When you’re in the checkout line, what goes through your mind?
Do you think about how much available credit you have on each of your cards, then choose the one with the smallest debt?
Do you think about the value of the product you’re about to buy versus the opportunity cost of using those dollars elsewhere?
Or do you simply pull out whatever card is closest in your wallet, and spend?
The choices we make each day may seem like well-thought out decisions, but they’re not.
And if you’ve been noticing a downward trend in your bank account (or upward on your credit) lately, look no further than your daily routines.
In Charles Duhigg’s bestselling book The Power of Habit, he outlines the habit loop — how good and bad habits are made and broken.
While writing the book, Duhigg became hyper aware of some of his own habits, including buying chocolate chip cookies every weekday at the same time. This routine demonstrated how easy it is to slip into a routine of spending with no intentions.
Duhigg wrote about his experience and explained in detail how he broke free from this bad habit.
Today I’m going to share with you Duhigg’s secret to breaking bad spending habits.
To break any bad habit you must follow Duhigg’s four rules:
Rule One: 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.
As an example, let’s say you have a bad habit, like I did when I started researching my book, The Power of Habit, of going to the cafeteria and buying a chocolate chip cookie every afternoon.
How do you start diagnosing and then changing this behavior?
By figuring out the habit loop. And the first step is to identify the routine. In this cookie scenario — as with most habits — the routine is the most obvious aspect: it’s the behavior you want to change.
My routine was that I got up from my desk every afternoon, walked to the cafeteria, and bought a chocolate chip cookie and ate it while chatting with friends. So that’s what I put into the loop.
Spending money on fast food is no different. You might drive by a fast food restaurant on your way home from work and start to feel hungry. Next thing you know you’re skipping cooking and heading for the drive thru.
To take control over these habits, you have to identify them. And to do that, you need to look for patterns in your spending. Download your credit card data and ask yourself:
- When do you spend? Is it more often on weekdays or weekends? Mornings or afternoons?
- Do you make a few big purchases or a lot of small ones?
- 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.
Next, some less obvious questions: What’s the cue for this routine? Is it boredom? Genuine needs like food and rent? Do you spend to socialize or entertain yourself on your own? Do you crave the things you buy, or the shopping experience itself?
To diagnose my cookie habit, I had to ask myself some similar questions. Was I eating because I wanted the cookie itself? A temporary distraction? Or the burst of energy that comes from that blast of sugar?
To figure this out, you need to experiment.
Rule Two: Look for Rewards
Rewards are powerful because they satisfy cravings. But we’re often not conscious of the cravings that drive our behaviors.
To figure out which cravings are driving particular habits, it’s useful to experiment with different rewards.
If we’re trying to change a cookie habit, I would suggest that on the first day of your experiment, when you felt the urge to go to the cafeteria and buy a cookie, you should adjust your routine so it delivers a different reward.
Go outside, for instance, and walk around the block, and then go back to your desk without eating anything. The next day, go to the cafeteria and buy a donut, or a candy bar, and eat it at your desk. The next day, go to the cafeteria, buy an apple, and eat it while chatting with your friends. Then, try a cup of coffee.
The idea here is you need to experiment with different rewards to figure out what you’re actually craving. Your spending habits are the same way: when you would normally spend, experiment by doing something else.
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. In my case, when I went to a colleague’s desk to gossip for a few moments, I found the cookie urge disappeared. What I was really craving, I realized, wasn’t cookies, but socialization. That was my habit’s real reward.
Rule Three: Isolate the Cue
Experiments have shown that almost all habitual cues fit into one of five categories:
- Emotional State
- Other People
- Immediately preceding action
So, if you’re trying to figure out the cue for the ‘going to the cafeteria and buying a chocolate chip cookie’ habit, you write down five things the moment the urge hits (these are my actual notes from when I was trying to diagnose my habit):
- Where are you? (sitting at my desk)
- What time is it? (3:36 pm)
- What’s your emotional state? (bored)
- Who else is around? (no one)
- What action preceded the urge? (answered an email)
After just a few days, it was pretty clear which cue was triggering my cookie habit — I felt an urge to get a snack at a certain time of day. The habit, I had figured out, was triggered between 3:00 and 4:00.
The same logic can be applied to your spending habits. Write down your answers to the five questions to figure out your habit’s pattern.
Rule Four: Have a Plan
Once you’ve figured out your habit loop — you’ve identified the reward driving your behavior, the cue triggering it, and the routine itself — you can begin to shift the behavior.
You can change to a better routine by planning for the cue, and choosing a behavior that delivers the reward you are craving. What you need is a plan.
Your plan should look something like this according to Duhigg:
When I see CUE, I will do ROUTINE in order to get a REWARD.
The cookie habit plan looks like this:
At 3:30 every day, I will walk to a friend’s desk and talk for 10 minutes.
It didn’t work immediately. But, eventually, it got be automatic. Now, at about 3:30 everyday, I absentmindedly stand up, look around for someone to talk to, spend 10 minutes gossiping, and then go back to my desk. It occurs almost without me thinking about it. It has become a habit.
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 follow Duhigg’s four rules to break bad spending habits.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap