Habits and Tools; Everything to Achieve Financial Freedom

 HABITS

How often do you hear people casually dismiss an inappropriate action as a “bad habit”?  We want to change…but it’s so hard!  We find ourselves always getting the same results from our repeated behaviors, vowing to do better the next time. Perhaps a first step might be to learn about habits and how to change them.  With the appropriate tools, we can stop beating ourselves up about our habits and proceed to make everlasting changes.

The book, The Power of Habit, Why We Do What We Do In Life and Business, was an eye-opener for deepening my understanding that there is an ingrained method to our routines.  Unconsciously, we go through the motions without detecting our hidden patterns.  Whether our habits are quirky or normal, we have them. Whether you floss your teeth at a certain time, tie your shoelaces in a certain way, or drive to work using a certain route, you have habits.  Unfortunately, when you want to change a routine or habit, you may face challenges.

People who attempt to change money habits related to saving and spending generally feel discouraged and defeated.  Understand that everything we do is cyclical. The loop begins with a cue which triggers a routine leading to a reward.

 


A simple neurological loop at the core of every habit

A fairly common occurrence happens on paydays.  The cue is having money in the bank account to trigger an event, a scheduled lunch date with friends or coworkers. The reward is a great meal with great people.  You may recognize this regular outing is becoming an expensive venture over the long term.  Your desires are to save more and spend less.  You know changes need to happen but you’re unsure how to break the cycle.  You may crave time with your friends but the question is whether you can find other less expensive ways.   

In the short excerpt, How Habits Work, Charles Duhigg shares his four step framework for replacing “bad habits” with “good habits.”   The four steps are:

1.     Identify the routine

2.     Experiment with rewards

3.     Isolate the cue

4.     Have a plan.  

In analyzing the cue, routine, and reward, you need to identify the unfavorable habit before you can forge ahead with a plan to change.

One of my favorite quotes in a long list of many is:

What you hear, you forget.

What you see, you remember.

What you do, you understand!

Often, I share this quote to highlight the importance in “doing” the action step to implement a positive change.  Whether the “doing” is to lose weight, exercise, or manage your money effectively, it’s about uncovering a new routine to lead to the reward.

TOOLS

Since you now have a better grasp on habits, let’s put this knowledge into action.  November is Financial Literacy Month.   Just like Christmas occurs every year, Financial Literacy Month has become a major event to aspire Canadians to take action.  This year’s Financial Literacy Theme is “Managing money and debt wisely; It pays to know.”   By committing to learn one new thing, over time you will develop money habits which inspire you to become a better money manager.  Cravings are the driving force behind habits.  When you crave “financial freedom”, the longing to be debt free or the desire to have a retirement fund, you are motivated to stick with your plan.

In order to measure your success, you need tools.  Financial tools are no different than other tools.  If you were fixing a leaky drain pipe or sewing a button on a coat, you need them to get the job done. These valuable financial tools, Net Worth Statement and Cash Flow Statement, were discussed in in the previous blog, Important Tools to Have in Your Toolbox.

Net Worth Statement lists your assets (everything you own) and liabilities (everything you owe) to determine your net worth.  It isn’t surprising to learn that the majority of people only create their Net Worth Statement when they apply for credit (loan, mortgage, or credit card).  This statement is a picture of your financial situation.  Creating this snapshot every year provides a clear indication of how well you manage your money.  Please don’t underestimate the value of this tool.   It’s a true measure of your financial success.



A Cash Flow Statement shows precisely the income coming into your hands and the expenses being paid over the course of a month or year. Tracking your income and expenses determines whether you have a surplus or a shortfall at the end of the period.  At a quick glance you also know whether you are “living within your means”.  The habit of tracking your expenses instills more control over spending because you categorize where your money is being spent.     

FINANCIAL FREEDOM

Whether you are developing new habits or learning new techniques, the greatest virtues are commitment, patience, and perseverance.  I was led to believe that new habits can be developed within 21 days.  Recently I learned that’s not necessarily correct.  When this tidbit of information circulated, somehow the words became skewed. The correct version is a new habit may take “a minimum of 21 days.” The truth be known developing a new habit takes as long as 66 days on average.  Do everything in your power to stay the course: find an accountability partner, seek a CERTIFIED FINANCIAL PLANNER^® professional to assist you, and use positive self-talk reminding yourself, “You got this!” You may soon enjoy the financial freedom you have been craving. 

