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How to Break Bad Money Habits


"You do not rise to the level of your goals. You fall to the level of your habits."

-James Clear


I angrily grab my jacket and storm out the door. I just got into a heated argument with the manager who made the schedule for the week. I knew that I wanted time off to go hang out with some friends out of town. I didn't get the time off, however. Now I'm unable to go and have to cancel my plans.

It takes a while to start my car. Something needs to be fixed, but I don't have the money to go to the mechanic right now. I finally get it to start, and I'm able to drive home.

I get home, still in a rage, and I check the mail to find out that I have several overdraft charges at my bank. If I wasn't furious before, I'm furious now.

The next thing I know, I find myself at the local big box store frantically walking up and down the aisles trying to blow off steam, looking for stuff to buy. Of course, I don't have the money to buy anything, but that's why I have credit cards.

Stress shopping was a bad financial habit, but I didn't really know that I had it at the time. But that's the thing about habits; they happen without us really knowing that they're happening.

breaking bad financial habits can be hard, but it's possible

Bad Money Habits

Habits are automatic behaviors that we partake in. They happen without us really knowing that we're doing it. This is different from a routine. A routine is a set of actions that you regularly go through, but you consciously have to tell yourself to start the routine. For example, I don't have to shave every day. Therefore, every other day I have to decide if I'm going to shave today. It's that conscious decision that makes it a routine and not a habit.

On the other hand, some people I know shave every day. It just sort of happens while they are getting ready. If you asked whether or not they shaved today, they might have to touch their face to find out if they did.

If these habits that we've picked up lead to bad outcomes or otherwise are not good for us, we would call this a bad habit. Everybody talks about wanting to end bad habits, but it's not as easy as it sounds because they are automatic behaviors.

bad financial habits are automatic behaviors that we want to change

Bad Money Habit Origins

Bad habits, and all of our behaviors, for that matter, are driven by beliefs we have about money that we don't really know that we have. These are called money scripts. Money scripts are the stories we tell ourselves that we've internalized sometime in our past. Without exploration, nobody knows that these rules exist that we blindly follow. We picked them up mostly in childhood by observing how the world works, but we also get them later in life when we experience something called a financial flashpoint.

Effectively, our brains are trying to figure out what works and what gets us out of stressful situations. It tries to pick up on patterns and spot connections that may or may not exist. When it finds patterns and connections that it thinks will relieve stress, it writes that as a rule, or a script.

bad financial habits come from our money scripts

Define What Money Habits You Don't Want

It's nearly certain that you have bad money habits that you want to change. What's less likely is that you know what those habits are. Since our habits operate automatically, it's difficult to identify exactly what our bad habits are.

So spend some time to try to understand what habits you have that you don't want. Only after understanding what you want to change can you start to take steps towards progress.

if you want to change financial habits you have to know what you want to change

Be More Intentional About Your Money Habits

Changing your financial habits is part of a bigger process of living intentionally. Know what you want and why you want it. Additionally, know what you don't want and why you don't want it.

You can start by looking at outcomes, or what is actually happening that you can see. Outcomes are driven in large part by our habits. So if we can identify the outcomes we don't want, it becomes easier to identify the automatic habits that are happening to get those outcomes. We can take this a step further by asking why we are partaking in this habit. Our behaviors, including automatic behaviors like habits, happened because we got prompted. Some people called prompts triggers. What are the triggers that are leading to your habits?

be intentional about changing your bad financial habits

Breaking Bad Money Habits

In his book Tiny Habits, BJ Fogg tells us that breaking a habit is nearly impossible. Breaking implies that you can just snap a habit in half, and it's done. Instead, he urges us to think about untangling bad habits. In other words, a bad habit is like a big messy knot, and we have to start to untangle the knot one part at a time.

Part of the untangling process might be to remove the prompts. This, of course, means that you recognize what the habits are that you want to change, and you recognize what the prompts are. So if you can remove the prompt, you can stop the behavior.

Sometimes it's difficult or even impossible to remove the prompt, so the next idea is to try to make it harder. If you find yourself online shopping and want to change that, try removing the app from your phone. Forcing yourself to find a computer adds friction to the process and makes it more difficult to shop online.

If you've tried making it harder and that didn't help, you can try implementing rules for yourself. For example, perhaps you implement a rule that you wait three days before purchasing after putting something in your cart. Then, after three days, if you still want the item, you have permission to buy it.

Finally, try finding an accountability partner. Knowing that we have to check in with somebody about our behaviors can be quite powerful because we don't want to admit that we've done something we said we weren't going to do.

understand your triggers to change your bad financial habits

What bad money habits do you have? How can you identify those habits, and what prompts those habits? What steps can you take to untangle those habits?

You only have one life. Live intentionally.

organize your financial mess

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How to Break Bad Money Habits
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Related Money Health® Reading
References and Influences

Clear, James: Atomic Habits

Fogg, BJ: Tiny Habits

Housel, Morgan: The Psychology of Money

Kahneman, Daniel: Thinking Fast and Slow

Klontz, Brad, and Ted Klontz: Mind Over Money

Millburn, Joshua Fields, and Ryan Nicodemus: Essential

Newcomb, Sarah: Loaded

Richards, Carl: The Behavior Gap

Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.


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About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


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