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How’s this for a truth bomb – the life you are currently living is mostly the sum of all your habits.

* I can hear painful whimpers in the far back*

Are you out of shape? It’s likely due to your habits.

Do you struggle to rein in your spending? Habits.

Are you never on time for work? Yup, you guessed it – blame it on your habits.

The brain is a fascinating thing. It also tends to be pretty lazy. Left to it its own devices, the brain will try to put in as little effort as possible in an attempt to conserve energy. In fact, when a habit is fully developed, the brain stops actively participating in the decision-making process.

Ever wonder why you’re able to focus on having a conversation while driving your car? The brain contributes little effort to driving so that it can redirect it’s attention to the conversation. Over time, your brain ensures the correct circuitry (or habit) for driving is learned and embedded for when we next need it again.

This is actually a good thing. Imagine having to relearn to drive every time you stepped into your car?

Of course, there is an evolutionary basis for this. Back in the stone age, our ancestors needed to make decisions when faced with life-threatening situations. By automating those decisions, the brain could focus on other, important tasks simultaneously.

Cue the emergence of human habits.

The Habit Loop

Just as living paycheck to paycheck is a vicious cycle, so are our habits. Habits form when a specific trigger causes a physical or emotional craving that encourages us to react/respond. Once we’ve satisfied the craving, we feel a sense of reward and the loop starts over again. Trigger. Craving. Reaction. Reward. Trigger. Craving. Reaction. Reward.

Before you know it, your brain goes into full-on stealthy mode, leaving you wondering how you’ve gained 4 pant sizes or reached your credit card limit.

Let’s look at a few examples in action:

  • Trigger: A friend invites you out for dinner.
  • Craving: You have no desire to cook tonight.
  • Reaction: You exclaim “YES!” and join your friend.
  • Reward: You satisfy your craving of not having to cook. Dining out now becomes associated with the lack of desire to cook for yourself.
  • Trigger: You enter the mall and see a 50% off sale at your favorite store.
  • Craving: You want to feel attractive.
  • Reaction: You leave with 5 bags filled to the brim with new clothes.
  • Reward: You satisfy your craving to feel attractive. Clothing sales now becomes associated with feeling more attractive.

Habits aren’t inherently bad. They’re our brain’s way of trying to solve our problems and reduce our pain. Either we lack something desirable, which causes us pain and longing. For example, you live vicariously through your friends on Instagram as you watch them travel the world, seemingly stress-free. You’ve now got into the habit of using Instagram as your escape from your own life.

Alternatively, we have something in our lives (which causes us pain) that we want to get rid of. Think of the negative emotions associated with a breakup that causes you to eat your feelings or the tiredness you feel in the morning that leads to a Starbucks pit stop.

Your brain is simply trying to help. Unfortunately, it’s not very good at distinguishing which habits are good or bad for us.

How Our Habits Have Become Detrimental to Our Finances

So how does this all relate to our finances?

Well, just as we learn how to drive a car or ride a bike, we tend to pick up financial habits without realizing. Before we know it, we’re living paycheck to paycheck and can’t identify the precise reasons why. Below are a few habits that might explain how we got into this cycle:

Thinking of “Finances” as a Taboo Topic

Money is a sensitive topic. I get it. We don’t want to be judged for what we earn, how we earn it or what we spend it on. We’re also hesitant to share because money is personal and carries a lot of emotion. It’s a surrogate for power and, often, symbolizes status.

But, in our effort to be discreet, have we not created a stigma around finances that has become toxic for ourselves and our relationships? According to Ramsey Solutions, arguments over money are the second leading cause of divorce among couples. In fact, the first working Monday of each year has been dubbed “Divorce Day” as couples reel over how to deal with the financial stress of the festive season.

How did we get here? Easy. There has been a complete breakdown in communication about our finances.

Have you ever been too afraid to tell your friends or partner that you’ve overspent your budget and that you can’t go out for the rest of the month?

Are you embarrassed or ashamed of your poor money management skills that you’d rather stay in debt than seek help from your family and friends?

You’re not alone. In a schooling system that doesn’t prioritize financial education, it’s no surprise that many of us are unsure how to talk about money.

But, by not talking about our poor money habits, we’re likely to get deeper and deeper into them. Why? Because we lack the social support and accountability that is needed to get us on (and keep us on) the right path.

We not only need people to help guide us in the right direction. We also need those same people to help celebrate our successes, giving us the motivation to continue.

Helpful tip: If you’ve wanted to open up about your finances to your friends, partner or family, go into the conversation having realized the mistakes you’ve made in the past. But don’t stop there – also come up with some goal-oriented changes that you’re planning for your financial future. If they can see that you’re trying to fix your situation, they’ll be more likely to understand and help you.

