Many people think of the new year as a time to reset and form new, healthy habits. But healthy habits aren’t just about your gym routine or the way you eat – they’re also about how you manage your money. If you’re feeling stress or regret about your finances over the past year, you can look at the new year as your chance for a fresh start.

Meaningful progress with your finances doesn’t happen overnight, but by making some small changes to your financial habits, you could end the next year feeling more comfortable and confident with your finances. After all, the small, repeated actions you do every day or week are more impactful than the big, one-time changes.

Are you wondering how to feel better about your money habits in the new year? Below, we’ll break down what financial habits are, why they matter, and five simple habits you can start right away in the new year.

What are financial habits and why do they matter?

What are financial habits?

Financial habits are the repeated behaviors that shape your money. They’re often small routines you follow without even thinking about it. Healthy money habits might include reviewing your accounts weekly or automatically sending money to savings each month, while unhelpful habits might include overspending on your credit cards or avoiding checking your bank balance when you’re stressed.

Habits compound, meaning healthy habits usually lead to more healthy habits and, ultimately, positive results. Unfortunately, that works in reverse, too – unhealthy habits compound and can mean bad news for your money. Luckily, many financial habits can be automated and systematized through digital tools. And the easier and more automated you make your habits, the more likely they are to stick.

How long does it take to build healthy financial habits?

A study published in the European Journal of Social Psychology found that it takes people an average of 66 days for a new behavior to become relatively automatic, though it can range from as little as a couple of weeks to more than six months.

The key isn’t so much perfection as repetition. In other words, doing the same action over and over again, even if it’s imperfectly at first, is the best way to form a new habit.

How healthy financial habits support your financial wellness

Your daily habits may seem insignificant, but they are what ultimately lead to your results. Even small changes to your money habits can lead to much bigger outcomes, including less money stress, more savings, more progress toward your financial goals, and, most importantly, more confidence in yourself and in your financial situation.

Money is an inherently emotional subject, and many people find themselves ignoring the topic altogether to avoid facing uncomfortable truths. But rest assured that when you face your finances head-on, you’ll finally start to see those changes in your financial wellness that you’ve been hoping for.

5 healthy financial habits to kickstart your New Year

There are plenty of financial habits that could help take your finances to a new level, but these five are especially important to success, and each one includes practical steps you can implement as early as this week. 

Habit 1: Track your spending and build a realistic budget

Budgeting is one of the most foundational habits for your personal finances, but it’s also one that people struggle with the most. While it may seem like more work than you can manage, you’d be amazed by how much you see your finances improve just from implementing this one new habit.

Start by seeing where your money actually goes

The first step of creating an effective budget is figuring out where your money actually goes. Before building any kind of budget, start by tracking your spending for at least a month (or by going back through the last one to three months of transactions) to get a clear picture of where your money is going.

There are many ways to tackle this step, including pen and paper, a spreadsheet, a banking app, or a dedicated budgeting app. You can also visit our Monthly Expense Calculator to help you easily add up your total spending.

Turn your spending into a simple, flexible budget

Once you know where your money is going, you can get more intentional about deciding where you actually want it to go. Your budget should cover three key categories: needs, wants, and savings.

There are some popular frameworks out there, such as the 50/30/20 budget, but the truth is that each person’s finances are different, so a one-size-fits-all approach won’t work.

When you’re setting your budget, use the data you collected in the first steps. Look at categories where you want to cut back on your spending, as well as those, such as your mortgage, that aren’t easily changed. Start with your fixed expenses, then fill in how much you feel comfortable spending on everything else.

For additional support, learn how to automate your budget with the ABC budget system.

“How long until I see results from tracking and budgeting?”

Many people feel more in control of their finances with just one to three months of consistent budgeting. You may find there are fewer surprises and, if you actually stick to the budget you set, more money in your bank account.

Remember that the first few months are largely about trial and error, so you might find you need to make some changes along the way to best fit your lifestyle and financial situation.

Habit 2: Automate your savings and pay yourself first

Paying yourself first, one of the most important financial habits, is a budgeting method where you prioritize saving and investing over spending. Rather than saving whatever is left at the end of the month, you direct money into savings and retirement first, and then are free to spend what’s left.

