Today I want to talk about habits and the power of habits as they apply to our money and specifically building wealth.
I’ve read a couple of books on habits in the past, and we’re going to unpack some of the concepts in here that hopefully will be of interest to you today.
So, what is a habit? Well, Oxford defines a habit as a settled or regular tenancy or practice. I like to think of it as a repeated action, something that we do repeatedly, maybe hundreds of times, even a day.
Now, when it comes to habits, the reality is we’re unconscious of most of them. We just do things you ever had the experience where you’re driving along and then you get thinking about something and then you kind of wake up and you realize that you’ve gone maybe a couple of miles, and you weren’t really focused on.
The road, because you were thinking about your thoughts and everything else was just kind of a habit of driving. That’s a, that’s how we know that we’re unconscious of a lot of our habits.
But here’s the thing habits play an important role in our lives and in our money, essentially, we are the sum. Of our habits, either daily, weekly, monthly, or yearly.
I try to remind myself almost daily, really, that I am where I am in my life because of the things that I’ve done in the past. And if I want different things in the future, I must do different things now. And so. I remind myself of that to make myself conscious of being aware of what I’m striving to do because here’s the challenge as it comes to habits and repeated actions in general.
The reality is that the results are delayed, meaning that if you do something now, you don’t see the immediate result. And even if you do it two or three or four times, the results are often. Delayed. And so therefore what normally happens is people quit. This is mid-February. New Year’s resolutions, for most people, are a thing in the rear-view mirror.
The gyms were packed the first couple of weeks of January, but as we approach to Valentine’s Day, the regulars are there and those that were not regulars are not there, that’s what happens because you get moving on something and you don’t see the immediate results and you don’t have the right mindset.
And therefore, we quit or self-sabotage or divert. So, the challenge is, is to recognize and realize that habits have an effect, but over a long term. So maybe to help illustrate this, you’ve heard of this before, but let’s say if I could offer you today. The choice of one of two options, either one is 2 million.
I could give you 2 million right now, or a penny doubled every day for the next 30 days. 2, 000, 000 now or a penny doubled every day for the next 30 days, which would you take?
Most people would say the 2 million. And if you did, like most people, you would have given up the opportunity to have 5, 368, 709, that’s the power of the compound effect of a penny doubling every day. So, the thing about habits and the results being delayed is it works both ways. It works positive and negative,
you do something good every day, every week, every month. Those effects are large over time, like the penny doubling. If you do something negative, Day in and day out, week in and week out, month in, month out. It has a drastic negative effect over the long term. One of the books that I read on habits essentially is the idea of compound effect by Darren Hardy and in that he uses an illustration of eating just a little bit more each day.
So, imagine three friends go about a diet plan together. And one of them basically is the use case where he just stays the same. He eats 2000 calories every day. No more, no less. Another friend. Starts eating just a little bit more, just a couple, like 200 extra calories a day. That’s it. 200 calories extra day.
And the third friend eats 200 less calories a day, so we’re talking like a banana, maybe two apples, you know, a thing of yogurt, we’re not talking about a lot of food, but here’s the thing by eating 200 more calories a day. That is 0. 4 pounds a week. And the person who’s eating 200 less calories is losing 0.
4 pounds a week. And if you were too come look at them after, you know, eight weeks, almost two months of eating like this. The results will be negligible. One guy would, the guy who’s eating more would weigh 203. The guy who’s eating the same would be still 200. And the guy who’s eating, you know, 200 calories less a day would be 197 ish.
So, if you looked at them two months into this dieting program, the results are, are negligible. You know, you couldn’t even really tell the difference. But if we expand the time on that same example, not to 8 weeks, but rather 88 weeks, we can see the guy who’s been eating 200 extra calories a day now weighs 35 pounds more than the guy who’s level.
And the person who’s eating 200 calories less a day, now weighs 35 pounds less. So, you have one at 200, one at 235, and one at 165. That’s a big difference. That’s the idea that things compound over time. Small changes over time compound. Now when it comes to books, like I said I’ve read a couple of them. This one is making habits and breaking habits.
It’s a pretty good one. Talks about some of the psychology. This was a really, really good book on habits. Talked about the cycle of them, of understanding them, the unconsciousness of them, the cues, the triggers, the response, things that, that kind of take place. And then the best book that I’ve read on habits thus far was a really, really great book.
Cut by James Clear, caught atomic habits and atomic habits is kind of focused on the words of atomic habits. So atomic meaning very, very small, like a molecule like an inside of an atom, but then kind of atomic as an explosive, like an atomic bomb can have a large, large effect if utilized properly.
And so, the kind of little subtitle up here kind of really illustrates the concept we’re trying to point out, which is tiny changes, remarkable. So, in that book by James’s clear, he outlays essentially four different sections. I want to talk about those briefly and how maybe you can apply them when it comes to your money.
Now, when we have talked about money habits, really at a base level, there’s four things that are involved with money. Making it so work giving it, so giving some away, saving it, kind of investing. And number four is spending wisely, you must have all four of those. And at a base level, that’s where we want to apply our habits.
