- time of day
- presence of specific people
- preceding behavior that has become ritualized
“Let’s say that you’re buying a $4 latte at Starbucks. The cue is probably a certain time of day. At 10 in the morning, you always take a break, get up from your desk and go buy a latte. Figuring out the cue typically isn’t hard. What is hard is figuring out the reward, which is step two.
“Are you buying that coffee because you genuinely need the coffee or is it something else that the mini ritual is providing? Maybe at 10 a.m., you need a break from your work, so you’ve built this ritual out of getting a cup of coffee. Or maybe it’s that buying the latte makes you feel luxurious. Or perhaps you really need the caffeine, and the Starbucks is convenient and easy, but there’s a coffee stand next door that’s half the price.”
So once you figure out the reward that the habit is providing you, then what?
“You come up with a new routine that delivers a similar reward but is less expensive. If it’s not actually the coffee you need, then try just getting up from your desk and taking a walk outside and stretching your legs. Or if you do need the caffeine fix, go to where the coffee is cheaper.”
How long before the new routine sticks? I’ve heard it takes two weeks to form a new habit—is that true?
“No, it’s really different from person to person. There’s no formula that says how long it will take.”
What if instead of trying to change a bad financial habit, you want to start a good one. How would you do that?
“First, you have to pick a cue, like every single time that you get a paycheck, you’ll move 5% of it into savings. Or every Friday night, you’ll move money into your savings, and go over your accounts for 10 minutes. The key to make it stick: You have to give yourself a reward every time you do it.
“The hardest thing about savings is that people very often put off the reward far into the future. If you set aside money to go on vacation, then a year from now you can go on a vacation. The reward is too far off. Everything we know about rewards is that the faster they happen, the more powerful they are. So when you’re saving money, you need to start congratulating yourself every time that you save money. When you sit down and look at your accounts every Friday, give yourself a glass of wine.
“The key is to create a mini celebration. People have this sense that they need to punish themselves, that they can’t indulge. But that sense of self-satisfaction or patting yourself on the back is really powerful. That’s a reward that can create great habits.”