Why “pay yourself first” is a core financial habit

The traditional budgeting method of spending first and saving later requires us to keep up our willpower throughout the entire month or risk not having anything left to send to savings at the end. 

Paying yourself first, on the other hand, helps reduce decision fatigue and resist impulse spending. Not only that, but it ensures your financial goals are funded consistently.

How to set up automatic savings in a few steps

To start paying yourself first, decide how much you want to transfer to savings each month. You can start small, even if it’s just $10 per week, and increase the amount later. 

Then set up an automatic transfer to coincide with your payday. By having the transfer run as soon as the money hits your account, you’ll hardly realize it’s missing. Then, as you get pay increases, consider increasing your automatic transfer rather than letting lifestyle inflation eat it up.

It may seem like a small step, but even $50 per biweekly paycheck will end up being an additional $1,300 at the end of the year. And if you can increase that biweekly amount over time, you’ll grow your savings even faster.

Can I still enjoy life while automating savings?

Paying yourself first doesn’t have to stop you from enjoying your life. In fact, you may find that you enjoy spending your money even more because you’ve removed all the guilt from it. Each time you swipe your debit or credit card, you can rest assured that your goals are already funded.

Habit 3: Build an emergency fund that fits your life

No one wants to plan for a job loss, medical emergency, or major house repair, but these events pop up more than we’d like. That’s where an emergency fund becomes necessary.

What an emergency fund is (and is not)

An emergency fund is a dedicated pool of funds that you’ve put aside for unexpected emergencies. It can be used for one-time expenses, such as car repairs or medical bills. You can also turn to it if you’ve lost your job and need help meeting your day-to-day expenses.

An emergency fund is critical when life throws you curveballs. It helps you avoid going into high-interest debt, and helps ensure you can keep making your monthly payments if you lose your household income. 

How much should you really have in your emergency fund?

Experts generally recommend having between three and six months of essential expenses in your emergency fund. The right amount of savings for you will depend on your personal and family finances.

For example, if you live in a dual-income household and have a relatively stable job, you might feel comfortable with just three months of expenses. On the other hand, if you’re the sole earner in your family, are self-employed, or have dependents, you might need closer to six months (or more) of expenses.

Regardless of what amount you decide on, start with a mini goal between $500 and $1,000. Not only does this give you a bit of protection, but it also helps give you momentum to keep saving.

Simple steps to start your emergency fund this month

Here’s a quick step-by-step guide to help you build your emergency fund this month:

1. Open a separate savings account: It’s usually best to keep your emergency savings in an entirely separate account. This ensures that it’s still easily acceptable, but that you won’t spend it on anything else.
2. Set up automatic savings: To help you grow your savings consistently, set up automatic transfers from your checking account to your savings account.
3. Use windfalls to boost progress: Windfalls like bonuses or tax refunds can help you reach your financial goals more quickly.

Habit 4: Strengthen your credit and tackle debt strategically

One of the most important things you can do to improve your overall personal finances is to strengthen your credit and pay off your debt.

Why credit habits matter for your overall financial health

Your credit score influences nearly every area of your financial health. It determines the interest rates you’ll qualify for on loans, the cost of your insurance, whether you qualify for a new credit card, and sometimes even when you can rent an apartment or get a particular job.

Generally speaking, your credit will improve when you display that you can use debt responsibly. Habits that will improve your credit include paying your bills on time, keeping your debt balances low, and avoiding unnecessary new debt.

Should I save or pay off debt first?

When you’re just starting to improve your personal finances, it’s easy to get confused as to what you should prioritize. After all, it’s all important. 

As the first building block, build at least a small emergency fund so you’re not relying on credit cards for every setback. Even something as low as $1,000 is better than nothing.

Next, turn your attention to your high-interest debt – usually credit cards. If possible, make more than the minimum payment on these accounts to get them paid off more quickly.

Finally, turn your attention to other priorities, including boosting your savings and paying off lower-interest debt. While paying off low-interest debt like student loans and mortgages is important, it’s important to do them alongside building an emergency fund and investing for retirement.

Habit 5: Set clear financial goals and invest in your future

Having clear goals in place for everything from your short-term savings to your retirement savings is critical to making real strides with your personal finances.

