Creating good financial habits (or other)

A recent selection of my book club was “The Power of Habit” by Charles Duhigg. I found it fascinating. The book relates many scientific facts about habits, such as how they are created and where they are stored in the brain.  It illustrates these facts with stories of how Olympic athletes reach the podium by repeating the same behaviours every day and before every competition; why AA works for many alcoholics because its meetings replace many of the routines and conditions that drinkers associate with booze, such as socializing after work.  Sadly, it also shows how a compulsive gambling habit is developed for someone who has unmet needs, and nurtured by those who profit from gambling.

The power of routines

Duhigg’s interesting stories reveal how we operate mechanically in many areas of our life. For example, our morning routine – glass of water, brush teeth, put the coffee on, check the news on TV, radio, or on phone before making breakfast and getting the kids up or dressing for work.  On the not so good side, why a gambler can’t resist the urge to go to the blackjack table and then mechanically bets over and over to the point of bankruptcy.

Many habits or automatic routines are useful because the brain doesn’t have to participate in the decision making. They free up our brain to relax or to focus on other tasks.  Habits become encoded in the brain; they never really go away.  If you want to create a new pattern, you have to fight the current habit and set up a new routines.

To successfully create a new habit that sticks, you need a cue, a routine, a reward, and a craving for that reward so that you will repeat the behavior often enough that it becomes automatic.  Let’s say you want to start creating good financial habits, such as putting aside money on a regular basis, or paying your bills on time to avoid interest charges.  One way to do that is by focusing on a short-term financial goal that you want to achieve in 6 to 8 months.  This is the reward that will reinforce your habit; reminding yourself of how much you crave that reward will make you want to do the behaviors that will get you there.  Once you’ve achieved this financial goal, you set another one and the habit loop grows stronger.

Reaching small successes

Repeated small successes are much more effective in achieving longer-term goals such as paying off debt or saving for a secure retirement.  It’s difficult to crave a reward that is so distant, and so we don’t create the motivation to create behaviors that give us the rewards that lead us to their future attainment.  On the other hand reaching smaller, shorter-term targets creates spending and saving habits that will get us to the longer-term ends.  (In behavioral economics, this is called  present bias – the tendency to prefer a smaller present reward than to wait for a larger future reward.)

Vitual Mission app

Last fall, I noticed a friend of mine had recently completed a virtual Camino de Santiago Challenge by walking 774 kilometers right here in Toronto.  I loved the idea of taking up that challenge myself to ensure I did lots of walking even in winter when I am less enthusiastic about being outside.  I signed up and downloaded an app to my phone.  The app allows me to record my steps as well as other types of exercise. With each update I post, I see how far I have gone and how much farther I have to go to complete the full Camino.  It didn’t take long for me to crave seeing the progress towards completion, and that has motivated me to complete half of the distance in just over 18 weeks.  A good habit created by craving is helpful now and will stick later.


To better understand habits for yourself, I recommend reading “The Power of Habit” and taking up one of the Virtual Challenges at Conquering walks ranging from Hadrian’s Wall to The Inca Trail and Mount Fuji, is a great way to refine your fitness habits. And for understanding cash flow and reaching long-term financial goals and dreams, contact us for more information on our financial literacy webinars.

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