When it comes to managing our finances, it can be hard to establish good spending habits and stay consistent. No matter how many tools and resources we have at our disposal, it’s human nature to sometimes give in to temptation or become complacent.
What I’ve told you above probably isn’t new information, and isn’t going to help you. That’s why I want to outline below, why the best-selling book by Author James Clear – Atomic Habits, may just be the secret sauce you need to keep focused on your financial goals.
What is Atomic Habits?
Atomic Habits is a New York Times Bestseller, written by Author and Entrepreneur James Clear. In the book, Clear outlines how we can change our lives by making small tweaks to our daily routine – what he refers to as “atomic habits”.
Clear believes that these atomic habits compound over time and have a massive impact on our overall wellbeing. He argues that we should focus on building positive habits (ones that help us) rather than breaking negative habits (ones that hurt us).
How can it help my financial situation?
When it comes to managing your finances, there are a lot of things out of your control – the stock market, interest rates and inflation, etc. However, what you can control is your behaviour and how you respond to financial opportunities and challenges.
Atomic Habits provides useful insights and strategies on how you can change your behaviour to better suit your financial goals. So continue reading for 8 tips Atomic Habits can teach you about managing your finances.
1. You can take things slowly.
Setting up a budget, and starting to take a closer look at your finances can be a daunting experience. One of the main principles in Atomic Habits is learning that it’s okay to takes things slowly. The “1 percent rule” is the idea of getting better at something 1% a day, every single day, which compounds together to result in an improvement of 37 times over the course of a year!
We can’t always expect to make big changes overnight. It’s okay to take baby steps and improve our situation slowly. It’s not about perfectionism, but about progress.
2. Don’t focus on financial goals, focus on financial systems
A goal is a wish, not a plan. It’s the end result, and usually doesn’t go into detail about the process of how you can achieve that goal. In Atomic Habits, Clear focuses on the idea of Systems. A System lays out the exact steps and processes on how you can reach your goal. So whether it’s becoming financially free, buying that new home or reaching another financial milestone, focus on building the system that will help you get there.
Now how would we apply this concept, into your financial situation?
Start by looking at your current situation, and where you want to be. Write down what your long term financial goals are, and then develop a system on how you can get there.
A good system will probably include components of a budget, an investment strategy and possibly a debt reduction plan. A good financial adviser can help you develop a system that’s tailored specifically to you, and will help keep you accountable in reaching your goals.
3. Track your Money Habits
Once you have a system in place it is extremely important to track your progress. This could be as simple as putting a mark in a notebook each day that you stick to your system, or using an app like Beeminder which will help you track your progress and give you a visual representation of it.
Clear also encourages that you make your tracking list public, as this will help keep you accountable. However you may not want absolutely everyone knowing about your financial situation, so find someone you trust to be your accountability partner.
4. Improve on your Money Habits
Your life and financial situation will always change, and your habits should be able to adapt to whatever life throws at you.
Let’s say that one of your habits was to invest $1000 a month in the stock market. However, you have just received a promotion that nets you an extra $40,000 a year. This is a great opportunity to review your habits and make sure they still align with your goals, and in this case it might be time to increase that $1000 monthly investment.
5. You have to fall in love with boredom
“The only way to become excellent is to be endlessly fascinated by doing the same thing over and over. You have to fall in love with boredom.” – James Clear
While some of us need structure in our lives, and will happily operate the same way day in and day out, others of us crave novelty. If you’re someone who loves variety and change, then it can be hard to stay on track with good habits
Of course, this isn’t to say that you should never change things up or try new things.
However, if you find yourself constantly starting and stopping different financial habits, it might be time to take a step back and focus on developing some consistency.
6. Make your habits Obvious, Attractive, Easy and Satisfying
If you want to make a new habit stick then it needs to meet this 4 criteria. It needs to be Obvious, Attractive, Easy and Satisfying.
Obvious: This might mean putting a picture of your financial goal on your fridge, or setting a daily reminder on your phone.
Attractive: This means finding a way to make your habit fun, or at least not painful. If you’re trying to save money, then find creative ways to do so that don’t feel like you’re depriving yourself.
Easy: You want to make it as easy as possible to do the right thing. This could be as simple as automatically splitting your pay into different savings accounts or using a financial adviser to invest your money instead of trying to figure it out all by yourself.
Satisfying: This is where you get to see the results of your hardwork. Make sure you celebrate your successes, no matter how small they may seem.
7. Stay motivated with The Goldilocks Rule
In Atomic Habits, Clear describes The Goldilocks Rule for staying motivated, which is “finding the right amount of pleasure and pain.” Humans naturally avoid things that are too hard, and get bored with things that are too easy. The sweet spot is somewhere in the middle where things are just challenging enough to be interesting, but not so challenging that they’re painful. You should try and apply this rule to your financial habits.
For example, if you set up a budget, it’s important that you don’t make it so restrictive that you can’t have any fun, but you also don’t want to be so lax that you’re not making any progress. Find that happy medium where you’re still able to enjoy your life, but you’re also mindful of your spending.
8. Be Patient
“Good habits are built slowly, but bad habits can be built quickly. So be patient and persistent in building the good ones.” – James Clear
When it comes to developing new financial habits, it’s important to be patient. You’re not going to see results overnight, and if you try and do too much too soon then you’re likely to get burnt out and give up entirely.
Start small, and focus on building one new habit at a time. As your new habit becomes second nature, you can start working on adding another one. Eventually you’ll create a solid foundation of good financial habits that will serve you well for years to come.
The Final Word
I wrote this article because Atomic Habits puts into writing, methods and teachings that I’ve been using for years with clients. While there is no one-size-fits-all solution to financial success, if you’re looking for a place to start, then I recommend reading Atomic Habits. It’s helped me develop good habits that have made a positive impact on my life and it may help you too.