The Science of Financial Habits: How to Break Bad Money Habits and Build Good Ones

We all have financial habits—whether we realize it or not. From the way we approach spending and saving to how we think about money, habits play a crucial role in shaping our financial lives. But while some habits help us build wealth, others can quietly sabotage our financial success. Fortunately, financial habits can be changed. By understanding the science behind habit formation, you can break bad money habits and create new ones that support your financial goals.

The Psychology of Habits: Why We Keep Doing What We Do

Habits form because our brains are constantly looking for ways to save effort. Once a behavior becomes routine, your brain doesn’t have to work as hard to perform it. This is useful for positive habits—like brushing your teeth or sticking to a budget—but it can also reinforce negative habits, such as impulse spending or avoiding savings.

According to Charles Duhigg, author of The Power of Habit, habits operate in a loop that involves three key elements:

1. Cue: Something that triggers the habit, like walking past a coffee shop and smelling fresh coffee.
2. Routine: The behavior itself, like buying that $5 latte.
3. Reward: The benefit you get from the behavior, such as a caffeine boost or a temporary feeling of satisfaction.

This loop explains why it can be so hard to break bad habits. Even if the habit is costing you financially, the reward it provides can be enough to keep you coming back for more.

Breaking Bad Money Habits

The first step to breaking a bad financial habit is understanding your habit loop. What’s triggering your overspending, and what reward are you getting from it? Once you identify the cue, you can change the routine to something more productive. For example:

• The Problem: You habitually buy lunch at expensive restaurants every day because it feels like a break from work.
• The Solution: You can pack lunch but still take a break from work—perhaps by eating outdoors or with coworkers in a communal space. You’ll maintain the routine of taking a break while saving money.

Here’s a simple three-step process to break bad habits:

1. Identify Your Cues: Keep a journal or use an app to track what situations or emotions trigger your bad financial habits. Do you overspend when you’re stressed? Do you avoid checking your bank account because it makes you anxious?

2. Substitute the Routine: Once you know what’s triggering the habit, find a healthier or more productive routine that satisfies the same need. For example, if you shop online when you’re bored, replace that with a more budget-friendly activity like reading or going for a walk.

3. Reward Yourself Differently: After you complete the new routine, make sure to reward yourself in a way that reinforces the behavior. Over time, this new habit will begin to stick. The reward might be seeing your savings grow or simply feeling proud of sticking to your financial goals.

Building Good Money Habits

Breaking bad habits is only half the battle. To truly transform your finances, you’ll need to build new habits that work in your favor. The same habit loop applies: find cues and rewards that reinforce positive financial behaviors.

Here are some strategies to help you build strong financial habits:

1. Start Small and Build Gradually
   Big changes can be overwhelming, which is why small, incremental improvements are more effective. Want to save more? Start by setting aside just $5 or $10 each week. Once the habit is established, you can gradually increase the amount.

2. Use Technology to Your Advantage
   Automation is one of the best tools for building good financial habits. Set up automatic transfers to your savings account or automatic payments for bills. When these actions happen on autopilot, you don’t have to rely on willpower to stay consistent.

3. Track Your Progress
   Monitoring your progress can keep you motivated. Apps like Bountisphere help you stay on top of your budget, track spending, and measure your progress toward financial goals. As you see the results of your habits over time, you’ll feel encouraged to keep going.

4. Create a ‘Why’ Behind Your Goals
   Good financial habits are easier to maintain when they’re tied to something meaningful. Whether it’s saving for a vacation, paying off debt, or building an emergency fund, make sure you have a strong “why” behind each goal. This purpose will keep you on track when motivation dips.

5. Be Patient
   Changing financial habits takes time. Research shows it can take anywhere from 21 to 66 days to form a new habit, so don’t get discouraged if things don’t change overnight. Stay consistent, and over time, your small actions will add up to big financial wins.

Finally...

Breaking bad money habits and building new, positive ones isn’t easy, but it’s well worth the effort. By understanding the science behind habits, you can create lasting financial change that helps you save more, spend smarter, and reduce stress. The key is to start small, stay consistent, and celebrate your progress along the way.

Ready to take control of your financial habits? Sign up for a free trial of Bountisphere and start building a financial future you can feel good about!