How to Optimize Your Decisions to Build Great Financial Habits

I am currently reading the book Atomic Habits by James Clear. I am enjoying the book, and it has made me realize that a lot of my daily actions are the results of my habits. 

Even when writing this article, I noticed that I have a whole routine surrounding it. First I make myself a cup of coffee. Then I play some 'focus music' and hide my phone in another room. Only then can I start writing. 

If one of those steps is missing, I end up procrastinating, or not getting much writing done at all. 

On the flip side of that, one of my guilty pleasures recently has been eating trail mix with M&Ms and chocolate. It all started at the grocery store two months ago. Everything was flying off the shelves, so I thought, "Why not enjoy some trail mix?"

Then, it got to where I would eat trail mix after every meal, or anytime I wanted to relax or felt bored. Soon, I was going through a 'family size' bag of trail mix within a couple of days. 

That can't be good! In Atomic Habits, Clear says that our habits shape our identities, and that our identities shape our habits. Have you taken the time to see where your financial habits are leading you? 

“A blank canvas...has unlimited possibilities.”― Stephanie Perkins

1. Think about where you want to be financially:

Then ask yourself: What types of decisions would that person make? After you consider that question, make a log of your financial decisions for a week and ask yourself where each decision is leading you. 

Are your decisions leading you towards the financially successful version of yourself?

In the long-term, some decisions like saving and investing money will lead you in the right direction. Other decisions like making large impulsive purchases will harm you.

Once you do this, you will know which actions you could stand to do more of, and which actions to eliminate.

2. Take on the habits of financial success:

Every year, millions of people make New Year's Resolutions to do things like eat healthier and get their finances in order. Sadly, most people do not achieve long term success on their resolutions.

The reason for this is because their new actions fly in the face of their normal routines, creating tension. As such, their brains respond to the new action with alarm bells, motivation fades, and they end up where they started. 

The best way to escape this cycle is to take on the identity of what you want to be.

For instance, let's say you are addicted to smoking. You could say that you want to stop smoking, which means you are a smoker who is trying their best to stop smoking. This creates a struggle because you are attacking the problem from a smoker's point of view. 

A better way is to think of yourself as a non-smoker, and to say that you do not smoke. That way, you set yourself up on an easier path because there is no conflict between your identity and your actions (1). 

Figure out which habits the financially successful version of yourself would have, and then set a time and a place for completing those actions. Soon, the new actions will become second nature. 

3. Reward yourself:

Now comes the easy part. Do something fun to reward yourself!

One of my better financial habits is to calculate my financial metrics every week. At first, this task was uncomfortable and a little stressful. At best, it felt like a chore. 

Then it became more and more fun. Nowadays, it is almost like a game to see if I managed to grow my net worth in the previous week.

Any new healthy habit or action will seem uncomfortable at first, and will gradually become easier with time. The way to get to the enjoyable part faster is to reward yourself right after you do the desired action.

Think of something you love to do, and then do that during or immediately after the desired action. Here are some ideas for rewards: you can listen to a favorite song, pour yourself a glass of wine, or maybe even snack on some trail mix. 

Make it fun and rewarding, and soon it will become fun and rewarding.

Upgrade your Habits:

Your decisions and habits create your reality. 

Start creating a better reality today by looking at your current financial habits from the point-of-view of a more financially successful version of yourself. Figure out which habits you want to build, and then set a specific day, time, and place to build that habit. After that, relax and do something fun to reward yourself.

Soon, you will find that actions that were once uncomfortable and arduous become easier and more enjoyable—maybe even fun! When you upgrade your habits, you upgrade your life.

Pack your Bags! We're going to ancient Babylon:

• Click here to sign up for a free 6-week, virtual Mastermind group based on The Richest Man in Babylon. Limited space available.

Reference:

1. Atomic Habits by James Clear (I highly recommend this book!)