Breaking Bad Financial Habits
| July 5, 2012 | Posted by Roshawn Watson under Personal Finance, psychology |
By: Roshawn Watson
How often do we find ourselves in the same financial ruts over and over? With the best of intentions, we proclaim that we’ll never be in these positions again. Unfortunately, while the precise circumstances change, for the most part, history repeats itself. Our financial lives consist of patterns. That likely won’t change. After all, it is in our nature. Nonetheless, that doesn’t mean that the habits themselves can’t change. Here’s why we must break bad financial habits.
Habits Define Us
We don’t decide our futures. We decide our habits, and our habits define our futures.
One of the most powerful examples of how habits define us incidentally is about elephants. Often trainers shackle elephants when they are young with heavy chains using deeply embedded stakes. This teaches the young elephants to remain in their place. There is a good reason this is done with young elephants: by the time they are older, their strength would be powerful enough to remove the stake and walk away easily. Instead, they never try to leave, even when there is only a small unattached metal shackle “holding” them. That’s because they are no longer held by physical constraints. Instead, they are prisoners to their former programming. They developed the habit of learned helplessness.
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What we don’t realize is just how much of our lives are on autopilot as well. Neale Martin, a successful marketing consultant, argues that habits comprised 95% of our behaviors. Like the elephants, many of us do not even question our habits, regardless of proof suggesting that they do us harm or that the underlying assumptions we used in forming the habits no longer hold true. We cling to habits like our lives depend on them because there is comfort and power in the familiar and predictable. “Knowing” the results is what prevents us from touching a hot iron or skillet and plugging sharp shiny objects into the outlet. Unfortunately, that “knowing” is also what keeps from writing that book we been contemplating for years, starting that business, and asking for that well-deserved promotion. Just like failure and misery are habits, so are happiness and success.
The Big Implications of Subtle Personal Finance Habits
The implications of bad personal finance habits are remarkable; however, we rarely properly attribute blame. That’s because we often have death by a 1000 cuts. No, I am not referring to a form of Chinese torture but rather how our lives take turns for the worse by many slow and unnoticed decisions. On the surface, such decisions may appear harmless or at least insignificant, yet their impacts are grave (this is also known as creeping normalcy). The tale of the boiling frog is perhaps the best illustration of this concept. Frogs placed in a boiling pot of water will jump out if permitted. However, by placing them in cold water that is gradually heated, frogs will be slowly boil to their deaths, as they do not perceive the danger.
In reality, frog behavior doesn’t appear to follow this pattern consistently, but the point of the metaphor is still accurate. Gradual negative changes often do not elicit our responses. For most of us, we don’t necessarily do extremely stupid things in rapid succession of each other, yet we still get into major financial problems. This is often the result small decisions made over a long term, such as not carrying proper insurance or not having an emergency fund. For example, ⅓ of households would be unable to pay 1 months’ rent or mortgage if their incomes stopped. If a job loss occurs in one of these households after 35 years of consistent employment, is the job loss wholly responsible for this stumble, or could it at least partly be due to the culmination of 35 years of financial indifference? Opinions differ, so I leave that for you to decide.
The Power of Good Habits
The same cumulative effect of incremental decisions works for our good as well: whenever we see someone “suddenly” have remarkable success, we’re often witnessing the cumulative effect of years of hard work rather than an isolated event.
Case Study: Jimmie Dean
Although he has a famous last name (no relation), Mr. Dean was of modest means. The most he ever earned was $50,000 per year. I imagine he lived a quiet and unassuming life. Thus, it was to the surprise of many that he even had $2 million to donate to charity upon his death. He didn’t win the lottery or inherit money from a rich relative. Instead, he worked 33 long years as a technician and invested habitually. His seven-figure gift was the cumulative impact of his diligence.
I bring this up not to discount the power of having a healthy income. It is a fact that income is correlated to wealth; your income is also your most powerful wealth-building tool. However, sometimes we fail to capitalize on our existing incomes. We give away our power. I find it scary that the typical American household will bring in about $2 million over a working lifetime, yet many will not be able to write a $5,000 check when they retire.
