Money Mindset

How to Break Spending Habits with James Clear and Atomic Habits

August 16, 2021
Learn proven methods for breaking bad habits and how to break spending habits to achieve your financial goals, by understanding the psychology behind habits and implementing strategic systems.
Britt and Laurie-Anne two women laughing and looking at their computers on a couch in a well-styled living room
Britt & Laurie Anne
Two female investors in their 30s with a collective net wealth of over $6 million+
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If you have been trying and trying to break bad money habits but still spend way too much money on dining out or lose self-control every time you step into the clothing section, don’t blame yourself. Blame your systems.

Willpower isn’t enough to change your spending habits. You need to understand the psychology behind habits to strategically change.

I’m going to teach you proven methods for breaking bad habits and how to break spending habits to achieve your financial goals.

James Clear and Atomic Habits: The Importance of Habits

Nothing great ever happened suddenly. Sure, it looks like people have overnight success, but that’s only because we didn’t see all the weeks, and usually years of effort that went into building their success. Championships are won in the countless hours athletes spend training, not in the moment they step onto the field.

The same applies to your spending habits.

To achieve financial success, you can’t just focus on the end result; you need to work on developing small, daily behaviors that will get you there and tear down bad habits that are sabotaging your success.

That’s the basic premise of James Clear’s #1 New York Times best-selling book Atomic Habits.

If you’re not already familiar with James Clear, he is an author who focuses on habits, decision-making, and continuous improvement. In this book, he explains the psychology behind why and how we develop habits.

Clear talks a lot about how to build good habits – but he also explains how you can use the same principles to break bad habits.

We’re going to dig into these step by step and how you can apply them to break spending habits.

Make Spending Habits Invisible

You’ve probably heard the statement “out of sight, out of mind,” right? Visual cues provide a huge stimulus for us to move toward things that we like or are addicted to. So, we want to take a bad habit out of your visual field.

Personally, I've often tried to quit watching television. One of the strategies I'll use is either avoiding the room where the television is or just putting a blanket over my television. Out of sight, out of mind.

You want to find a way to change your environment because that's one of the fastest ways to change your behavior.

In Atomic Habits, Clear writes, “People with the best self-control are typically the ones who need to use it the least.”

What does that really mean? That the people with the best self-control avoid putting themselves in situations that would require self-control.

The key to long-term change is avoiding situations and environments that tempt you to make poor decisions in the first place.

How this applies to spending habits:

Avoid environments and circumstances that trigger poor habits. If you know that you’ll be tempted to blow money at Target, don’t go there. Shop somewhere else…maybe even somewhere that you don’t like as much. Or if you tend to spend too much on Amazon, give up your prime membership or delete the app from your phone.  

Make Spending Habits Unattractive

We’re constantly making predictions about how our actions will affect us. For instance, if you see a hot stovetop, you predict that touching it will burn and be painful. We take action based on the anticipation of a reward or to avoid painful consequences. In fact, studies show that people are more motivated by avoiding pain than by gaining a reward; you can use that to your advantage when breaking bad habits.

How this applies to spending habits:

Right now, your bad money habit likely creates a feeling of pleasure — you need to find a way to make this more painful.

An easy, proven way to do this is to start paying in cash. Studies have shown that people are much more likely to overspend when paying with a card — even more so when paying with the swipe of a finger. It’s like the money isn’t even real at that point. Whereas forking over your hard earned cash makes it obvious and more painful that you’re letting that money go.

If you really want to turn up the heat, go to your bank and take out all of the money that you need for the week in $1’s. The tediousness of counting out $1 bills each time you make a purchase and the embarrassment of holding up the line will help make a bad spending habit more painful.

Make Spending Habits Difficult

Sometimes, the best way to break bad habits is to simply make them difficult. Place obstacles between yourself and your bad habits.

Like the author of the Hunchback of Notre Dame, Victor Hugo, who had such a bad habit of procrastinating, the only way he could finish his book on time was to take all of his clothes and give them to his assistant to lock away. With no clothes to wear, he couldn’t go anywhere or see anyone and finally got to work on his book.

How this applies to spending habits:

Figure out how to make your bad spending habits more difficult. What’s your version of giving all of your clothes away to stop you from procrastinating?

For example, if you tend to do too much online shopping, delete all of your credit card information from your browsers and log out from PayPal or any other forms of online payments.

Make Spending Habits Unsatisfying

One of the reasons it’s so easy to slip into bad habits and so difficult to develop good habits is because bad habits usually have an immediate pay-off. For example, if you eat a carton of ice cream, you’ll likely enjoy the sweetness and coolness of the treat in the moment. But if it becomes a habit, over time you might develop inflammation, high blood pressure, or even diabetes.

The feel-good benefits of bad habits are immediate, but the painful consequences are delayed. So, you need to figure out how to make bad money habits immediately unsatisfying.

How this applies to spending habits:

You can make bad spending habits immediately unsatisfying by tying the habit you want to break to something that you dislike; for example, if the habit you are trying to break is spending money without checking your bank account first, create a “habit contract” — a verbal or written agreement with one or two accountability buddies — that says what your new habit is.

In this example, if I spend money without checking my bank account first, I promise to go back to the store and ask for a return. Even if I can afford what I bought, I must go through the process of checking my bank account and then buying it again.

Just having an accountability partner can create an immediate cost to inaction because we care about what others think of us and we don’t want them to think less of us if we don’t follow through. It makes breaking your contract public and painful.

You can’t rely on motivation or willpower to propel you to your financial goals. You need to set up strategic systems to help you stop self-sabotaging and build the future you want. So, if you want to break spending habits, make them invisible, unattractive, difficult, and unsatisfying.

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