming out of reach for many Australians. This is because most go about their lives thinking their Super and pension payments will be enough for them to thrive in their golden years.
Unfortunately, the harsh reality is that is simply not going to be enough. The Australian pension payment is $36,000 per couple or $24,000 if you’re single. Wanting more than to merely survive in retirement is a pretty solid reason why.
Set specific and actionable goals
This was vaguely mentioned above but it’s worth reiterating as it’s a deal breaker when it comes to achieving the outcomes you desire.
Once you are clear on your “why” you’ll be able to design goals that are specific and actionable. Creating goals that are relevant to financial success and not impossible to achieve are much more powerful than wishy-washy goals such as “pay off debt soon” or “make more money”.
As with anything in life, there is risk, especially when it comes to investments. If your chosen wealth creation vehicle is real estate, then in order to better inform what kind of specific and actionable goals you should be setting it helps to understand your risk profile.
When we talk about risk in real estate, we’re essentially gauging how willing you are to expose yourself to loss and how you adapt when things go wrong.
Create a liveable budget
Forming a budget is a good financial habit to make because you should always know how much money is coming in and going out of your accounts each month. Without knowing this vital financial information, you may be spending more than you make – leading to a life of debt and poor credit.
A simple way to gain a clear view of your financial situation is to track your spending for at least two weeks – if you can do one to three months, even better. It can be as simple as writing it down on a piece of paper.
Once you know where your money is going, you’ll be able to spot patterns. Where are you wasting money? What areas can you cut back on to increase your savings? This will help you to create an action plan that you can live by each day.
Pay off debt
Debt is not always a bad thing, especially when you are leveraging it to invest in yourself or your financial future (student loan or recycling equity). However, over the course of your life, you might be amazed by how easy it is to get into debt, and how difficult it can be to reduce it.
Bad debt refers to borrowing money in order to fund your lifestyle, usually on items that have no value or that will depreciate over time. Think credit cards, car loans, hire purchases and laybys.
Making a plan to pay off all of your bad debt is a good financial habit that will (hopefully) encourage you to avoid accumulating debt in the future.
When making a plan to pay off debt, consider the below:
- List how much you owe and the type of debt (credit card, Afterpay etc).
- Prioritise your debts from highest to lowest by interest rate. Pay off debts with higher interest and fees first.
- Make a repayment plan.
- Work out if you can afford (based on your budget) to pay more than the minimum repayments.
Find a way to create passive income
You have probably guessed by now that property investment is our go-to when it comes to building wealth. Through capital growth and rental yields, real estate can offer the ability to increase your net worth and also provide you with a stable passive income.
Passive income is essentially money you make residually through endeavours with minimal routine upkeep. Basically, the idea is for your money to work for you, not you working for money.
Real estate can generate income through rental yield. When building an investment portfolio you want to be looking for positive cash flow properties. This is where your rental income and tax deductions cover the majority of your running costs, and then some to generate a profit.
Historically house prices have increased over the years in Australia. We have seen a 23.7% increase in residential property prices in the last 12 months, one of the strongest annual growth records. To take advantage of these capital gains, you have to be committed to property investment for the long-haul. Most real estate investors adopt a buy-and-hold strategy so they can be a part of the gains of a normal real estate cycle.
HOW TO REINFORCE YOUR GOOD FINANCIAL HABITS
You are the average of the five closest people you spend time with. This is something you want to be aware of when you’re embarking on this journey of creating good financial habits.
For example, if you’re wanting to retire by 40-years-old with an extensive property portfolio then you’re going to need to start connecting with like-minded people who want to do the same (or have already done it).
When you first start planning for your financial future, it can be very overwhelming. The best thing you can do is get support. If you’re thinking that real estate could be the wealth creation vehicle for you then come along to one of our FREE property investing masterclasses.
This jam-packed two hour event will give you all the information you need to start out in property investment, and you will be able to ask questions to our expert team.
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