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Though his numbers were not staggering, except when you compare his net worth to that of the typical American household (i.e., $77,300 in 2010 according to CNN Money), but in some ways, I find Jimmie Dean’s story even more empowering than that of runaway success stories of entrepreneurs. He used the power of habit to make himself multimillionaire with an ordinary income and ordinary job. In contrast, I have seen countless people with fabulous incomes with nothing to show for their efforts after years of hard work. While they changed their earning potential, they never changed their habits. They were still the “trapped” elephants or the “comfortable frogs.” Their pocketbooks shrunk down to their visions of their current selves.
Closing Thoughts
We have the power to reject complacency. It wasn’t until Colonel Sanders received his first monthly Social Security check of $103 at the prime age of 66 that he decided that he didn’t have to subsist. He reportedly persisted through 1000 rejections before he found a restaurant willing to pay him 5 cents whenever they used his now famous fried chicken recipe, and the rest is history. Similarly, if our financial lives are going in the wrong directions, we can take courage and take charge. We can deliberately replace any bad habits with good habits. We won’t allow the pace and size of bad decisions to lure us to our slow financial deaths. We’re at least better than elephants and frogs, aren’t we?
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I am a sucker when it comes to my wife and kids. I have a difficult time saying no to them.
However, I have no issues convincing myself I don't need something. Even the cash I carry stays in my wallet, because I know my wife or kids will *need* it.
Like I said- SUCKER!
This is how I am. For some reason I have no problem with dropping tons of money on my bf, but I hate spending money on myself!
Michelle,
I understand. Be careful to do cool things for yourself too. If you don't take care of yourself, you can get worn down, which doesn't help anyone. One of your best investments is to invest in yourself!
For a "bad" financial habit, I certainly think that is one that increases your QOL. Happy wife… happy life. I certainly can't endorse that you decrease your happiness by breaking this habit 🙂
The savings habit is probably my most important. I learn very young to save for the things I wanted. Financially, I made it my number one priority. The other important habit was living on less which supports the saving habit.
Those are two awesome financial habits. They are foundational and so common among high achievers who build a large net worth like yourself.
Well said. Habits are very influential and can really set the direction we go in life. I think the hardest part is becoming aware of our habits. Once we know we do something we can change it but self awareness is the first step. It is a hard step though. I know so many people who act subconsciously and have no idea what they are doing. How are they ever going to change?!
Thanks Miss T. Brilliant point about self-awareness. A lot of habits are beneath the surface of our consciousnesses, so your comment is well-supported, as you indicated. You are right: how are we going to change if we can't identify the problem to begin with.
This is true. Awareness is key.
There is one thing though which may discourage us from being aware:
If we get too hard on ourselves when we notice ourselves slip, we may inadvertently train ourselves into denial.
It’s a simple Pavlovian principle: Awareness gets punished – don’t do awareness.
That’s why it’s important to notice without judgment – and then steer back on track.
Very well said, Roshawn..
In changing our financial picture, we have had to seriously do a deep dive on our habits that were causing our problems, and make the changes from the core on out. We are confident that we have broken some bad patterns and are on the right path at this point.
Jefferson
Thanks so much Jefferson!
That is so awesome that you and Michelle and course corrected. I know it is not easy in the slightest. Sometimes it is a painful, ego-busting process that can leave you demoralized yet enlightened. Kudos to you for setting the course for a healthy financial future.
2 little habits that I've changed that will make a huge difference is this:
I'm eating a much higher percentage of meals at home–which now I'm preferring.
And I'm using my motorcycle and bike for transportation instead of my car.
Mike, thanks for your comment, and wow on the motorcycle and bike. I just can't do it, so my hats off to you.
In terms of the meals at home, I like that too. I find that an added benefit (in addition to saving money and knowing exactly what you are getting) is that I can eat healthier on a regular basis (lower fat, calories, and salt). It is a side benefit that I have become quite fond of to be honest. Cheers!
creeping normalcy creeps me out. Great post!
Well said, and thank you for the comment. Cheers!
I think the point is persistence. Try and try again. I had a friend that delayed going to University for 4 years as he kept reapplying to do medicine. He eventually got it and is now in his second year and loving every minute of it.
Wow, that's wonderful. For years?!" He really wanted it. I hope he makes a wonderful doctor, as he exercises the same tenacity in his career.
It's pretty scary how low the median net worth is. Most of us make enough to live on and put aside a bit for saving. However, we let the lifestyle and other unimportant expenses creep up and live paycheck to paycheck. I guess many people figure they'll work until they keel over. I guess that's good if they like what they do, but I don't think that's true for most people.