Once you’ve opened up to them, make it a habit to have regular financial checkups. This will ensure you’re accountable to each other and that everyone is on the same page.

Thinking That Your Available Credit is a Part of Your Net Worth

Have you ever logged into your online bank account and taken note of your available balance? If you have a credit card (or several), that balance is likely to make you jump for joy.

Banks do it on purpose – to let you know that your balance doesn’t end when your monthly salary does. Luckily, you have an extra buffer to see you through in case you need it. And how does the bank reward you for banking with them? By slapping on exorbitant interest rates that exceed even the best of of investment funds. They’re coining it on the back of your financial struggles.

Lines of credit should always be viewed as a tool to help your financial future, not hurt it. If you have a credit card for the purpose of bettering your credit score or to maximize cash back rewards, your focus is in the right place.

However, if you think of your available credit as something you own or as part of your net worth, you’re treading on dangerous waters.

Helpful tip: It helps to memorize the exact amount of credit the bank has agreed to loan you. Know your number. I’ve got into the habit of logging into my account and automatically subtracting that number from my total available balance. This serves as a constant reminder that I don’t own that money. And when my total balance steadily gets closer to that number, it helps me realize that I’m cutting things fine with my budget.

You’re Not Aware of Where Your Money Goes

Technology has definitely made our lives simpler and easier, but it’s created some challenges too.

In a time when almost everything is done online or is automated, it’s hard to keep track of your money when you’re not directly handling it.

This is the reason that “cash envelopes” have become so popular. You set aside a specific amount of cash each month, place it in an envelope and label them for different expenses: groceries, eating out, entertainment, utilities etc. When you’ve run out of cash, you can no longer spend in that category. It’s a genius way to realize the true value of money and to budget it wisely.

Unfortunately, with the introduction of debit and credit cards, we are often completely unaware of exactly how much money we spend. Only when we’ve logged into our account, do we realize the true damage that was done. And, by then, it’s too late.

If you truly want to get a grip on your finances, it’s so important to track where your money goes each month. Break the habit of mindless spending by putting together a strategy to track your spending. Whether this means you use a budgeting app on your phone or develop a spreadsheet that you fill out manually, do what makes most sense for you.

Helpful tip: If cash envelopes don’t work for you, try Receipt Bank – a receipt scanning app that converts your itemized receipt into data that can be exported to an Excel spreadsheet. It tracks the date, where you spent the money as well as how much (and in which currency). It also allows you to provide a description of the expense so that you don’t forget.

By keeping a record of your receipts, you’ll be able to see what you spend your money on and where you’re spending excessively or recklessly. This will allow you to make the necessary changes to your spending habits.

You’re Unaware of Lifestyle Creep

The festive season brings with it an excitement for vacation and quality time with family and friends. It’s also when we receive our annual bonus and expect an increase in our salary for the new year.

No wonder it’s the most wonderful time of the year!

Yet, come January, most of us can’t seem to track where all of our extra money has disappeared to. The answer lies in a little something I like to call ‘lifestyle creep’.

Lifestyle creep is a habit we get sucked into when our income increases. As income rises, so does our standard of living. What used to be considered a luxury now becomes a necessity. We get used to this new way of living that we can’t imagine returning to the lower standards of last year.

While our standard of living usually increases, one area that usually suffers is how much we put away into our savings. Why is that? Because we get no immediate gratification from stashing our extra cash away for the future.

But if we truly desire financial freedom, we need to look beyond our current lifestyle and invest in the future life that we want. To do that, let your savings be the first thing to increase when you get some extra cash.

Helpful tip: If you’re investing with an asset managing company, most allow you to automatically increase your monthly debit order by a certain percentage each year. This helps to keep your savings rate in line with inflation, protecting your capital from losing value. And the bonus? You won’t even realize when it’s happened.

You’re an Impulse Spender

We’ve all done it.

You see something online or in the store and you’re overcome with momentary excitement. You must have it. Before you’ve even given any thought to whether you need it or can afford it, you’ve checked out and you’re on your way home to try out your new toy.

How do we so often find ourselves victims of impulse buying? Because our brains are geared towards embracing pleasing stimuli. And product marketers exploit that weakness to provide us with just the right triggers.

The key to breaking this habit lies in becoming more mindful of these triggers. Also, it helps to figure out whether you’re more addicted to the thrill of the purchase more than the item itself.

Helpful tip: Allow yourself 1-2 weeks to decide on a big purchase. Sleep on it. Digest the cost. Ask yourself whether it’s a necessity or luxury. Ask yourself whether you can truly afford it without getting into debt. If, by the end of those 2 weeks, you still decide that you want to make the purchase, at least you can rest assured that you put in the necessary thought.

