Choices we make each day may seem like well-thought out decisions, but they’re not. Most of the time they are habits. Here is the secret to break bad spending habits. To break them you have to follow the following 4 rules:
1.) You Must Identify Your Habits
To figure out how you spend, you have to identify your spending habits, the cues and routines and rewards, that drive how you handle money.
How do you start diagnosing and then changing this behaviour? By figuring out the habit loop. And the first step is to identify the routine. The routine is the most obvious aspect. It’s the behavior you want to change. To take control over these habits, you have to identify them. And to do that, you need to look for patterns in your spending.
E.g. download your credit card data and ask yourself:
a) When do you spend? Is it more often on weekdays or weekends? Mornings or afternoons?
b) Do you make a few big purchases or a lot of small ones?
c) Do you spend more when you are with your friends or alone?
It won’t take long to find some basic patterns and those patterns will highlight the routines that shape your financial life. To figure this out, you need to experiment.
2.) Look for Rewards
Rewards are powerful because they satisfy cravings. But we’re often not conscious of the cravings that drive our behaviours. To figure out which cravings are driving particular habits, it’s useful to experiment with different rewards.
If we’re trying to change a habit, I would suggest that on the first day of your experiment, when you feel the urge, you should adjust your routine so it delivers a different reward. The idea here is you need to experiment with different rewards to figure out what you’re actual craving is.
For example, instead of buying an expensive drink at Starbucks, buy a bottle of water instead. The following day, go for a walk and don’t buy anything. By experimenting with different rewards, you can isolate what you are actually craving, which is essential in redesigning the habit.
3.) Isolate the Cue
Experiments have shown that almost all habitual cues fit into one of 5 categories:
a) Location
b) Time
c) Emotional State
d) Other People
e) Immediately preceding action
So, if you’re trying to figure out the cue for the habit, you write down five things the moment the urge hits:
a) Where are you?
b) What time is it?
c) What’s your emotional state?
d) Who else is around?
e) What action preceded the urge?
After just a few days, it becomes pretty clear which cue triggers your habit.
4.) Have a Plan
Once you’ve figured out your habit loop, you’ve identified the reward driving your behaviour, the cue triggering it, and the routine itself and then you can begin to shift the behaviour. You can change to a better routine by planning for the cue, and choosing a behaviour that delivers the reward you are craving. What you need is a plan. Your plan should look something like this: When I see CUE, I will do ROUTINE in order to get REWARD.
Your habits are automatic for good reason. If you had to think about every little thing you do before you do it, your brain would be exhausted. But don’t let your brain’s natural shortcuts get taken advantage of.
Give yourself a spending habit audit and the 4 rules to break bad spending habits.