LearnVest Classes Money Habits Challenge Building Better Money Habits
Resources Habits Reading List The Power of Habit: Why We Do What We Do in Life and Business By Charles Duhigg There are three parts to a habit, which Duhigg calls the habit loop: The cue, the routine and the reward. His strategy for breaking down a habit comes in reassessing the last two steps the routine and the reward. In order to change the habit, you must understand what your real motivating factor, the reward, is. Once you ve pinpointed that, you can adjust your routine and try different behaviors that give you the same reward. Making Habits, Breaking Habits: Why We Do Things, Why We Don t, and How to Make Any Change Stick By Jeremy Dean Dean, a British psychologist, describes the purpose that habits serve in our lives: In essence, he says they give your brain a rest from having to make difficult decisions by putting some things on autopilot. He breaks down why seemingly easy habits are hard to break and how to take control of your brain s autopilot. Nudge: Improving Decisions About Health, Wealth, and Happiness By Richard H. Thaler and Cass R. Sunstein These two economists argue that choice architecture, or influencing decisions by changing the context of how choices are presented, plays a big role in helping to make better decisions. They show how small tweaks to your environment can help give you the nudges you need. 1
Gut Feelings: The Intelligence of the Unconscious By Gerd Gigerenzer Gigerenzer argues that information overload and doing mental gymnastics doesn t usually help you arrive at the right or most satisfying result. That s because what you call your gut, your instinct, or your intuition is helping you come to a conclusion based on heuristics (the fancy way to say rules of thumb) that your brain has absorbed as a result of time, experience and evolution. Small Move, Big Change: Using Microresolutions to Transform Your Life Permanently By Caroline L. Arnold Arnold believes the idea of microresolutions setting goals that are so realistic and manageable that you couldn t possibly talk yourself out of them can help you build better habits, as long as you make them precise and explicit actions. Switch: How to Change Things When Change Is Hard By Chip Heath and Dan Heath Major change strikes fear in the bravest of us, but it needn t be so foreboding, say the Heath brothers. Big change, they argue, just requires you to overcome the tension between your rational mind and your emotional mind. They offer tips for overcoming roadblocks like procrastination and pessimism. 2
Exercises Money Habits Checklist and Resolutions Which of these common bad money habits do you want to work on? Habit The Look-Back Not checking your finances until the end of the month to see how you did Resolution Instead, I will... Pay-Spend-Pay Using your credit card for a big purchase, then depleting your cash reserves to pay the bill Deprivation Budgeting Too-strict spending that s not likely sustainable Herd Mentality Changing your financial direction because of a friend or influencer Mental Accounting Keeping all your savings for different goals in one account Emotional Decision Making Making financial decisions based on an emotional state Financial Infidelity Not consulting your partner on financial decisions, or keeping secrets about your finances Expecting Immediate Results Not allowing enough time to adopt new financial habits and reach goals Fad Money Diets Things like a crash savings plan that are probably not viable in the long run 3
Money Habits Mad Libs According to author Charles Duhigg, habits can be broken down into three parts: ROUTINE Behavior that follows the cue CUE Time, place, emotion, people, or preceding behavior REWARD The craving or impulse you are trying to satisfy Duhigg suggests that in order to change a habit, you must understand the reward you are trying to reach and then find a new routine that offers the same reward. Think of a habit you d like to break, then see if you can figure out a new routine that offers the same reward. A. What s My Cue? Time: Place: Emotion: People: Preceding Behavior: B. What s the reward I want? (Hint: It may not be so obvious. Here s an example: At 4 p.m. every day you grab a cup of coffee. Is the reward really the caffeine fix or do you just need an excuse to get some fresh air? Talking a walk outside may be the actual reward which means you may be able to spend less on daily coffee breaks!) 4
C. Is there a new routine that may accomplish that same reward? Create a Phrase to Save One way to think about rewards is to remember the big picture. All those tiny steps you take today are intended to lead to something, whether that s a graduate degree, a dream vacation, a new home, or a well-funded nest egg. Whenever you find yourself about to splurge on something, think to yourself, Is the latest smartphone more important than an extra day of vacation in Hawaii? Try to equate the value of the splurge with the value of the reward. Examples: Is the latest smartphone more important than an extra day of vacation in Hawaii? Is this second glass of wine at dinner more important than paying more than my minimum credit card payment this month? Is this pair of shoes more important than contributing to our wedding fund? Is this more important than? Is this more important than? Is this more important than? Is this more important than? 5
Combine Your Cues, Routines and Your Phrases to Save We ve come up with this flow chart (print out as many as you d like!) to help create a game plan for changing habits. It meshes Duhigg s principles and some of our own LearnVest ideas. 3 Steps to Help Change a Bad Money Habit To get started, write down the bad habit that you want to change: STEP 1: Identify Your Trigger STEP 2: Determine Your Real Reward STEP 3: Create a New Routine Next, suss out which consistent environmental cues always set off the bad habit. To help figure this out, ask yourself these questions: Write down a major money goal: Now, whenever you feel the urge to repeat the bad habit, ask yourself: Now that you know your triggers and ultimate rewards, devise a different course of action. When What time is it when you act on the bad habit? How are you feeling? Who are you with? Is [insert what you typically spend on] more important to me than [insert a long-term money goal]? [insert the trigger from Step 1] I will [insert a lower-cost/ free reward] because the reward I really want is [insert your long-term goal or new reward],. Where are you? What did you just do? Will I get the same satisfaction if I do [insert a lower-cost/ free reward] instead? Is the impulse gone? 6
Create Tiny Habits Breaking down a new habit into tiny steps can be a way to assist you in bringing about a change, because it can help make changing your ingrained behavior feel more manageable. Step 1: Pinpoint a tiny behavior that will help you reach your ultimate goal. Step 2: Find an existing habit that triggers your new tiny behavior. Use these fill-in-the-blank statements to record the tiny habits you want to create. Examples: After I drink my morning coffee, I will take a Money Minute and review my recent transactions. After I get my paycheck, I will automatically transfer $100 into my savings account. After I order takeout, I will pack half to take to lunch the next day. After I, I will. After I, I will. After I, I will. Step 3: Now fit these new tiny behaviors into your regular routine. Automate, Automate, Automate An easy strategy for working towards a goal is setting it and forgetting it, like transferring a certain amount from your checking account at the same time every month to a savings account, or participating in your company s automated 401(k) contributions. The harder you make it for yourself to undo a good habit, the easier it can be to stick to it. Example: Every two weeks, I will automatically transfer $50 to my emergency savings account. Every, I will automatically transfer to. 7
Every, I will automatically transfer to. Every, I will automatically transfer to. Visualize Your Goals Whether it s a sunny vacation, a road-tripping retirement or a new pool in your backyard, consider taking some time to visualize your goals through words or images (on paper, Pinterest or whatever you choose!). Then put your masterpiece somewhere you ll see it often. 8
You Made It! Next Steps to Consider: Prioritize your resolutions and decide your next steps for tackling them. For time or place-based habits, create calendar alerts or well-placed post-it note reminders. Automate any transfers you d like to set up. Post your goal visualization, phrases to save and tiny habits somewhere you ll see them often. Make some verbal commitments to your new habits! Tell a money buddy or your LearnVest Planner. LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any of the above-referenced authors, or any other third-parties listed, discussed, identified or otherwise appearing herein, are separate and unaffiliated and are not responsible for each other s products, services or policies and the references to any third-party materials is not an endorsement or recommendation of any such materials. 9