The Power of Influence

My usual morning walk was somewhat unusual.  Someone else opted to occupy my sacred space.  Any attempt to negotiate who had the right-of-way was off the table.  The one-sided dialogue did nothing to change this critter’s mind.

 

As I clapped my hands to scare the skunk, I politely asked, “Are you going to get off my road?”

As he ran in my direction, I had my answer. 

I’m a quick learner. Nothing I said; nothing I did; nothing I could do would influence him.  He held all the power.  If I didn’t get out of his way, I soon would be sprayed with his influential power.

Undeniably, we all have influencers in our lives. Whether we are influenced by people, things, circumstances and most importantly, our thoughts, we can examine whether the influences are working in our favor or causing harm. Obviously, this is a broad topic which affects numerous areas in our lives but in the context of money matters, the influences can be shortlisted.  

Generally, our thinking causes the most problems in our lives.  Our minds are the Number #1 hazard if we allow them to wander until we can rein them in.  This is especially true with money. Steve Siebold wrote the book, How Rich People Think, to offer insight how the average person versus the elite thinks about money.  As he shares in the introduction, “the differences are as extreme as they are numerous.”  In 100 different ways, he proves this theory. We need to learn to be extremely conscious of our thinking habits and refine them to model “rich thoughts.”

Pay attention to the conversations that roll around in our minds.

“I don’t make enough money.”

“I need to buy that new car.”

“I wish I could afford to do that.”

“Fear of Missing Out” (a.k.a. FOMO) was discussed in the previous blog post, Create the Ultimate Vision. When we jump on opportunities that require borrowing money, we should assess whether we can afford these luxury purchases (or the additional payments). 

But there’s another hazardous area that is sly and goes innocently undetected. It’s our addictions.  We rationalize our behavior by seeing these “purchases” as necessities. Addictions come in different “shapes and forms”.  Addictions to cigarettes, alcohol, drugs, shoes, and even, books, steal our money away from things on our dream list.  We justify the need to support our habits or offer compromises in exchange. It’s common to hear, “Because I don’t smoke or drink, I can afford to splurge on this.”  This isn’t a finger-pointing exercise about who is doing what but rather a self-examination exercise to catch the things which influence you.

Occasionally, our circles of friends and family influence us to do things we would rather not or cannot afford.  We are pulled in a direction we shouldn’t go because financially we will pay dearly both in terms of robbing our piggy bank today as well as future goals and dreams.

Does this sound familiar?

“We’re all going camping this weekend.”

“We’re all going to the concert.”

“We’re all going to the football game.”

"No” is often the hardest word to say out loud.  Saying “No” causes disappointment for both others and ourselves.   Although it’s fun to go places, here’s an example of choices:  How often can we afford to go? Where can we have fun with our family and friends which may not be costly?

Another hazardous area of influence is the business world. A marketer’s purpose is to influence us to buy something we didn’t even realize we needed or wanted. Once we’re hooked all we can think about is that “thing” that will make our life so wonderful.  The must-have, got-to-have, need-to-have influences create the burning desire to spend money freely on things we may regret.   If you don’t believe you’re being influenced, you will change your perspective when you read the book, The Power of Habits.  Marketing is “big business” to entice customers to spend their money. In some cases, we buy into something we can’t live without...BUT sometimes we buy into things that have negative consequences. One example is “gambling”.  Awareness to whether you are being influenced positively or negatively is crucial.   

We also can be influenced by our present circumstances.   Our present job (or lack of one) or the amount of debt we presently are carrying, are conditions which overwhelm us.  Life crises, such as a divorce, sudden illness, or disability, uninvited and unwelcomed, require their own unique handling.  These influence both our physical and financial well-being. Seeking professional help in these areas is advisable.  Some journeys cannot be treaded alone.   

So to be blunt, you have to determine what “stinks” in your life.  If you have to run in the opposite direction, do so.  Run.  Run fast before you are caught in the cross-fire between doing the right thing and the regretful thing.  Run to professionals if you need help.  There are hundreds of influences in your financial life that weren’t discussed here but I am certain you know the ones relevant to you.  If you aren’t entirely sure, track where you spend your money. The “culprit” will show up. When you give power of influence to your true goals, dreams and aspirations you will be rewarded with a rich outcome.  

Please feel free to share any negative influences you overcame which may positively help others.