4 Tips for Applying “Atomic Habits” to Your Personal Finances

James Clear’s best-selling book about the importance of habits, and how you can create healthy ones, hit a global nerve. Translated into more than 60 languages around the world, Atomic Habits gives readers a detailed look into the psychology of habits and how they determine your behavior at work, at home, and everywhere in between. There are some clear (pardon the pun) connections to your relationship with money as well. Here are four tips for applying atomic habits to your personal finances.

Systems, Not Goals

Somewhat counterintuitively, James Clear is not a fan of setting goals. Instead, he implores readers to focus on their systems.

“You do not rise to the level of your goals. You fall to the level of your systems,” writes Clear.

For instance, instead of deciding to run a marathon, set the goal to run three times a week. If you decide that your objective is to run those 26.2 miles, what happens the minute that you cross the finish line? Unless there is another race or distance on the horizon, you may revert back to your old habits. However, if your goal is to run three times a week, then there is a greater likelihood that you will continue along this path.

When it comes to finances, there are numerous ways to apply this logic. For instance, rather than setting a goal to save a million dollars, create mechanisms to save up funds from every paycheck.

This will allow you to get into the habit of saving money indefinitely, which will continue long after you reach the million-dollar mark.

Building Your Identity

Goals can be arbitrary landmarks that you are working towards. Identity, however, is who you are.

James Clear cites the example of an individual who is trying to quit smoking. Instead of telling your social network that you are working toward quitting your smoking habit, describe yourself as a non-smoker. Someone who is quitting smoking is constantly faced with the decision to light up or not, with temptation a constant companion.

Tobacco is a particularly addictive substance, and quitting is no doubt a difficult proposition. However, if you declare to yourself that you are not a smoker, the theory goes, it is no longer a choice to make. You are not a smoker, plain and simple.

In a similar fashion, a “saver” acts as a responsible steward of his or her personal finances. If that becomes your identity, it will be much easier to convince yourself that the best course of action is to squirrel money away instead of spending your resources at abandon.

Every Little Bit Counts

The benefits of compound interest are a central component of any sound financial plan. The idea is as simple as it is effective: by investing your money early, your interest will begin to accrue its own interest. This is the very essence of making your money work for you.

In Atomic Habits, Clear describes how being consistent through the everyday application of your behavior will eventually lead to greater and greater gains. For instance, taking a few minutes every day to go to the gym (even when you do not feel like it) will allow you to improve your health (and perhaps more importantly, not to see your gains fall away).

The same applies to your finances. Make sure to put a little away every paycheck. This will get you into the habit of living below your means, while also creating a mechanism for your savings to grow month by month.

Make It Easy

We are creatures of habit, as the saying goes, but we are also attracted to comfort. Often times, we revert to old, unhealthy habits simply because it is the path of least resistance.

Similar to the idea of putting systems in place, try to automate good actions as much as possible. For example, setting up automatic deductions from your checking to your savings account each month is a method to ensure that you consistently save money for the future. Likewise, consider arranging automatic contributions to your 401(k) account with every paycheck.

The more we can make it easy to implement these systems, the greater chance we have of making sure that they stick.

Conclusion: Atomic Habits and Your Finances

Our ability to live happy, healthy lives is dependent on our daily choices. This is true at home, at work, and with our finances.

Most decisions in life are mundane by definition, and many tend to repeat themselves. For this reason, it is vital that our habits align with the lifestyle that we desire. Through his book Atomic Habits, James Clear has helped millions of individuals create healthy habits, which can also have a major impact on our personal finances.

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