On this episode of How To Money, Matt and Joel sit down with Pulitzer Prize-winning journalist, bestselling author of The Power of Habit, and host of Slate’s How To podcast Charles Duhigg to hear about how we can wield the power of habit to better deal with our personal finances. He explains exactly how habits form, why we can’t actually “break” them but how we can “replace” them, and the importance of “keystone habits” on how we see ourselves. Habits are useful, to a point: Our brains put certain behaviors on autopilot to free up cognitive space for other things. So understanding how a habit is formed gives us the opportunity to hack our own brains and form better habits.
Habits have three steps: There’s the “cue” that triggers the behavior, the “routine” which is the behavior itself, and the “reward” being delivered by the behavior. There’s no “breaking” a bad habit, because habits create neural pathways from cue to reward that would still exist in our brains, even if we quit doing something cold-turkey. Instead, we have to identify the cue and replace the behavior with something that delivers a similar reward. For a finance example, Charles chooses shopping: Especially in a pandemic, people are shopping more because they’re bored. What they’re really looking for is a sense of novelty, or something to look forward to in the future. So instead of using shopping as the routine to get the reward, we replace it with something else that can relieve our boredom, like working on an art project, watching 10 minutes of a new television show, or something else.
Then there are “keystone habits,” habits that cause a chain reaction of changes to other habits. Exercise is a great example. Once people start exercising regularly, they often find that they also start eating better and using their credit card less. That’s because exercise is a habit that affects how we identify ourselves. The “type of person who exercises” is also a person who eats right and doesn’t spend recklessly – the keystone habit unconsciously influences your other habits. If we want to be better with money, Charles suggests sitting down with our budget once a week to track our spending. That simple action will cause us to start thinking of ourselves as a person who cares about their money, and other habits will start to follow suit; we’ll find ourselves saving more, looking for more ways to earn, and investing more wisely. Listen to the episode for all this great info from Charles Duhigg, plus why we should never try to focus on more than three data points at a time, how to write a truly productive to-do list, and more on How To Money.
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