The Power of Habit in Personal Finance

One of my personal goals for this year is to read at least 50 books.  Currently, I am working on number 54!  The book I finished most recently was “The Power of Habit” by Charles Duhigg.  One of the points discussed in this book says that habits cannot be broken; rather, they can only be changed.  The “habit loop” is described, which is powered by a craving of some sort.  Based on this theory, all habits have three components – a cue or trigger, a routine, which is the behavior itself, and then a reward.  A great example provided by the book is how an advertiser turned Pepsodent into one of the best-known products on earth at a time when officials said dental hygiene was a national security risk because so many World War I recruits had rotting teeth.  This advertiser created a craving (the “minty fresh” feeling of brushing your teeth, even though that feeling has no tangible tie to actually cleaning or enhancing the health of your teeth, as well as having a beautiful smile), which powers the habit loop – the cue of running one’s tongue over their teeth and feeling a film (the cue), which resulted in them brushing their teeth (the routine), and having a prettier smile and the minty fresh feeling of clean teeth (the reward).

This book was quite thought-provoking for me.  I have been struggling lately with wanting to improve various aspects of my life, especially in the area of health and nutrition.  After I graduated from college in 2014, I joined Weight Watchers and began eating more appropriately and exercising.  Through this combination, I lost 65 pounds in about a year and a half.  I think much of my success can be attributed to changing routines and habits, even subconsciously (reaching for a piece of fruit rather than a bag of chips when I craved a snack, getting up and going for a walk when I was bored rather than watching television, packing my running clothes and bringing them to the office so I would immediately go to the gym after work, etc.).  I was so proud of myself but became a little too confident and decided I knew what I needed to do to maintain my weight, so I quit Weight Watchers and slowly fell off the wagon completely.  I’ve regained about half of the weight I lost, which is obviously incredibly frustrating because I know how hard I worked to get healthy.  Here’s an example of how the habit loop can be applied to weight loss: normally, mid-morning I may look at the clock in my office (the cue).  Desiring a break away from my desk, I may decide to make my way to the vending machine in the break room for an unhealthy snack (the routine).  My reward is the sugar high and taste of the candy or chips from the vending machine, but of course this ultimately is not rewarding at all because I end up feeling bad about myself for choosing an unhealthy snack, I crash from the sugar in the snack, and the extra calories are not conducive to weight loss.  I could change this habit loop by implementing a new routine – when I look at the clock mid-morning and desire a break from my work, I could get up and go for a walk around the block rather than go to the vending machine.  My reward is feeling better about myself for making a healthy choice, and eventually losing weight when continually making better choices like this.  Or, for a more tangible, quick-acting reward, I could allow myself five minutes of scrolling through social media before getting back to work, or listening to music or a podcast while walking.

While weight loss habits were my main motivation for reading “The Power of Habit,” the book really is applicable to so many things in life.  I began to think about how this could be related to personal finance.  Let’s start with a goal to save money by packing a lunch to bring to work.  If you go grocery shopping every Sunday morning, that would become the cue to begin meal prepping as soon as you get home.  Bringing a lunch from home to work instead of eating out becomes the routine.  The reward of saving money could be made more tangible by transferring $10 or $15 to a vacation savings account every day you bring your lunch from home, which is what you would have spent on going out for lunch.  After just a couple of weeks, the financial impact of your decision to spend $20 upfront on groceries to save more than $100 over two weeks will become quite evident.

In some ways, the habit loop seems overly simplistic, but it really can be made applicable to any aspect of life that involves changing habits and making tangible improvements.  I hope to try implementing some of these new and improved habits into my routine!


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