Resolve to Replace Your Bad Financial Habits

Most people have at least one bad financial habit. Whether it's impulse shopping, forgetting to pay bills on time or putting off building that emergency fund, balancing what you want to do and what you "should" do is never easy. The new year is the perfect time to identify potential financial weak points and replace bad habits with productive ones.

Start by identifying your bad habits. Sometimes a bad financial habit is easy to identify. For example, there might be a growing stack of bills in the kitchen that you willfully ignore. Others may be subtler, or perhaps they've become so ingrained that you do them without thinking twice.

Not sure where to start? Looking through your previous months' expenses can help you identify expensive trends or one-off purchases that are part of a larger theme. Online banking can make this particularly simple, but any account statement will do the job. If you have a budget, you likely already compare projected spending with actual spending on a monthly basis, if not, this might be a good time to start.

You also might recognize a few of these common bad financial habits in your life:

• Paying bills after the due date.
• Paying only the minimum required on bills.
• Ignoring bills and letting them go to collections.
• Putting off saving for retirement or for a rainy day.
• Impulse shopping or "retail therapy."
• Not keeping track of how much debt you have.
• Taking on debt to pay for something you don't currently need.

Ultimately, all of these lead to spending more than you earn. In some cases, bad habits can have a cascading effect as well. For example, you might have a tendency of making impulse purchases at the checkout line when buying groceries. Or buying big-ticket items that are on sale without considering how it fits into your budget or overall financial picture. These could lead to you only being able to make minimum bill payments or perhaps not making payments at all. As a result, a small daily or weekly habit winds up leading to larger financial problems.

Try to figure out what's driving your behavior. You might need to figure out what's driving your behavior before you can change a habit. Often there'll be something that triggers the behavior and a reward you experience afterward. However, they're not always obvious. The trigger, or the reward, could be a feeling or a physical sensation.

Perhaps your trigger is the time of day, or location, while the reward could be the feeling of accomplishment that can come from a purchase.

Once you identify your trigger and reward, you can try to replace your behavior with a more positive activity. For example, you might buy big-ticket items when they're on sale because you want to feel like you're accomplishing something by "saving" so much.

Perhaps you could get a similar feeling from investing the money in a tax-deferred retirement account and calculating how much the money will be worth after years of compound interest. For a shorter-term win, you could set a daily or weekly savings goal and try to foster a sense of accomplishment each time you achieve it.

Aim for these healthy financial habits. What habits should you try to adopt? Budgeting is certainly a worthy activity, but also consider the following mix of behaviors and specific objectives that can help keep your finances in order.

Pay bills on time. In addition to avoiding late-payment fees, making on-time payments is one of the most important factors in determining your credit score.
Make paying down debt a priority. Rather than accruing interest, make a point to pay down debts as quickly as possible.
Build and maintain an emergency fund. Having three to six months' worth of living expenses in savings can help cushion the blow from a financial or personal setback. You could start with a goal to put $1,000 aside and then build towards the full emergency fund.
Save for retirement. You can put aside a percentage of your income for retirement each pay period and invest the money within a tax-advantage account, such as a 401(k) or IRA. Find a comfortable contribution amount to start with, and then try to increase it at least once during the year.
Plan your large purchases. To help prevent impulse shopping from draining your budget, resolve to wait at least one day before buying anything that costs over $100 (or whatever amount makes sense for your budget). Some people take this a step further by waiting a week or even a month before going through with large purchases. If you know there are large purchases you'll want to make in the future, start saving early on and set a little money aside from each paycheck.
Comparison shop. Somewhat related to impulse shopping, you could also implement a rule that you must compare prices at several retailers before making large purchases. The extra time could help stop you from making unnecessary purchases, and you'll know that when you do buy something you got a good deal.

While finances are a personal topic for many people, you might consider asking others for input during this process. Especially if you're having trouble identifying a bad habit or finding the motivation to change, sometimes an outside perspective can help.

Consider joint financial resolutions as well. After identifying and trying to change your personal financial habits, you might want to consider the financial practices you share with a spouse or significant other.

For instance, you might have a weekly ritual of going to an expensive restaurant and treasure spending that time together. If it fits within your budget and you're accomplishing your other financial goals that could be a wonderful tradition. But when you're struggling financially in other areas, a different restaurant, sharing less expensive options from the menu or cooking a meal together could have a similar reward with a lower cost.

Some couples have a monthly money meeting when they discuss their individual and shared financial setbacks, wins and goals. Implementing a similar practice in the coming year could help you get, and stay, on the same page as your partner. Plus, you can help keep each other in check and on track to have a great year.

Bottom line: Make a resolution to break your bad habits and replace them with healthy financial habits this year. Start by identifying the habits you want to change and trying to figure out the trigger and reward that surround the behavior. Then, try to replace that behavior with something positive. If you're married or living with a significant other, you might want to go through the process as a couple after you've started changing your own personal finance habits.

Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.