We want to have a good work ethic. We want to work at work. We want to earn income. We want to accelerate in our career because that is the largest wealth building asset we have. You want to give generously, consistently, repeatedly over time because giving makes you a better person in general. It helps, you know, makes you think of others.
You’re less selfish. You’re more. Others focused and just has a large effect on you as a person. Giving is a good thing because people don’t like takers. My wife just sent me a tick tock a couple weeks ago. I didn’t watch it because I don’t really tick tack. But I saw the title. It says have more batteries in your life than vacuums,
have more batteries in your life than vacuums, batteries charge, give energy, lift you up. Vacuums suck, you know, take away energy, draw. Right. Kind of a good concept there. Right. So, giving makes you a battery. It energizes you and others, when it comes to savings, we want to have a good savings muscle and be saving repeatedly, saving consistently.
Heard a good podcast by Ed Mylet just after New Year’s. He was talking about money, and he brought up a good point that I didn’t really think about and says, if you don’t save money when you don’t have any. You’re not going to save money when you do have any meaning that it becomes habitual, meaning when your kind of broke and struggling and you’re not making a lot of money, if you don’t instill savings, then if you can’t do it, then you’re not going to do it when you have a lot of money,
so, savings is a muscle that must be developed and spending wisely, being. Intentional, focused, disciplined regarding our spending. So, we’re going to apply these concepts con to those four areas when it comes to money. So again, in, in James Clear’s book on atomic habits, he had four main divisions and he referred to them as law.
So, the first law was. Make it obvious. And in that he talked about the idea where a cafeteria kind of designer one to help people drink more water than soda. And so, what they did was they kind of reduced the size of the soda, you know, containers and put water all over the place around the cafeteria and they studied the results of it.
And the sales over the next month greatly increased in water, making the employees kind of more happy and healthier and, and better at work and stuff. Cause they didn’t have the sugar from the soda. But what they did was they kind of put the stands all over the place where they could see it, where it was more obvious,
and so, as you think about things with your money, make it more obvious, you can do a whole lot of things, you can see, do something where you can see the savings going every month. You can see the investing either every paycheck or every month where, you know, when you do a budget, you can put down on your budget savings and giving these types of things you could set up.
Email notifications. If you do kind of things automated, you can set notifications on your investment accounts, your savings accounts to get a reminder that you saved the invested, so you have to kind of make it obvious to make you conscious of it because most of the things we do are on conscious.
The second law or an alarm or two was make it. Attractive, that we again, we talked about the idea of habits are unconscious. So, you must do something to wake up your conscious mind. He talks in the book about the Japanese railways systems are remarkably on time and efficient and very, very safe.
They hardly have any accidents. And the reason why is because I don’t know, maybe in the eighties or nineties or so. They instituted what they call a point and call, meaning that the operators of the trains and the people in the platforms had not just visual things, but they had to point at something, you know, green light, red light or whatever, and then call it out, you know, green light, red light, things like that, pointing and calling to make them conscious of what they’re actually doing.
A good tip on maybe how to do this was when we were getting out of debt, we’re on our baby step to our debt snowball type thing. I made this big, huge thermometer. It was like I didn’t do a very good scale that or we had, we had way too much debt. I don’t know, maybe both, but I, I put pieces of paper together vertically and you know, every inch was like a thousand dollars or 2, 000 or something like that.
And you know, we had like 10-foot ceilings that went from the top of the. Top of the wall to the really past the floor, kind of, kind of came out underneath. Whoops, it kind of came out on the floor there. And so, what we would do is kind of, every time we paid some off, we’d, we’d color, you know, the thermostat in and, you know, it gave us a visual and it made it attractive of kind of getting there.
Same thing with having a goal, maybe. On the outside of things, we want to sacrifice now for something later. So, for example, what we did was once we got out of debt and we kind of got our emergency fund done to some degree we took all the kids down to Disney. We went down to Florida to see one of Erica’s sisters and we went to Disney, and we had so much fun the one day at Disney.
that we decided to go back for a second day because it was, it was an enjoyable time and kids really liked it. So, you know, make it attractive, you’re trying to achieve something with your money, either tie a goal to it or make something that makes you attracted to accomplishing that goal.
The fourth law and the division of the book is that of make it. Easy. Make it easy. He talks about starting slow and never going backwards. So, in that he talked about the idea. There was a guy who wanted to start going to the gym, started wanting to exercise. And so, what he had him do was he made him drive to the gym every day and said, I want you to drive to the gym.
I want you to walk in and stay there for at least five minutes. And so, the guy would get up, you drive, and you know, he didn’t want to really work out. So, he stayed there at least five minutes. He made the. You know, idea of get there, do something for five minutes. Cause everybody can do some five minutes.
That’s the idea. And then if you don’t want to do more, you can leave. Well, what happened is obviously the guy, once he got up and drove and got ready to go to the gym and got there, by the time he got there, he wouldn’t want to just spend five minutes. And so, he kind of built that habit of going. And then that habit turned into going consistently and working out more things like that.