Not only do people not like what they do, I think people put themselves in such risky situations financially. It is downright scary!!! Not having anything to show for decades of work is tragic. It is even tragic not to have anything to show for 5 years of work.
Wow, I didn't realize that many people make a total of $2 million throughout their careers. I was well aware of the fact that many do not save the majority of their earnings though. Often at work, I see investors with 6 figure incomes and a 5 figure net worth.
6 figure incomes with 5 figure net worth is sad. Unfortunately, I know plenty people with 6-figure with negative net worth too. Eventually, they dig themselves out of the holes. Some never make too much traction though. It is all quite sad.
I enjoyed readijng this; it reminded me that when we first found ourselves in financial trouble I very quickly saw that the problem is not spending but spending as part of a routine, or habit. Increased awareness has had incredible effect and is so liberating – you don't feel deprived just mindful. I also happen to belive this is important for all walks of life – mindfulness makes our lives more akin to a tango than a disco dance.
Thanks so much Maria! What a keen observation. Bravo for seeing the distinction. That type of self-awareness is not necessarily common. I can certainly see why you would feel empowered by this revelation. Thanks for the cool metaphor.
A life like a tango – what a beautiful metaphor!
Yes, habits CAN be sneaky. Their job is to free us from having to think about minutia, but unless we watch them, we can end up unknowingly hurting ourselves.
Actually, we are building new habits all the time. The question is, whether we do it consciously or not. It’s important to pay attention.
Great point! Habits do have a purpose. Too many people blindly assume that habits must be nefarious, but that's completely unfounded.
Beautiful article-I think the title is misleading-yes, we need to break bad habits, but the message is more inspiration in the end. Great job!
Thanks so much for the feedback Queen Bee!!! That's a really kind thing to say. I'm honored that you took the time to read my post and share your thoughts. Best Regards!
Haha, I agree with the previous poster about the misleading title – I was thinking this was going to be about the TV series "Breaking Bad" in some way, shape, or form. Anyway, you are right about how we get ourselves into financial trouble – it rarely begins with a majorly bad decision, just a million lattes from Starbucks we didn't need.
Haha Elizabeth… I've heard a lot of good things about "Breaking Bad" but haven't caught an episode yet, so I couldn't even to begin how that post would go 🙂 Great reference to the "Latte effect." I could have dugg a little into Bach's work for this post… well, there's always net time 🙂
There may be undoubtedly a whole lot that one could study this kind of. The ideas are so excellent with this particular. I see a fantastic upcoming because of this
Thank you Vivian. I am honored to have you as a reader. Thank you for taking time to comment!
Well said – the small mistakes certainly add up and can slowly push us off course. I love to hear stories of people who saved with a modest income. It makes me think that anyone can do it.
Absolutely Corey. I think the Jimmie's story resonated with me too. Some old subscribers who I hadn't heard from in over a year email me regarding it, so I think his story is really almost everyone's story in a weird way. It is what many are striving for 🙂
One of my biggest problems is I have no problem letting my wife make herself happy spending a few bucks. Sometimes I point out the waste factor but I pick and choose what I say to her carefully. We have a small couch and I am too old to be sleeping on it EVERYDAY…
Haha 🙂
Don't whine up on the couch Jai! Definitely aim to be on the same page (and in the same bed too hopefully). I can certainly see the challenge my friend. I guess continue to pick and choose your "battles"
Haha, you crack me up!
Well, anytime you manage to prove that somebody was wrong, what really happens is that they silently stick to their opinion and make you pay later.
There's some kind of need behind every purchase – and it's something very different from what you'd normally assume. It usually has nothing to do with the actual object being bought.
So if you could find out what the real need is and meet it in some other way, you'd save the money without having to sleep on the couch.
Ha! What you are really saying is that we can silence people but not force them to abandon bad beliefs!
I like your point about the underlying motivations for our purchases. That's very intriguing: in some cases we think someone is purchasing a dress or a pair of pants, when he or she is really purchasing esteem. We can think someone is purchasing a book, but what they are really purchasing is entertainment, insight, escapism, an education.
[…] Watson @ Watson Inc writes Breaking Bad Financial Habits – Our financial lives consist of patterns. that doesn’t mean that the habits themselves […]
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