How to Break Bad Money Habits

The Wall Street Journal’s MarketWatch site recently ran an article entitled “7 tips to keep your car’s gas bill down.” It was a helpful article, inasmuch as everyone is always looking to save money and here were seven tips for just that purpose. So, win…right?

The thing is, they were good tips but they were also the same tips you’ve probably been told time and time again. “Don’t drive aggressively.” “Drive slower.” “Don’t let your car idle too long.” “Know when to use AC and when to roll the windows down.” All of which are completely valid and backed by science.

But we all already know that driving slower saves us on gas. Just like we know that the rapid acceleration and deceleration of aggressive/angry driving drains our tank faster. And we do those things anyway.

Similarly, I know perfectly well that going grocery shopping three times a week, usually after work when I’m famished and a tub of 30 frozen mini éclairs seems like an especially prudent investment, is a terrible idea. It’s bad for my budget and probably worse for my health. I know that. But I do it anyway.

Everyone has a set of bad money habits that they just can’t seem to break. Sometimes we’re aware of these habits and just don’t know how to shake them. Sometimes we try to justify them to ourselves and others. Sometimes we just know something’s amiss, but aren’t sure what it is.

But whatever you think of these habits, the truth is always this: they cost you money. Sometimes a little money and sometimes a lot. Money you don’t need to be losing.

As part of your ongoing effort to breakup with Debt for good, make it a point to identity and change one bad financial habit. You’ve probably got more than the one habit to kick, but for now just pick one and make that your focus.

Which leads us to the big question: how exactly do you break these bad money habits? For that matter, how do you break habits at all?

New York Times reporter Charles Duhigg pondered that very question and, after quite a bit of research, wrote the book The Power of Habit: Why We Do What We Do in Life and Business. In the book, Duhigg identifies how and why we create habits and – most importantly for us – how to break those habits by replacing them with healthier/more productive/more desirable habits. The key is to recognize the habit loop.

The habit loop is a cycle that includes three basic steps: the cue, the routine and the reward.

The cue is the trigger that initiates the routine. The routine, which is the element of the loop most closely associated with the habit, leads to the reward. And if the reward is (for lack of a better word) rewarding enough, then the cue will become tied to the reward, ensuring that the cycle will begin anew the next time that trigger occurs.

The key to breaking a bad money habit is to understand these steps and how they relate to one another.

Step 1: Identify the routine

What do you want to change? What’s that thing you can’t stop yourself from doing no matter how much you chastise yourself?

Let’s say that you eat out too much. You’re busy or you don’t know how to use the oven or you just don’t want to cook food at home. But you’re living on a tight budget as it is and you know it’s costing you more than you can afford to eat out five nights a week.

So let’s say this is the routine: every day after work you meet up with a friend or co-worker and go out to dinner.

Step 2: Experiment with rewards

One of the biggest obstacles to overcoming a habit is identifying the real reward that your bad behavior is meant to earn. Because often the reward is not quite what we think it is.

In this scenario, maybe you think the reward is simply that you were hungry and now you aren’t. Or maybe the reward is that you didn’t have to cook for yourself. Don’t presume that you know what the reward is. Instead experiment with your reward.

One day, you can go out to dinner, but limit yourself to just a salad (you can eat more later if you’re still hungry). The next day go out to dinner, but by yourself. The day after that try getting a drink or coffee with a friend instead of dinner. The next day pick up a prepared meal at the grocery store on your way home.

Try a wide range of alternative rewards and ask yourself afterward if they satisfied your craving. By comparing the rewards that did or didn’t satisfy your craving you’ll be able to identify what you really needed.

Now pick a healthy reward that satisfies your craving and is good for your budget.  This will be the first building block of your new, healthier habit.

Step 3: Isolate the cue

Habitual cues generally fall into one of five categories: location, time, emotional state, other people, and immediately preceding action. If you find yourself doing something over and over again there’s usually a trigger to be found somewhere in one of those five areas.

In our example the cue is pretty easy to spot: you’re triggered to eat out because it’s dinner time. But in a lot of cases the cue isn’t quite so obvious. In order to root out the cue, every time you find yourself engaged in your habit, ask yourself these five questions:

  • Where are you?
  • What time is it?
  • What’s your emotional state?
  • Who else is around?
  • What action preceded the urge?

Over time, you’ll start to spot patterns and those patterns will help you identify the cue that leads to your habit. Maybe you only smoke around your friend Dave. Maybe you online shop when you’re stressed out. Whatever the habit, eventually you’ll pick up on the cue.

Step 4: Create a new routine

Once you understand why you do what you do, you need to replace the bad habit with a healthier routine. That doesn’t happen overnight. In fact, it doesn’t happen at all if you don’t work on it. Because habits tend to be deeply ingrained, it takes repetition and commitment to build new, healthier replacement habits.

Let’s say you discover that you’ve been eating out so often because you simply don’t like being alone in your apartment in the evening all that much. It didn’t really have much to do with eating or socializing, so you don’t need to go out to eat with a friend in order to satisfy the craving. Instead, you build a new routine: three nights a week you put your gym membership to good use and workout, one night a week you go to the library and browse for a new book and one night you organize a happy hour with your co-workers.

Keep in mind that your new routine won’t take unless you stick with it. And your old habit isn’t going away all that easily. But if you make a commitment and stick with it for a few weeks, you’ll find that the cues that once drove you towards a negative habit now drive you towards a positive one.

Our problems with debt are usually aided and abetted by a series of bad money habits. They’re hard to break, but the reward for doing so is more money in your pocket and a very real sense of accomplishment. So give it a try! The only thing you have to lose are bad habits.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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