Starting New Financial Habits That Last

Published on: January 15, 2022

Anyone can create better financial habits and reduce their monthly spending. Jex explains how to set reasonable goals that lead to longer-lasting money habits. 

By Jex Leigh Roach

New Year’s resolutions have been around since Ancient Babylon, and many people around the world still create them today. However, resolutions have also become infamous for being broken within a couple of months or even a few weeks. James Clear, author of Atomic Habits, has spent his adult life helping people create positive habits in their lives. 

By definition, an atomic habit is “a regular practice or routine that is not only small and easy to do but is also the source of incredible power.” Many people break their New Year’s resolutions because they try to make drastic changes too quickly. Instead of resolving to one day ‘fix your money habits’, it’s more realistic and sustainable to make small, incremental changes over time. Instead of planning to reduce your grocery budget by 25% starting this month, a more reasonable and longer-lasting habit would be to reduce your spending by 5–6% per month for the next five months. 

Clear explains what he calls the ‘habit loop’: cue, craving, response, and reward. The cue triggers your brain to engage in a behavior because it anticipates a reward. The craving is the motivation to change something to get that reward. The response is the actual habit that you perform, and the reward is the satisfaction felt as a result of making the change. 

Let’s use a common impulse purchase of a pack of candy in the checkout aisle of the grocery store as an example. The cue is seeing the candy. The craving is wanting to taste the candy. The response is buying the candy, and the reward is getting to eat the candy. Since the candy’s sweetness is a positive experience, it is more likely for you to repeat this habit again the next time you experience the same cue (seeing candy in the checkout line). 

Clear has four primary rules for creating new good habits. 

One, make it obvious (cue). If you want to reduce your spending and increase your savings, start by tracking your expenses for a month. Write down every purchase you make in a journal or on a spreadsheet. You can’t improve on something if you don’t know where you are starting from. You can’t measure a reduction in expenses if you don’t know how much you’re spending in different categories.

Two, make it attractive (craving). Make the new habit desirable. Create an environment that encourages the new behavior. One way to do this is to surround yourself with people for whom your new habit is already a normal part of their lives. If you want to become debt-free so you have more discretionary money each month, join a group on social media where everyone is either paying down debt or is already debt-free. Reducing expenses and paying down debt is easier to do when you are part of a community of other people doing the same. Create a chart of your goal progress and hang it somewhere you will see it regularly. This could be on your refrigerator or somewhere else in your home. The key is to make sure it is somewhere prominent for you. You could also create a vision board of your financial goals to remind yourself why you are creating the new habit.

Three, make it easy (response). Put systems in place so that it’s easier to do the new habit than the old one. If you tend to overspend when paying with credit cards, put your credit card in a block of ice in the freezer. This allows it to be available for emergencies but not readily accessible for every little purchase. Switch to paying with cash only. Create a cash envelope system—label envelopes with all your budget categories, then put your budgeted amount of money into each envelope. When you leave the house to buy groceries, bring the grocery envelope with you. It will be impossible to overspend your budget, since you only have the correct amount of cash with you, and no credit card in your wallet. If you want to save more, set up auto-transfers to move money automatically to your savings account every payday. If you’re frequently late on paying your bills, set up an automatic payment.

Four, make it satisfying (reward). One of the biggest problems with creating new habits is that there is often a delay between performing the new good habit and receiving the reward for that habit. Suppose your goal is to reduce your grocery budget to save for an international trip. In that case, you need to perform the habit of carefully grocery shopping many times before you experience the reward of travel. As Clear states, “Your outcomes are a lagging measure of your habits. Your net worth is a lagging measure of your financial habits…you get what you repeat.” So, using the same example, every time you forgo an impulse purchase at the store, immediately transfer the amount of money you just saved into your savings account. This provides an immediate reward—the increase in savings toward your goal—and makes it more likely that you’ll perform the same habit of skipping an extra expense again and again in the future. 

Anyone can create better financial habits. The key is to create systems and processes that help you achieve your goals. Your future self will be glad you did.

Photos from Canva.

About the Author

Jex lives in Bangkok with her husband and two daughters, who are 4 and 2 years old. She has a Master in Business Administration degree and has studied personal finance since 2011. As the owner of Jex Leigh Financial Coaching, she helps individuals and families create better financial habits so they can achieve their dreams. You can visit her Facebook page at:

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