Turn “I should be better with money” into specific goals

Have you ever written down your New Year’s resolutions and included something like “get better with money?” It’s a common focus of personal goals, but most people are far too generic when setting what they actually want to accomplish.

Rather than a general goal of improving your finances, try to set very specific goals in these three categories:

• Short-term (1 year): e.g., paying off a small debt, saving for a vacation, etc.
• Medium-term (1-5 years): e.g., saving for a house, building a full emergency fund, etc.
• Long-term (5+ years): e.g., paying for a child’s college education, saving for retirement, etc.

Having short, medium, and long-term financial goals in place gives you clear direction when you’re setting up your financial plan and will help keep you motivated to stay on top of your finances.

Remember your retirement savings

One of the most important long-term financial goals to work toward is building your retirement savings. While it may be decades away, retirement is critical to start saving for today. 

To start boosting your retirement savings, start by reviewing your employer retirement plan and seeing if you get an employer match. Contributing enough to your workplace retirement plan to get the full employer match gives you the most free money possible.

Next, consider increasing your contributions over time, especially as your income increases. For example, if you get a 3% raise, consider allocating half of it to your retirement plan, and the other half can go on your paychecks.

Finally, utilize tools like traditional and Roth IRAs to boost your retirement savings even more, on top of what you’re putting away in your workplace plan.

When to work with a financial advisor

You don’t have to work toward your financial goals alone. While a financial advisor isn’t necessary for all types of financial goals, there are some situations where this type of relationship can be extremely beneficial.

For example, when you’re navigating major life changes, have several large goals you’re aspiring to, have a complex tax situation, are nearing retirement, or are simply feeling overwhelmed with your finances, a financial advisor can help.

Can you still enjoy life while improving your financial health?

Far too many people think they have to choose between two competing objectives: improving their financial health or enjoying their lives. But that’s simply not the case.

By implementing the financial habits we’ve talked about, setting financial goals, and tracking and automating your financial goals, you can make room for both goals in your life. 

You can do things like name a few non-negotiable things that stay in your budget, such as a weekly date night or a favorite hobby, while spending less on the things that don’t really matter to you.

And you might even enjoy your life more, because you’ll be able to spend money on the things you care about without feeling guilty about it, as you’ll know your goals are automatically funded.

FAQs about building healthy financial habits

How long does it take to see results from these financial habits?

You can start seeing small wins in your finances, including fewer overdrafts or a greater awareness of where your money is going, within a month. Other habits will take a bit longer to see the fruits of your labor. But you should still start seeing some improvement within a few months.

How much should I really have in my emergency fund?

Most households should have between three and six months of essential expenses in their emergency fund, but it’s important to adjust for job stability and family needs. It’s important to choose a figure you feel comfortable with and know you could rely on if you lost your job.

What’s the biggest mistake people make with money?

Some of the biggest mistakes people make with their money include ignoring their money, which can look like not tracking their spending, not planning for the future, and simply assuming things will resolve themselves. Another key mistake is taking on high-interest debt without having a clear payoff strategy.

What if I’m already in debt, should I save or pay off debt first?

Before you start prioritizing debt payoff, it’s important to build at least a small emergency savings, even if it’s just $1,000. Once you have a small amount saved, you can focus on paying off high-interest debt, while paying the minimum on your other debts. Finally, you can invest for the future and pay off low-interest debt in tandem once your high-interest debt is gone.

Are budgeting apps safe to use?

Yes, many reputable budget apps use encryption and multi-factor authentication to secure your account. However, the responsibility also falls on you to implement strategies like strong passwords and choosing reputable places to keep your money.

Can I still enjoy life while improving financial health?

Yes, you can still make room for enjoyment while you’re improving your financial health. Many people set aside a “fun money” category in their monthly budgets to ensure they can meet their financial goals without feeling deprived.

The bottom line

Some of the most important habits you can implement to improve your personal finances are tracking your spending and building a realistic budget, automating your savings, building an emergency fund, strengthening your credit, paying off debt, and setting clear financial goals, including retirement.

Don’t worry about trying to do everything at once – it’s okay to start with just one habit, and build onto it once you feel comfortable.

And if you want a partner in reaching your financial goals, set up a consultation with a Wealth Enhancement advisor for personal insights on your financial plan.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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