So, the idea is to start small. Really? And never go back, so when it comes to like retirement investing or striving to do is trying to get you to 15%. We want 15 percent of your gross income being saved and invested for your future self because your future self is totally dependent upon. The money that you’re saving now, because when you pull the lever to retire, the income goes away, you still need money to pay your bills.
If you haven’t saved a reserve to generate that income, you’re going to have a rough time. But when we say, hey, invest 15%, most people can’t go there right away. So, one of the things I’ve done with a lot of clients, and it works out really, well is we start small, pick a number. Pick the smallest number that you can do today.
I don’t care if it’s 5, 10, 50, whatever, a hundred dollars, pick a small number and consistently give that every month. And then every quarter, when we meet, we’re going to talk about it and we’re going to ratchet it up. 10. So let’s say you start at 50, 50 a month. Most people have 50 a month that they could save for their retirement.
Is it going to give you a ton? No, but that’s not the point. What we’re trying to do is we’re trying to build a habit of investing and the next quarter we ratchet up. So, 50 becomes 55 and then the next quarter we ratchet up 55 becomes 61 and then we ratchet up 61 becomes 67 and every quarter we just increment it up by 10 percent and slow and steady you look up and, you’re investing you know, 10, 15 percent of your income into retirement, but we got there one quarter of the time, start small and never go backward. The last law that he talks about in this book here is that of make it. Satisfying, make it satisfy. He talks about habit trackers and accountability partners and stuff like that.
I told you about the debt snowball chart that we kind of made that thermometer that we had, I had it on a spreadsheet too, but I want something more visual. Right. Kind of going back to the idea of make it attractive. And so, we made that thermometer. Well, what happened to us is once we got out of debt, I didn’t have something to look at.
I didn’t have something to, to kind of motivate me. We stalled out on, on baby step three of getting that emergency fund for a long time. It took us like almost a year to knock that out because we, we had a long debt snowball, a lot of sacrifices. We wanted to kind of upgrade some stuff and kind of reward ourselves, things like that for our hard work.
But we had to Us had to get moving on the wealth building side. So, what I started doing back in 2014, almost 10 years ago, as I started myself a net worth chart. So, every, at least every year, sometimes twice a year, I would go in and calculate my net worth and I would chart it out and I would see the progress kind of going.
Up into the right and that made it satisfying. I knew that the work I was doing was building hope of a better financial future. I knew that the sacrifices and the diligence that I was applying week in and week out was having a compound effect. And the thing is, over time, that train gets moving. It gets moving a lot.
We’ve just done this. I’ve done this for all my clients, my planning clients as well. And we just did this Q1. We kind of do it right after New Year’s. And some people had. You know, over 100, 000 of gains last year, the market did really, good. So that helped property values kind of increased to some degree.
So that helped plus the earnings that they made, their savings is up. And so, some people had, you know, really, really, good years. And they’re like, wow, this is, this is great. Others looked at theirs and was like, ah, I don’t know. I mean, is that, is that good? You know, generally, if you must ask if that’s good, it’s not that good, but here’s the difference.
And when I told them, you know, some of those folks who were kind of struggling, like, ah, I don’t really know if that’s good is, hey, we’re getting the train going in those first early years. The progress isn’t a lot. It’s like those first eight weeks of kind of losing weight. You lose weight for two, two months and you lose three pounds.
That’s not very satisfying. That’s not very rewarding. That’s not very helpful. That doesn’t want to make you want to keep going. But here’s the thing, the more you do it, those compound effects get larger and larger and larger. So, the people that had the big gains last year, it wasn’t because of the things that they have done last year.
It was because of the things they’ve done. multiple years before that, so what’s the difference? The difference is their habits.
So let me ask you this. If success was watching your money habits. Would it say he’s coming my way watch out she’s heading towards me, or would success say yeah, I don’t really recognize them. I can tell you this the clients who had Major net worth changes was because of the habits year in and year out paycheck after paycheck month After month, year after year, it’s the habits of going to work every day, living on a budget, spending less than you make, saving money, staying out of debt, continually paying down your mortgage, investing for your future.
That is how you build wealth. Tiny changes, remarkable results. Your micro action for the week. We all have habits. Identify a key habit that you can either start or stop that will help your money. Not necessarily in the short term, but in the long term. Ideally, you’re looking for what we call a lead domino,
so, if you ever played dominoes, you hit the one domino, it kind of falls and kind of makes that type of thing. That’s what you’re looking for. You’re looking for a lead domino that if you start doing that or stop doing that, whatever the case might be, it’ll set other things in motion. Maybe you can help encourage others by putting your habit that you’re going to start or stop in the comments below and we can share some ideas.
Today, we talked about habits, we talked about what they are. We talked about the compound effect. We talked about the four areas of work, savings, giving, and spending when it comes to habits. We talked about the four rules inside of atomic habits and how you can apply some of them to your financial journey.
So, I hope this has been helpful for you. If you have any questions or comments, please feel free to leave them below or send an email to Mike@truewealth.show. And until next time, I hope you have a great day.
