Creating the investment habit

Posted by Maneesh Sethi :: November 9, 2007 @ 9:36 am

Starting to invest is just like starting to do anything---it's easy to start but hard to keep up. The trick is that you have to make investing a habit---something you do naturally, easily, and without any difficulty. The hard part, of course, is creating the habit.

How do you create a habit? You have to begin doing the action consistently. For investing, this means that every time you get a paycheck, you always invest a specific percentage. Or, you always monitor and update your investments every month. Regardless of your time span, it should be done well and it should be done consistently.

Here is a great resource on habit shaping (PDF) from fallingawake.com. This document lists the three requirements to creating a habit: Commit, Monitor, and Practice. First, you need to commit to investing. Write down what you plan to do---I recommend a consistent percentage of your income. A good starting percentage is 10%.

Now, you need to monitor your progress. From each paycheck, immediately transfer 10% of your earnings over to your investments. For example you can easily add funds each month or each pay period to your lending account on Lending Club to invest in P2P loans. Did you do this for every paycheck? Set up a reminder on your calendar that helps you remember to do the action.

The last step is to practice. If you mess up, that's okay---just keep trying. Persevere. You might make a lot of mistakes at the beginning, but as you continue, the investment habit will grow stronger.

By following these guidelines, you will be able to create a habit that will serve you well in the future.