We associate habits generally with walking, jogging, dieting, reading, writing kind of stuff. We never associate habits to the money world. But habits are these micro routines which bring in automaticity to life, in a nice way.
Here are 6 money habits which helped me with my first million:
Track your income and expenses every single day.
This is the hardest habit to form but once it forms it has a trickle up effect. Awareness is the key for any behavioural change. That is what tracking does to our brains. It shows the truthful state of the current context.
The more our brain is aware of what is going on in the current context, an inner voice will start nudging you towards betterment. Whether we listen to it or not is a different story but the inner voice is loud and clear.
Say "NO" to impulsive spending.
Delay the gratification of buying "that" thing. I have a rule of sleeping on the buy list for at-least one night. By bringing in a gap between swiping and thinking, I get to justify my spend or otherwise. It becomes a thought through decision and not an impulsive one.
Make money invisible.
Out of sight is out of mind. Monika Halan says have three accounts. A spend account, an income account, and an investment one. Push money from income account away to other accounts (hopefully more to the investment one). This way there is no money in the account and you will not be tempted to spend more. Play with your psychology and make it invisible.
Enhance your circle of competence.
Don't invest in things you don't understand. period. If you don't know much about stocks, read about them, take a few sessions, speak to people who do it, think about that more before you invest. Same with any investment (real estate, bit coin, startups etc). If you don't understand don't invest. Reduce you risk by not doing something stupid. A mental model Munger and Buffet live by.
Don't time the market.
It is like saying don't predict the ocean. There are indicators which shows how the market is doing but no one will ever be able to say what will happen next. So flow with the market ups and down. Go with the tides. Don't panic sell because one day market was down. Don't panic buy because it is a great opportunity. It keeps coming and going. If you are more informed, your conviction in your decision making will be better.
Discuss with experts in the tax area and see what it means for your money. Sometimes what looks like a gain is a zero sum game due to taxation. Pay attention to the tax code and the changing norms.
The habits are drawn from first principles so it will work for everyone. Let me know how is your 2021 financial habits looking like?
🥂 to habits!