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The Psychology Behind Financial Wellness

This article was written by in Personal Finance. 5 comments.

As far as I’ve come with my ability to manage my own finances, I often fall back into the comfort of unmanaged chaos. The comfort comes from the lack of work and the lack of worry, which often win the day over meticulous planning and consideration. I’m cushioned at the moment; I know that I can stop budgeting down to every penny because I’m in a different situation than I was ten years ago. That thinking, in the long term, could get me into trouble.

Old habits can be dangerous, forcing a step or two backwards instead of forwards. There are improper approaches to eliminating those old, bad habits that could make matters worse.

Julianna Young, the Director of Behavior Design at Moven, offers suggestions for success with changing financial behavior witout collateral damage in this guest article.

If you find yourself stuck in a financial rut, falling back on bad habits, and repeating negative patterns of behavior, you’re not alone. Although the steps necessary for getting back on track financially are often mentally apparent, it’s difficult to break the shackles of unhealthy financial habits.

You can promise yourself you will make a change, resolving to swap out bad habits for healthy ones, thinking those good intentions will be enough to ensure success. But the wrong approach, just like reluctant dieting, restricts and limits you without making any real changes. You might tell yourself, “I’ll start tomorrow.” And eventually the initial excitement wears off, and you’re no better off than your were before.

Change your context, change your life

Whether you’re on a mission to lose weight, or you’re trying to save an extra $100 a month, the first step to changing any habit is to understand how and why it is happening in the first place. This means understanding the context of your behavior: the environmental, emotional, and situational factors that affect your choices and actions.

Unless you’re a borderline superhuman, sheer willpower alone is usually not enough to re-shape your habits. It is essential to change your context, as well.

For example, if you’re trying to lose weight, taking your lunch breaks with co-workers in the cafeteria is not conducive to developing healthy eating habits. Instead, plan to take a walk around the block during your break. This simple change of environment reinforces the new habits that you are trying to develop.

When we are trying to create new, healthy habits, we need to give ourselves the best possible chance for success. This means limiting negative influences and distractions, and taking it one small step at a time.

Tiny steps to big change

Successfully changing your financial behaviors can be a frustrating, challenging process. Don’t expect to boil the ocean and change your behavior overnight. Go easy on yourself: don’t deprive yourself in hopes to train yourself and wean yourself off of activities you’ve become accustomed to. This type of cold turkey strategy will be difficult to maintain as you go about with your everyday life, since you will be tempted to revert to old patterns if you don’t change your context.

In the immortal words of the great philosopher Aristotle, “We are what we repeatedly do. Excellence, therefore, is not an act, but a habit.” Aristotle knew that with slow, deliberate choices, anything (including excellence!) could be accomplished.

The key to lasting behavior change is developing new tiny habits over time. This approach was developed by Dr. BJ Fogg of Stanford and focuses on easing yourself into change with tiny modifications. To develop tiny habits, follow these simple steps:

1. Choose three new behaviors to develop.

Choose three new behaviors you would like to incorporate into your life, and focus only on those three. They should be behaviors you perform at least once a day and require little effort.

One tiny habit I would like to develop is packing lunch for the office everyday so I spend less money eating out.

2. Pick a trigger.

To successfully develop a tiny habit, you need to pick a trigger that will motivate and remind you to perform your new habit. It will help automate the behavior and encourage you to sustain your habit long term. A trigger should always take place before the new tiny behavior. When choosing the right trigger, it’s critical to think about the right time and place for your new habit.

In the lunch example, I will need a trigger that takes place in my apartment in the morning since that is where I will need to prepare my lunch. So what are the activities I do every morning in my apartment that could be a trigger? Shower, brush my teeth, get dressed, blow dry my hair.

I choose brushing my teeth because my bathroom is next to my kitchen and every morning, after I brush my teeth, I will make my lunch for the day. The trigger of brushing my teeth will help me create the new habit without an explicit reminder or alarm. I will engrain in myself that “after I brush my teeth I will prepare and pack my lunch for the day.”

3. Celebrate success.

One of the most important steps in the behavior modification process is celebrating every little victory. Every time you do your tiny habit, tell yourself how proud you are, physically pat yourself on the pack, or simply smile and revel in your accomplishment. By creating a positive emotional connection to your new habits, you will take greater pleasure in the habit and motivate yourself to stay on track.

Every morning, after I see my prepared lunch on my kitchen table, I will smile to myself and tell myself how great I am. It may seem a bit self-indulgent and silly, but I imagine it will become one of my favorite moments every morning.

Tiny habits can pay off big financially. When I’m able to successfully pack my lunch every morning, I will save an average of $64 a week, totally $256 a month, and a whopping $3,072 a year.

You’ve gotta want it

At the end of the day, the most important thing when swapping out your old habits for new tiny habits is that you need to want it. You need to crave the meaningful positive change that your tiny habits will bring to your life and understand the ways in which your efforts will pay off. So time to understand the connection between your finances and your everyday life. Set simple, attainable goals that are directly related to your financial dreams and life goals. Tying your tiny behaviors to your hopes and dreams is a powerful motivator. Soon you will find yourself developing habits that go beyond your wallet and impact other areas of your life, like your health and your relationships.

We live in a society where money is an unavoidable necessity. The trick to creating a happy, healthy, financial life is to make your money work for your life — and not the other way around.

Julianna Young is Director of Behavior Design at Moven, a mobile-centric banking experience start-up in New York City. Julianna is their insightful human behavior expert, tasked with injecting the human factor into all of Moven’s products and experiences. You can find her writings on her blog Cognitive Play.

Published or updated March 26, 2013.

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{ 5 comments… read them below or add one }

avatar 1 Anonymous

Great tips for change! Those are almost the exact steps I use everytime I try to make a change in my life. The key is not to give up on it for at least a few weeks. Usually if you can do something consistently for 2 weeks, it gets really easy to keep doing it.

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avatar 2 TakeitEZ

Excellent tips! I will incorporate them in obtaining the changes I am now working on: cutting on my outside eating, exercising consistently 4-5 days a week, and spending more quality time with my family.

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avatar 3 Anonymous

Your right, the “want to” factor is the biggest piece of the puzzle. You always know what you should do, but if you don’t really want to, it probably wont last. This is exactly what I had to realize before I quit smoking. I knew I should, then finally I really wanted to and I actually stuck with it.

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avatar 4 Anonymous

When my husband and I were paying off our debt we started a spending journal. Being honest and maintaining this consistently for several months ushered us through changes in spending habits without our really having a formal plan.

Money is a tough subject in many marriages and keeping a joint diary worked for us. We both stopped wasting money because neither of us wanted to write wasteful spending down for the other to see. Once we had fewer financial things to hide (most were miniscule!) we had an easier time talking about money.

Funny how that happens!

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avatar 5 qixx

For anyone looking for a little reinforcement in the process BJ Fogg runs an online course that provides some accountablility and support in working your 3 Tiny Habits. I’ve been through the course once (you can join more than once if you want). He runs it often enough, just lookup to join. It is quite a remarkable program.

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