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Wealth & Well-Being

Understanding How Habits Work in Order to Be Financially Successful

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You’ve heard about the importance of compounding when it comes to saving for retirement or other larger goals. Small contributions made regularly multiply in value over time. The longer your contributions grow uninterrupted, the more impactful each dollar becomes. Because of this, compounding interest is the (not so) secret ingredient to building your long-term savings toward financial independence.

Think of the effects of your daily habits as impacting the quality of your life in the same way in which compound interest impacts your savings. While you start with small and rather inconsequential actions (positive or negative), those decisions compound over time to create change. How you choose to address your money today, tomorrow, and every day after will greatly impact the trajectory of your financial future.

In fact, your financial future isn’t defined by a few monumental events. It’s determined by the small habits you carry with you every day that impact how you save, spend, invest, and view your overall financial wellbeing.


Habits in our daily lives seem inconsequential and make little difference for quite a while. That is, until you cross a critical threshold. Just like compounding interest, you won’t see change—until you do. But you’ll never get to that point of change unless you persist, even when it feels like nothing’s happening. It’s easy to discount small behaviors. But having patience is key to actually experiencing the results.

How does this relate to your financial life?

Think about a big goal you have, like contributing toward a child or grandchild’s higher education. Putting $200 in a savings account each month is doable, but it feels like it’s not enough to make a difference. And if you only stick to it for a couple months, you’re right. It won’t make a difference. But, if you form the habit of contributing regularly (or better yet, automating your savings), you’ll see the account grow gradually over time. When the big day finally arrives, you’re amazed at the amount that’s amassed over time. If we assume you begin saving after the child is born into an account earning 5% average annual return, these monthly savings could add up to $67,000 over an 18-year period due to the power of compounding.


Now that we’ve discussed the importance of small, consistent changes, the question becomes, “How do I form good financial habits?” Here are three tips for creating, and sticking to, healthy habits.

Tip #1: Make It as Easy as Possible

Think of how much technology has changed the way we handle our wealth. It’s rare to even see a check or cash anymore. While the influence of technology over banking has its pros and cons, one great thing is the ability to automate.

Automation allows you to spend a few minutes up front deciding how much money goes where, when, and for how long. Once that’s done, you’ve just created a new habit that requires absolutely no more effort on your part.

When creating new habits, starting with the easiest possible tasks helps reduce friction and keep you motivated to continue on. There’s nothing easier than automation, which gives you the power to “set it and forget it.” Use this tool to automatically contribute to your emergency savings, 401(k), health savings account, brokerage account, and more each month. Increase these savings amounts at predetermined times, like when a pay increase or bonus is received.

Tip #2: Think About the Kind of Person You Are

Your money is incredibly intimate, like your health. This can make it difficult to look at your savings and spending habits under a critical lens. But instead of shying away from what you do with your money, think instead, “What kind of person am I with my wealth?”

Consider statements like:

  • “I’m a conservative spender focused on creating generational wealth for my kids and grandkids.”
  • “I enjoy the finer things in life, like dining out often and buying luxury goods.”
  • “I like to keep my day-to-day spending light so I can splurge on travel, holidays, and big events.”
  • “I don’t live by a budget and tend to just go with the flow.”

Rather than focusing on outcomes (like saving X amount by age 55), focus on your identity and how money plays a role in it. Once you shift your mindset, you’ll be amazed at how your motivation for setting new habits changes.

Tip #3: Practice Patience and Self Compassion

Rome wasn’t built in a day, and your new habits won’t be either. It’s common to fall off the wagon, take a break, restart, stick to it for a while, and break again before you finally find a routine that works for you. Building healthy financial habits isn’t about being perfect from the start, it’s about having patience, getting back up on your feet, and moving forward no matter how many times you must start over.

When you’re tempted to talk down to yourself, try self compassion instead. You are a good person who wants to…set a good example for your kids and grandkids? The kind of person who does not have to worry about money in retirement? Money mistakes happen, and in most cases aren’t going to make or break your financial foundation. Similar to how taking a short break from an exercise routine will not make you and unhealthy person, healthy financial habits will outweigh small breaks from the plan because the success is in the power of these healthy habits compounding over the long-term.


Sometimes when people are trying to form new habits (like eating cleaner or working out), they like to have an accountability partner. This person joins them on their journey, offers motivation, and keeps them accountable for sticking to it. A financial advisor is a great “accountability buddy” for anyone looking to develop better financial habits.

If you’re interested in working with someone who understands the importance of good habits and can help you make a plan moving forward, don’t hesitate to reach out to us.

Written by Julie Fortin in collaboration with Lexicon Content Development

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