What’s behind our money habits?
Money habits are the key to the kingdom of financial health. Money habits are regular, automatic ways we spend, save and manage our finances. Our money habits can help us to achieve or keep us from our financial goals. It’s important to get off autopilot and carefully consider the return on your habit investment. Because habits tend to be automatic, they are often unseen or hidden to us. A bad money habit can manifest as a “silent robber”.
A habit starts with a single action which is usually followed by a release of dopamine (feel good chemical) to our brains. When it’s repeated again, and again, it becomes hardwired into the brain in the form of a neural pathway. Each time this collection of nerves is triggered together, the neural pathway becomes more established resulting in more automatic behaviour. Habits help our brains automate to conserve energy which improves our feeling of safety and survival as we’re better prepared for danger or solving new tasks. Our automatic habits are often triggered by something in our day to day life – a certain time of day, situation, person or emotion.
An example of a helpful money habit might be being mindful about purchases, following a budget, transferring part of your regular salary into a savings account. Unhelpful money habits can be making impulse purchases, buying takeaway a few times a week, using ridesharing more often than you’d like, spending every penny you earn, racking up debt or avoiding keeping track of how much you’re spending.
When we look at each of our money habits in isolation, it can be hard to see the point in changing them and we all have stories as to why we deserve a $5 daily latte. But every single money habit can literally be tens of thousands of dollars so be mindful the next time you buy that daily latte, kitkat, scone, muffin as $5 a day will quickly add up to $1,825 p.a. and $10,000 in less than 6 years.
Surprisingly researchers at Cambridge University found that our money habits are largely formed by the age of 7. Our parents teach us about money in the way they spend or save which then forms a set of beliefs and preferences. A ‘money mindset’ shapes our money habits, our response to uncomfortable feelings and how we make ourselves feel good. We learn these are behaviors as a young child and they influence what we do when we’re feeling anxious or bored as adults, which is often closely connected to how we spend our money.
Fortunately, our brain is designed to help us make changes to our money habits. With the right support and methodologies, by practicing new behaviours, we can lay down new neural pathways replacing unhelpful money habits with more helpful ones. We work with our clients and support them with reliable methodologies to:
Be curious and bring awareness to your habits. We can’t change what we’re not aware of.
Identify the triggers. Understanding leads to conscious decisions and choice in the moment.
Take action. Pre-emptively choose a better habit and then celebrate that you’ve done it.
Repeat the above. Because the new action is easy and feels good, you’re more likely to repeat it and can more effectively build a new healthier money habit.
Our coaching keeps our clients on track and make it easy to change to their life, so they can make long-lasting, feel-good changes to their money habits and life.
Other tips:
Start small and focus on changing just one habit at a time.
Break the new habit down into small and simple actions that are achievable without too much brain power and leave you motivated or with a ‘good feeling’. Then repeat.
Find new ways to get that ‘motivated’ or ‘feel good’ which gives you a release of dopamine and will make it easier to repeat that action next time.
Keep your daily practice and be kind to yourself. Trying to change an ingrained habit can be a challenge, because these old behaviours come easily and automatically. It’s normal if you trip and fall so don’t let that derail you, get back up and keep going.
Identify your money drains that may give you instant gratification but do not actually give you long-term pleasure and are misaligned from your values.
To find out more about how we support our clients to build good money habits, book a time with James Gray and take back control over your cashflow.
