If you are hanging in here with me or just joining me, welcome to week two and day 9 of budget bootcamp. Lets talk about our spending habits. Last week we covered how to break bad spending habits, but not all spending habits are bad. Some just need to be adjusted and changed. Think about the financial choices you have made up until this point. Most of those choices may have felt like they were well-considered decision making, when in reality they weren’t. They were just habit’s whether good or bad, they were simply habit’s. Although a habit means little to nothing on it’s own, over time and with a combination of other habit’s be they good or bad, habit’s have an enormous impact on your financial security. Actions that you perform on a daily basis are not so much decisions, but rather, habit’s.
Habits are formed in your brain and that is why they are so hard to break. This is the core understanding of the basic framework that explains how your spending habits emerge. Here are a few rules on how to adjust your spending habits.
Rule 1. Identify your spending habits- This may be a bit tricky because then thing about a habit is that it feels a bit unconscious, For example, I have a habit of taking my lunch to work each day. It’s a no brainer, it’s set on auto pilot, I do it unconsciously. The reason why is because this is set in the unconscious part of my brain. To figure out your spending habits, you must first identify them. You must identify the cue, the routine and the reward of the habit. My routine is taking my lunch, my reward is the money I save by doing so and my cue is I know I have to each lunch every day.
When it comes to spending money, something similar happens when you walk into a store, feel hungry and pass a restaurant, or receive your paycheck and automatically decide how much you will spend, save or invest. A routine takes over, you act almost unthinkingly and that action either depletes or fattens your bank account.
To take control over your habit’s you need to identify them. To identify them, you need to look for patterns in your spending, A great place to start is your bank statement or credit card statement. Ask yourself a few questions: When do you spend? Are you spending more often through the week or on weekends? Are you spending more in the mornings or in the afternoons? Do you make a few small purchases or several large purchases? Do you spend more when you are with your friends or when you are alone? When you answer these questions, you will see the spending patterns that highlight the routines that shape your financial life.
Now that you have figured this out, you will need to ask yourself some less obvious questions: What is the cue for this routine? Am I bored or is this spending for a genuine need like food or shelter? Am I spending to socialize or to entertain myself on my own? Do I crave the things I buy or the shopping experience itself?
Rule 2. Look for rewards- Rewards are powerful because they satisfy cravings. Oftentimes we are not conscious of the cravings that drive our our behaviors. It may be helpful to perform an experiment of different rewards to figure out which cravings are driving particular habits. Here is an example. Let’s say you are trying to adjust your shopping habit. When you feel the urge to shop, adjust your routine so it delivers a different reward. Instead of shopping you could exercise or read a book. What you choose to do instead of shopping isn’t important. The point of the experiment is to determine which craving is driving your routine. Are you craving shopping or a break from the norm? If it is the shopping, is it because you really need what you are buying? Or is it the excitement of the mall, in which case you can easily find other options to bring excitement to your life.
Whatever is driving your spending behaviors, look for other alternatives if those behaviors are detrimental to your finances.
Rule 3. Devise a plan- Once you have figured out your habits and the rewards driving your behavior, the cue triggering it and the routine itself, you can begin to make the necessary changes and shift the behavior. You can change to a better routine by planning for the cue and choose a better behavior to deliver the rewards that you want. For example, I was spending too much money eating out for lunch every day. Once I changed that habit and began taking my lunch, my reward was being able to cut my spending and add that money to my savings.
Adjusting spending habits can be difficult, but it is a must if you want to achieve financial security and freedom. Once you figure out the cues for your unnecessary spending, the rewards it is delivering, the behavior can be changed. Once you create cues and rewards for automatic saving or investing, your financial outlook expands.
Today’s assignment is to sit down and see what habits you want to change or improve and find out what cues and triggers cause you to spend. Then develop a plan to help you achieve the reward that you are looking for