The Power of Habit shows you how individual habits are formed and how you can change them in any area of your life – even in your personal finances.
Look around my site and you’ll notice how important I believe financial habits are to successful money management. Financial knowledge is of no use unless you apply it.
Learn how to make good financial habits automatic.
1. Habits (good and bad) can be changed once you understand how they work and once you are conscious of them. Old routines can be replaced by new ones in “The Habit Loop”.
2. Spillover effect. By making one small change, your brain gets rewired (neurologically) and starts to make new changes in other areas of your life.
3. We can make desired habits automatic through repetition. By being conscious of what your intended outcome is – for instance, eliminating your debt, you can start making changes and repeat them until they are ingrained in your life to reach this otherwise seemingly difficult goal.
You'll like that The Power of Habit provides us hope that we can change our behavior. We are not all slaves to our habits. Breaking down habits into bite-sized pieces makes change more manageable.
There is a lot of supporting research, which is never dull, to support the author’s claims. You’ll find the book is engaging while informative, and even suspenseful.
I want to share some personal ideas that I use to set up my successful money management habits.
Let me illustrate with some examples to help you come up with your own financial habits. I encourage you to also use whatever rewards work best for you.
1. Create-a-monthly-budget routine. Get a budget template that works for you, set it up and review it once a week to help you control spending and reach your savings goals. Here’s your financial habit loop:
Cue: End of the month.
Routine: Create a budget for the month you’ll commit to.
Reward: Sense of control over finances and having planned where every dollar will go.
2. Use-cash-only routine. Get used to using cash to control spending. Here’s your financial habit loop:
Cue: Payday (or choose the same day each week).
Routine: Withdraw a weekly cash amount for groceries.
Reward: A full wallet of cash and knowing you won’t spend more than what you physical have in your wallet.
3. Pay-down-debt routine. Make debt repayments a priority over everything else. Here’s your financial habit loop:
Cue: Extra cash at the end of the week from underspending.
Routine: Go to the bank and make an extra debt payment.
Reward: Satisfaction when you cross off the old debt amount and write down the new, lower number!
4. Eat-at-home routine. Save money by making your own lunches instead of going out to eat.
Cue: Preparing for dinner.
Routine: Make a delicious dinner at home and pack the “leftover” portion first so you’ll have enough for your lunch the next day.
Reward: Satisfaction of knowing you saved money and are eating healthier by bringing your own home cooked meal.
Hopefully this gives you a few ideas of how the The Power of Habit can be applied to your life. And whether or not your habits are financial, I’d encourage you to read the book if you want to change any poor habits.
Even starting with just one simple change, like getting up earlier each day, or writing down a savings goal, and repeating this each day, can have a “spillover effect” into other parts of your life. Who knows, in a year or so, you could be free from debt, starting a business or starting your dream career!