Setting Goals for Financial Success: The Power of Healthy Habits

Freelance writer Karen Cordaway was once a shopaholic who spent years wasting her money on unimportant and frivolous purchases. She decided it was time to make a change, but she knew that simply setting goals for her family’s spending wasn’t going to be enough.

“I read Charles Duhigg’s The Power of Habit, and it blew me away,” Karen says. “I learned that you can’t extinguish a bad habit; you can only change it. The bad habit will always be there in your brain. So I realized that we would need to make changes to our actions every day until those actions became habitual, which would lead to better financial behavior.”

And it has. Karen’s family has been able to change their spending habits and save thousands each year—without feeling deprived. Here’s what you can learn from Karen.

1. Force Yourself to Be Mindful

Karen realized that one easy way to save money was to reduce her family’s food waste. The average American household throws out about 25 percent of their food and beverage purchases, according to an August 2012 report by the National Resources Defense Council. But setting goals such as “waste less food” might not be enough.

Karen knew that her family would need to replace their habit of letting food go bad in the fridge with a more mindful food habit, so she started posting her grocery receipts on the refrigerator door for the whole family to see. Not only does this practice help her family figure out what’s available to eat before they even open the door, but it also serves as informal inventory, and items can be checked off as they’re eaten. Additionally, it helps Karen’s family remember to eat any items reaching their expiration dates. This simple habit helped Karen’s family reduce their wasted food. For the typical family, reducing up to 25 percent of your waste could result in savings of up to $2,200 per year!

To incorporate this habit into your goal-setting, think of ways to put your goal right in front of you anytime you’re making a related decision. For instance, you could wrap a picture of your savings goal around your credit card, encouraging you to think about the big picture every time you face a spending temptation.

2. Go on Autopilot

Every morning, Karen knows which pair of earrings she’ll wear that day, because she only owns one pair. Her reasoning? When she has fewer choices to make in the morning, she saves her decision-making energy for when it really matters.

Eliminating choices helps Karen avoid decision fatigue, which is when the mental work of making choices wears you down. This is universal phenomenon, and it can derail the best intentions for achieving your goals. According to Karen, automating her fashion choices helps her stay on track with her financial goals, since she won’t be worn out from making smaller choices when facing bigger ones.

3. Set Rules and Prioritize Around Them

One habit of Karen’s that you might find surprising is her implementation of certain rules that place limits on her family. For instance, each of her children may attend no more than two birthday parties each month, even if they get invited to more. This rule may sound arbitrary, but it reflects the importance of setting priorities within the family. Going to multiple parties in the span of a few weeks (and sometimes each weekend) can eat up family time and budget. But having a two-parties-per-month rule saves on both while allowing Karen’s kids to decide which parties are the most important to them.

You may not be able to extinguish your bad habits, but replacing them with helpful ones can bring your goals that much closer. In other words, habits can set you (financially) free.

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