Lately I’ve been obsessing over a book called Atomic Habits*, written by James Clear, and I want to share with you the points I’ve picked out that I think come in really useful to building healthy habits around money.
Creating wealth is just a series of good habits built up over time. Equally, being broke is a result of a series of bad choices, or bad situations that led an individual into debt. It generally happens slowly – overspending, putting things on credit like cars or furniture, not prioritising saving, unexpected events etc, and one day you wake up and you’re in £20,000 worth of debt. Have you heard about the boiled frog story? Supposedly it’s meant to go like this:
“The boiling frog is a fable describing a frog being slowly boiled alive. The premise is that if a frog is put suddenly into boiling water, it will jump out, but if the frog is put in tepid water which is then brought to a boil slowly, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of sinister threats that arise gradually rather than suddenly” – Wikipedia
Now whether the frog story is true or not, I don’t know, and I’m not going to go out and find a frog to try it (poor kermit!!), but I like the analogy. A series of small, multiple bad habits leads to a big, bad outcome. Conversely, a series of small, good habits leads to a big, good outcome!
Embody The Habit
The first point I took away from his book was about embodying the habit. James says that in order to make good habits stick, we need to become the person who would stick to the good habits. So if you want to be financially independent, what would a financially independent person do? They would know their budget well, spend less than they earn, invest as much as possible, have an emergency fund, make sure they are insured and create side-hustles and new income streams.
What would the person do every day to create those things?
How would they behave?
How would they think?
What habits would they have?
Embody the habits to become the person you aspire to be.
The 4 Laws
James talks about the 4 laws of habit building:
- 1st Law – Make it obvious
- 2nd Law – Make it attractive
- 3rd Law – Make it easy
- 4th Law – Make it satisfying
This is what underpins the whole book, so while I’ll be picking out the points that I thought were useful for good money habits, you should definitely try out the book for yourself because you may pick out different points to me.
1st Law – Make It Obvious
Motivation is often the thing we wait for in order to make changes. We want to be “in the mood” to look at our budgets or save money or learn how to invest. We tend to be really motivated when things have hit rock-bottom, such as being in debt. In this instance, we have a strong desire to move away from being in debt, so the motivation is strong to get out of it.
Then, as the debt improves, the motivation wanes. We get fed up of restricting ourselves and the bad spending habits creep back in again, pushing us back into debt. This happens with dieting too.
So because motivation can be unreliable, James talks about how we need to make our environment reflective of the habit we are trying to embody. The environment around us makes a huge difference to what we do, so if we can make some changes to it, we can set up good habits.
For example, if you are trying to stick to a budget, why not take out the cash you need for the week and keep that in your wallet, and remove all cards from it, and deactivate the card payment ability on your phone?
If you are trying to save money, unsubscribing from all emails encouraging you to buy things would be a good start. You don’t need the will-power to then not spend, because the temptation won’t be there to start with. Similarly, look at your going to work/going home routine. Do you always stop by a certain shop and usually end up buying something? Perhaps on a friday night after a long week at work? You could change your route to avoid the shop.
If you want to implement a budget, and you like using pen/paper, buy a journal* and put it somewhere you’ll actually see it to encourage you to use it. Set up a spreadsheet and put it on your laptop so you see it to use it. You could download an app like YNAB. If it’s on your phone ready to go, you’re more likely to use it.
2nd Law – Make It Attractive
This section looks at dopamine and how this affects your habit. The anticipation of a reward gets our dopamine going in our brains – this is the hormone that makes us feel amazing, and it’s what causes habits to form. When we get a dopamine hit from a habit, we want to do more of it. This is why social media is so addictive! Its multiple small hits of dopamine that makes us continue to use it.
So if you want a good habit to stick, we need to bring dopamine on board.
You could link a habit you need to do, with a habit you want to do. James calls this “temptation bundling”. So with money, think about the things you like to do. Perhaps on a thursday you like to drink a glass of wine? (maybe it’s just me). Perhaps you have a need to update your budget once a week. So could you combine the two? Your glass of wine becomes the thing you drink when going through your budget?
Alternatively, you could hold off drinking the wine until you have carried out a certain activity. It could be budgeting, it could be updating your spending tracking, or it could be moving some money into your savings.
And on that subject, why not pay yourself to do the washing like one of our facebook community members does? You could pay yourself as you would pay a cleaner and put that money into savings or investments!
3rd Law – Make It Easy
Habit stacking is the concept of building habits on eachother that naturally flow together. He suggests starting with a 2 minute task that can then lead onto a bigger task like going for a run or filling out your monthly budget. The 2 minute task needs to be quick, easy and simple, and this is the first thing to weave into your day to day.
So for example, the start of the run might be changing into gym kit. You would set out your gym kit the night before in a place that means you have to notice it and put it on. This could be the 2 minute habit you set for yourself.
Then, when you’ve put this into your routine, perhaps you might go for a 1 minute run then stop. So a 2 minute gym kit change leads into a 1 minute run. From there you might decide to run for 5 minutes, and so on.
With money, if you’re setting up your budget at the start of the week, it’ll be really hard to stick to if you have to re-write your budget every time. When setting yourself up for this habit, have something laid out ready to go. Download my free budget prompt to inspire you in creating yours. Once you have your list, photocopy it multiple times. Then, once you have a pile of blank budget sheets, the weekly or monthly habit will be easy. With every future budget session, use your initial 2 minutes to get everything set up – cup of tea, laptop or notepad/pen, open up your online banking. Then you’ll have everything you need to fill out your budget in one quick go.
4th Law – Make It Satisfying
Rewarding yourself for reaching certain milestones is a fabulous way to keep yourself moving forward. I love celebrating wins and we do this in our facebook group every week.
If you’re going to stick to something, find a way to keep an eye on your progress. If losing weight, taking pictures would be a good one. For saving money, you could complete the 1p challenge for example. This helps you to build up your savings over time to get you used to saving. Your reward is nearly £700 by the end of the year!
James also talks about having an accountability partner. This is why the facebook group is so good. It’s a safe space for women to gather to talk about money and have support to work on their money stuff. This is a great way to keep moving forward.
So there you have it! James Clear has written a brilliant book, and I highly recommend that you seek him out and get those excellent money habits started.
Until next time,
P.S. If you loved this, why not try: