Spending habit, we all hab it

Spending

Last week Brooke wrote about developing the right mindset – the right attitude – towards your money. For some, it takes time to develop a healthy attitude towards your finances. Trust me – I know! Right now, I could jump onto the interwebs and spend $1000’s on things I probably don’t need (but convince myself that I did), and with money that isn’t mine (thanks bank credit card, thanks AfterPay, thanks spending habit).

It’s all too easy to spend what you should be saving and lose focus on what you are trying to achieve with your finances. It’s not all work, all spend and hope that you will have enough to pay for emergencies, have holidays, upgrade cars or save for a house.  

Developing a healthy attitude really starts with looking at your habits – we mentioned this a few emails back. But anyone who has developed a serious habit – even if harmless – knows how challenging it can be to break it, even when you really, really want to break it.

A client recently told me:  

“I just wish someone could erase the part of my brain that encourages me to spend all the time”.   

That sounds a bit much and is well outside of my pay-grade, but I understood: he just wanted to stop, but couldn’t. It is almost effortlessly easy, with almost everything just a swipe or double-click away to spend money that you don’t have, on stuff you don’t need nor can afford. The pattern is deep, and it can’t be changed without the right intervention.

But there is a straightforward way to look at those habits and understand why you are following that same old path. We can look at a habit in the form of a loop: Cue + Response => Reward

Cue: The pop-up ad for that new TV in your social media feed, the new car ad on TV, anything with “interest-free” or “buy now, pay later”.

Response: You click on the ad, “only” to browse, but end up at the checkout with more than you wanted at the start. (Even if you didn’t check items to cart, only thought about doing so, you have started the process of that habit. Even if you didn’t click through the ad itself, but thought about what a new TV would be like, you have started the process)

Reward: It feels good to buy something. Especially if you didn’t have to break open the piggy bank, right?    

That process lights up a very specific part of the brain – even if you didn’t make a purchase – and quickly becomes a pattern of behaviour that involves less thoughtfulness of your spending activities, and more mindless debt being accumulated. There is nothing great to come of that. It doesn’t take long to forge that pathway into an almost default process. How many times have you heard someone (or yourself) say: “Oh just whack it on the card, we’ll deal with it later”? The loop is strong, and it doesn’t take long to become automatic. 

Worse, once that pattern if forged, it cannot be broken (despite that old saying), becoming a permanent structural change in the brain. That change ultimately erodes your willpower to save.  No wonder people are spending their hard-earned mindlessly, living pay to pay. So, if you can’t break the habit – what do you do? You have to create a new neural pathway that produces a better, more favourable outcome for your spending and saving habits.  

Let’s reverse engineer the process and look at the reward first. Maybe you want to save money, you have a monthly figure in mind and a savings trajectory that gets you that house deposit (or whatever your goal is). So your reward is the figure in that savings account and the satisfaction that comes with it. The best part: as that satisfaction increases, the account balance increases. Winning! To achieve that, you need to change your response. The previous response had you spendingmoney instead of saving it. Obviously, that takes you away from your goal (unless of course, the purchase was a ‘must have’).  

This takes a bit of willpower and firm approach but every time you go to click on that unnecessary purchase or spend money that you know should be put to better use, log into your internet banking and transfer that amount into your savings.  You have to be swift with this – if you leave it “’til later” you won’t create the new habit.  So here’s your new loop: Cue: Same ads/ triggers etc as before + New Response: transfer the money you thought about spending, into your savings account. + New Reward: Money saved (not money spent). Boom! You will very quickly gain an understanding of your spending habits. If you find that your savings account is all of sudden looking very healthy, but you have no money for bills or groceries, then it’s clear (when applying the above) that your spending habit is strong.  

The good thing is by changing the response in line with a new reward, you will quickly create a new pathway for the brain. It works just the same way that the bad spending habit did, but this one is for the better. The real key here lies in understanding what you want to achieve with your savings (your ‘why’) and making sure that the reward really means something to you – even if it is the satisfaction of knowing you have enough money saved to cover full expenses + for 6 months (more on this another day).  

Let’s be honest, the cue’s to spend will always be there – they won’t be going anywhere anytime soon, in fact, they will probably become more prevalent. But you can use those cues, to develop a positive spending habit, bypassing the previous one and put yourself on the front foot with your savings strategy.   Make a new loop, spend less on what you don’t need, save more for what you do need, & take a healthy approach to your finances.

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