The first step in changing a habit may actually be the hardest: realizing that something is a habit. That’s because by definition, a habit is something we do without thinking about it.
Humans are definitely creatures of habits, so that’s normal. But take the time to identify the things you do with your money pretty automatically. If those habits are leading you into debt, you’ll find that changing them can be awesome for your wallet.
Identifying your debt habits
Think about the things you’re doing with your money that have led you into debt. Those could be things like getting your paycheck and spending it like water, making impulse buys, using debt for emergencies, etc. If you’re unsure, review your past spending to see where your money went. The usual culprits are often a constant stream of very small expenses and/or a few huge hits throughout the year.
Identify the recurring issues and break them down. Like it or not, those are your habits. To start with, pick one to break down and change and watch what an impact that makes.
Breaking down a habit
How do you break down a habit? Use the example format James Clear uses in his explanation of what a habit looks like when it’s broken down:
Your phone rings (reminder). This is the reminder that initiates the behavior. The ring acts as a trigger or cue to tell you to answer the phone. It is the prompt that starts the behavior.
You answer your phone (routine). This is the actual behavior. When your phone rings, you answer the phone.
You find out who is calling (reward). This is the reward (or punishment, depending on who is calling). The reward is the benefit gained from doing the behavior.
When it comes to the habit of using debt for emergencies, breaking it down might look like this:
Something bad happens that costs you money (reminder/trigger).
You don’t have any money saved for the emergency, so you pay for it with debt (routine).
You’ve gotten through the bad situation (reward).
Once you’ve broken down a habit, look for places you can make a change.
Making a change
You could make a change at two key points: either by preventing the reminder/trigger from occurring or by changing the routine you use to respond to it.
For example, suppose you found that you’re constantly laying out money you don’t have for car repairs. (That’s the something bad that happens to cost you money; the reminder.) You could eliminate (or at least reduce) the trigger by doing regular maintenance on your car and driving conservatively.
Or you could change the way you routinely respond to the trigger. Since you know you often need car repairs, you could create a car repair fund that you contribute to each month. That way you could use money to pay for the repairs instead of debt. In this case, you’d be responding before the trigger occurred.
If the trigger happened before you could save up enough money, you could replace your old routine of using debt with something creative. That might mean working on your car yourself to save the costs of labor, exchanging work of another sort with a mechanic friend who could fix it, walking or using public transit until you saved up the money for the repair, etc.
The good news
While changing habits that lead you into debt can sometimes be time-consuming, the good news is that you can replace them with positive habits that not only keep you out of debt, but help you build wealth.