The top New Year’s resolutions that people make every year all have to do with self-improvement. Losing weight, spending less/saving more, and quitting smoking always top the list. But 25% of resolutions are broken just after one week. And less than half are kept by mid-year. Are our goals too ambitious? Or are we approaching them the wrong way?
Habits & The Knowledge-Behaviour Gap
There was a time when “education” was thought to be the missing link as to why people don’t do what is good for them. But judging by people’s self-reported New Year’s resolutions, they know exactly what needs to be done. What I believe is causing resolutions to be broken is the same thing that is making resolutions hard to keep… habits.
People often ask me how my husband and I were able to achieve a good level of financial security when both us grew up poor. I often tell them that I opened my retirement account at the age of 18, when I started my first “real” job. Putting money into a retirement account gave me tax relief. It also gave me an early head start to the power the compounding.
But the real answer is, I established a habit. Every year I put money in that account to minimise my tax. Tax time = save for retirement.
The other thing I tell them is that from a young age, the phrase “save an hour of your pay – every day” was inculcated in me. And every now and then, that phrase just pops into my head out of nowhere. Which can get very annoying especially at those times when I want to buy something that I know I don’t need.
When something becomes habitual, you don’t give it much thought. Your response and actions become automated. Most of the day, we live in this automated way. This allows us to run on “low power” or “energy saving mode”, as I like to think of it. This is so that we can focus our efforts on greater, less mundane things and respond to real crises.
The key, according to Jeremy Dean, who wrote Making Habits, Breaking Habits: Why We Do Things, Why We Don’t, and How to Make Any Change Stick, is to turn all these good resolutions into habits so that we do them without much effort at all.
Forming a Habit
If you already have a habit that you want to get rid of, such as smoking, the process is quite lengthy and doesn’t just involve making a one-time resolution.
In a nutshell, it’s at least a 5-step process. It first involves (1) disrupting the automation. Disruption is something that happens naturally when you move house or go on holiday, and your normal everyday processes are forced to change.
Then the second step is to (2) become mindful. Being mindful just means you actively observe your thoughts and actions without any judgment. In essence, you are made aware of your once-automated actions.
Then you move onto (3) creating a new habit, to replace the old habit. The key is to first start small. This is done by taking the overall goal (the so-called resolution) and breaking it into small achievable components.
Then you must imagine all the obstacles, cues, and triggers that reinforces the habit you are trying to break. And come up with alternative responses to create a new habit. Dean calls this step, the “if-then” plan (4). Instead of saying “I will lose weight”, say “if I feel hungry between meals, then I will eat some nuts (instead of doughnuts)”. Or instead of “I will spend less”, say “if I feel the urge from guilt to spend money on treats and presents for my kids, then I will read the frugal weekly planners to find a cheaper alternative to bond with them before heading to their favourite shop”.
The last step is Repetition (5). And over a long period of time, the new habit will stick.
Using Commitment Devices
For those who have a lot of will-power, an alternative approach is the use of a “commitment device”. These are self-imposed obstacles or negative consequences to help someone stay on track with their goals. They can be a bit extreme, but I’ve used them myself and have had success with habit formation.
A common commitment device I have seen is the (literal) freezing of credit cards, as an way to minimise overspending. People will freeze their cards in ice. So in order for them to use their credit cards, they would first have to go home and thaw their cards. As the cards thaw, it gives the person time to truly reflect on their purchase decision.
As Dean says, “forget waking up tomorrow as a totally different person. Instead, go little by little, step by step, and eventually you’ll get there.”
And that is the real answer as to how my husband and I became financial secure. It was a gradual and slow process. What started out as conscious decision-making soon became automatic and effortless. But it takes time and patience. And lots of practice.