How to Break Bad Money Habits

We all have some bad money habits that we want to change. Maybe you spend too much on unnecessary things, or you don’t save enough for emergencies, or you rely on credit cards too much. Whatever your bad money habits are, they can hurt your financial health and prevent you from achieving your goals.

But don’t worry, you can break these bad money habits and replace them with good ones. It may not be easy, but it is possible. Here are some steps you can follow to break bad money habits and improve your finances.

Step 1: Identify the habit loop

According to Charles Duhigg, author of The Power of Habit: Why We Do What We Do in Life and Business¹, every habit consists of three elements: a cue, a routine, and a reward. The cue is the trigger that starts the habit, the routine is the behavior that follows, and the reward is the benefit that reinforces the habit.

For example, let’s say you have a habit of buying coffee every morning on your way to work. The cue could be the time of day, the sight of the coffee shop, or the feeling of sleepiness. The routine is buying and drinking the coffee. The reward could be the taste, the caffeine boost, or the social interaction.

To break a bad money habit, you need to identify the habit loop and understand what motivates you to do it. You can do this by observing your behavior and asking yourself some questions:

• What is the cue that triggers the habit?
• What is the routine that I follow?
• What is the reward that I get from it?
• How do I feel before, during, and after the habit?

Step 2: Experiment with different rewards

Once you have identified the habit loop, you need to figure out what kind of reward you are really seeking from it. Sometimes, the reward is not what you think it is. For example, you may think that buying coffee every morning makes you happy, but maybe what you really want is some relaxation or social connection.

To find out what your true reward is, you need to experiment with different rewards and see how they affect your craving for the habit. For example, instead of buying coffee, you could try:

• Drinking water or tea
• Eating a healthy snack
• Meditating or stretching
• Calling a friend or family member
• Listening to music or a podcast

After each experiment, write down how you feel and whether you still crave the original habit. If you find a reward that satisfies your craving as much as or more than the original one, then you have found a potential substitute for your bad money habit.

Step 3: Change the routine

Now that you have found a new reward that works for you, you need to change the routine that leads to it. This means finding a new behavior that can provide the same reward as the old one, but without the negative consequences.

For example, if you found out that what you really want from buying coffee every morning is some relaxation or social connection, then you could change your routine by:

• Making coffee at home and enjoying it in a quiet place
• Joining a coworker or friend for a walk or chat instead of going to the coffee shop
• Signing up for a yoga class or a book club that meets in the morning

The key is to choose a new routine that fits your cue and your reward. You don’t have to change everything at once; you can start small and gradually build up your new habit.

Step 4: Plan for obstacles

Changing a bad money habit is not easy; there will be challenges and temptations along the way. That’s why you need to plan ahead for possible obstacles and have strategies to overcome them.

For example, some common obstacles that could derail your new money habit are:

• Stress or boredom
• Peer pressure or social norms
• Lack of time or resources
• Unexpected events or emergencies

To prepare for these obstacles, you need to anticipate them and have solutions ready. For example:

• If stress or boredom makes you want to revert to your old habit, find healthy ways to cope with them, such as exercise, meditation, hobbies, etc.
• If peer pressure or social norms make you feel like you have to follow your old habit, explain your reasons for changing it and ask for support from your friends or family.
• If lack of time or resources prevents you from doing your new habit, look for ways to simplify it or make it more convenient, such as setting reminders, automating payments, etc.
• If unexpected events or emergencies disrupt your new habit, don’t give up; use them as opportunities to learn and adjust your plan accordingly.

Step 5: Celebrate your progress

Breaking a bad money habit takes time and effort; it’s not something that happens overnight. That’s why you need to celebrate your progress and reward yourself for sticking to your new habit.

You can do this by:

• Tracking your progress and seeing how much you have saved or improved your finances
• Sharing your achievements and challenges with others who can support you and hold you accountable
• Treating yourself to something that makes you happy and aligns with your goals, such as a vacation, a gift, a donation, etc.

Remember, breaking a bad money habit is not about depriving yourself; it’s about empowering yourself to make better choices for your money and your life. By following these steps, you can break bad money habits and replace them with good ones that will help you achieve your financial goals and dreams.