Spending struggles: 3 steps to breaking unhealthy money habits

Some bad habits affect our physical health, like smoking, nail biting or eating too much junk food. But there are other habits that take a toll on our financial health.

How do you know if you have unhealthy financial habits, and what can you do to build better ones? Take these three steps.

Step #1: Dig into your relationship with money

Relationships with money are complex. It isn't always easy to identify financially unhealthy behaviour. But there are some signs you can look for. Common problem areas include spending more money than you earn, neglecting to start an emergency fund and not saving for retirement.

Taking a financial health quiz can be a good first step toward detecting weak spots. However, our struggles don't always reflect poor habits or decision-making. Many experts say it's important to consider the role that systemic issues can play in shaping financial health.

“Not being able to get a minimum salary, not having medical insurance, having loans in a career that you can't find a job. Those are all systemic issues,” said Saundra Davis, founder of US-based financial service provider Sage Financial Solutions.

If you're dealing with these kinds of systemic problems, focus on finding support.

On the other hand, if your income should be enough to cover your expenses but doesn't, that's when you should look at your behaviour, Davis said. What choices are you regularly making, and what do you have the power to control?

Look for patterns. Maybe you shop online when you're bored or upset. Or you ignore your debt because it's overwhelming. Maybe you tend to spend windfalls instead of using the money intentionally because your family didn't emphasise the importance of saving growing up.

Emotions and experiences can have a major impact on our money habits. That's why it's also possible to develop unhealthy habits if you're in good financial shape. For example, a person who pays all their bills on time and has plenty of savings might still feel anxiety around spending or argue about money with a partner.

“Often there's that history of financial scarcity and loss somewhere in their background that's unresolved that leads them to not be able to fully connect with the fact that they're actually financially secure now,” said Ed Coambs, a US-based certified financial planner and financial therapist.

Once you better understand what's behind your unhealthy habits, you can begin to repair them.

Step #2: Set financial goals that are personalised

Ask yourself, “Where are you trying to go? And where are you right now? And then how do you bridge that gap?” Davis added.

Setting financial goals can put you on the path toward healthier habits. Your goals can revolve around specific amounts, such as becoming debt-free or saving three months' worth of expenses in an emergency fund, Davis further noted. Or, the goal might be about changing your money mind-set, such as becoming more thoughtful about your spending or getting comfortable discussing money with others.

Create a plan that supports your vision of financial health. Say you want to boost your emergency savings or make credit card payments on time. Automating those transactions can help. You can transfer a specific amount from your checking account to savings each month or set up minimum credit card payments through your issuer's website.

Coambs suggested checking in on your finances once a month or every couple of months. Review your budget and behaviour to determine whether you're on track to reach your goals.

Step #3: Lean on resources, don’t go at it alone

Breaking financial habits can be challenging. But you don't have to do it on your own. There are people and activities you can turn to, “whether it's journaling or having a conversation with your partner or some other mode of helping yourself feel safe again around the topic of money,” Coambs added.

There are also many professionals who can offer guidance. A financial therapist, for example, can help you unpack your money relationships.

“All of us have a money history. And if your money history is one where there's a lot of emotional pain and chaos connected with money, then oftentimes those issues in your past need to be treated much like any other type of trauma,” Coambs explained.

You may also choose to work with a financial planner or seek free advice on managing your budget, credit or debt from a credit counselling agency.

Along your journey to improving your financial habits, learn to advocate for yourself, Davis added. “What that can do is reduce or eliminate shame, about going to get help wherever you might need it. If that means public benefits, if that means family and friends, whatever that means to you,” she said.