Forming new habits, and breaking old ones, is hard. Especially if you don’t know how habits work. It can be particularly hard to ‘break a habit’ or ‘drop a habit’, and somewhat easier to ‘change a habit’.
Breaking a habit involves a mindset, for example, of “I will not snack on junk while watching Netflix after dinner every night.” Changing that habit might be more like “I will go for a walk around the neighborhood after dinner every night,” or maybe “I will walk on my treadmill while watching Netflix after dinner every night.” See the difference?
The other thing to note about habits is that they go through what Charles Duhigg describes in his book The Power of Habit, as a cue-routine-reward loop.
Cue-Routine-Reward Loop
In the above example, finishing dinner and turning on Netflix is the cue. The original routine is snacking on junk, while the new routine is walking either inside or on the treadmill. Consequently, the rewards will change too, of course.
The loop applies to most habits, good and bad, and can be used to help change, create, or improve them. The way it applies to your habits around money may take a little self-examination, but once you’ve worked it out, the path to installing new habits will suddenly become clearer.
In her book Financially Fearless, Alexa Von Tobel gives the example of spending $5 on a snack every day at 4 pm. The cue for this could be hunger, but it could also be the need for a break from work, which you’re fuelling with a stroll to wherever you purchase your snack. If that’s the case, a stroll around the block might work just as well, and avoid both the expense and the calories of the (perhaps) overpriced and unhealthy snack.
Spending cues are definitely worth paying attention to. Do you spend more in certain situations, when you’re with a particular friend, or in specific stores? Do you find a glass of wine or two at home in the evening sends you straight to your favorite online retail spaces? Do you spend when you’re feeling down? Or anxious? Or bored? Or after spending time on social media?
Likewise, pay attention to rewards. What’s the real reward you’re getting from spending? Is it new stuff, admiration from others, or a certain type of feeling?
Understanding your true reward can help with changing the routine that follows the cue, especially if it’s a feeling you’re chasing, rather than something tangible.
Could you replace that shoppers’ high with a runners’ high, or other-type-of-exercise high? Retail therapy with actual therapy, or art therapy, or nature therapy?
If going to the mall is a social thing for you, could you replace it with a different type of social activity, that costs less and ultimately leaves you with less clutter in your home?
While it’s important for over-spenders and impulse spenders to look at their spending habits, there are plenty of other money-related habits you might want to address as well.
Getting your paycheck could be your cue to routinely pay your bills and move money into your savings accounts. The reward is no stress over unpaid bills and the joy of looking forward to whatever you’re saving for.
You can also create your own cue-routine-reward loop quite easily. Maybe you make your Saturday morning coffee your cue to check your investments, do your routine banking and assess your weekly budget. You can set your own reward that you get to do as soon as that’s done.
You can also attach rewards to savings goals: “When I have X amount in my savings account, I will do Y.” Extra points if your reward is free, but you can also make it something indulgent that costs an amount that you now feel comfortable spending because you hit a savings goal.
One last thing. Habits can really thrive if you have an accountability buddy. Get together with a friend or your partner and decide what you want to achieve financially, and what steps you need to take to get there. Then set up a cue-routine-reward loop to help you take those steps. It could be the same loop for both of you, or different ones that work for you as individuals.
Don’t want to share your financial goals and habits with another person? You can use an app like Notion or Habitify to set goals and track habits.
Frequently Asked Questions
How long does it take to form a new habit?
It varies widely. A 2009 study led by Phillippa Lally at University College London found that participants took an average of about 66 days for a new daily behavior to become automatic, with individual times ranging from 18 to 254 days. Missing an occasional day did not meaningfully derail the process, so consistency matters more than perfection.
What is the habit loop?
The habit loop, popularized by Charles Duhigg in The Power of Habit, has three parts: a cue that triggers the behavior, the routine itself, and the reward you get from it. To change a money habit, identify what cues your spending, such as stress, boredom or scrolling social media, and what reward you are really after. Then swap in a cheaper or free routine that delivers a similar reward.
How can I stop impulse spending?
Start by noticing the situations, emotions and places that tend to trigger unplanned purchases. Adding friction helps, such as waiting a day or more before buying non-essentials, unsubscribing from retailer emails and removing saved card details from shopping sites. Replacing the spending with another routine that meets the same need, like taking a walk when you want a break, makes the change easier to stick with.
What does it mean to pay yourself first?
Paying yourself first means moving money into savings or investments as soon as you are paid, before spending on anything else. Setting up an automatic transfer on payday turns saving into a habit that does not depend on willpower. Whatever is left can then go toward bills and everyday spending.
About the author
Contributing Writer, Wealthtender
Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine.
Karen provides copy editing and proofreading services, as well as content creation services, at her website KarenBanes.com.