Retail Therapy

How is retail therapy different to impulse buying? Well, retail therapy is usually triggered by emotional peaks and valleys that are a part of our every day life.

When you’re feeling unattractive, what better way to solve that problem than to buy an outfit that makes you feel sexy?

When you’re feeling lonely, what better way to solve that problem than to buy a 50-inch TV to drown out the silence.

The old adage is true: “When the going gets tough, the tough go shopping!”

Psychologists believe that the rewards of retail therapy stem from our visualizing and daydreaming of how the product will change our lives for the better. Yet, once the thrill of the purchase has worn off, buyers remorse usually sets in and the person feels worse off than before.

It’s important to be aware of times when you’re susceptible to emotional peaks and valleys. If you know it happens at a certain time of the day, try keep yourself busy during that time. If it’s during a certain time of the year, plan to put yourself in a different environment.

Helpful tip: If you struggle to break the retail therapy habit, at least make it harder for yourself to succeed at it. Think of how you make most of your purchases, whether with cash or cards. One way to make retail therapy harder for yourself is to leave your most common payment method at home. If you predominantly use your credit card, leave it at home and you’ll be restricted by the cash that you have on hand. This will force you to be more rational with your spending.

Spending on the “Little Things”

That morning coffee. The bagel from your local deli. The pack of biltong from the gas station when you forget to make breakfast. We all have our guilty pleasures that make our day just a little bit brighter.

What we don’t realize is that these seemingly small purchases add up. Fast.

I’d be willing to bet that you’d be shocked if you took the time to add up how much you spent per month on these luxuries. In fact, I challenge you to try and do it, even for a week.

As with most poor money habits, the act of simply being more mindful of your spending is a huge step in the right direction – one that will most likely be enlightening.

Helpful tip: If you struggle to break your morning coffee or bagel routine, consider whether you can purchase cheaper alternatives at the store that you can grab and go to work with. Before you know it, you won’t know the difference and your wallet will thank you.

Comparing Yourself to Others

Comparison is our natural way of determining where we’re at and how we’re succeeding and adjusting to life and society. This is an important evolutionary trait that is thought to be important for motivating us to change or perform better.

A comical study out of Emory University showed that not even monkeys are immune to comparison. In the study, capuchin monkeys were trained to use stones as a form of currency, trading one stone for a slice of delicious cucumber. The study authors decided to stir things up by giving some monkeys a grape, while giving the remaining monkeys the agreed-upon cucumber. Total anarchy ensued when those receiving cucumbers compared their boring vegetable to the more attractive, juicy grape.

We’re not too far off from these monkeys. We continually compare our wealth, our careers, our cars, our houses, our parties and our social circles to each other. In our attempt to keep up with the Joneses, we recklessly spend money to outdo our neighbors so that we can be at the top.

But what is the end goal? Vanity? Security? Power? It doesn’t really matter. Because keeping up with the Joneses is a surefire way to financial ruin. The only person you should be comparing yourself to is… yourself. How can you make yourself better so that you don’t make the same mistakes you did in the past?

Helpful tip: Always stop and ask yourself: “Why do I want to purchase XYZ?” If your honest answer is: “Because the Joneses have it!”, immediately walk away from purchasing it.

Paying Yourself Last

After rent, utilities, insurance and groceries are deducted from our paycheck, it’s hard to imagine we’d have any money left to save.

This is the exact reason that you need to pay yourself first and, only then, adjust what’s left to make it through to the end of the month.

A simple way to do this is to determine your take-home salary and subtract any fixed expenses that are non-negotiable (such as rent/mortgage, utilities, insurance). Before budgeting what’s left, transfer a set percentage of your gross income into your savings account. Only then do you budget out the remaining balance.

This isn’t an easy habit to get into, but once you see your savings starting to grow, the peace of mind it brings you will motivate you to continue.

Helpful tip: Automate! Automate! Automate! Set up a monthly debit order into your savings account, scheduled for the first day after payday. In this way, you won’t even notice the money being taken off and you’ll feel good about your rising savings balance.

Being Comfortable with What You Earn

This habit is one that not many people pay attention to.

Picture this scenario: you’ve worked in the same low-paying position for 10 years, your income steadily increasing with inflation. Yet, there is limited opportunity to grow in the company. A lot of your colleagues have become like family and your job is relatively stress-free. You have your established routine. You’re comfortable. The only problem is that you’re struggling to save each month.

There are only two ways that you’re going to change your financial situation: either you spend less (and save the difference) or you earn more (and save the extra). If your salary is low to begin with, it’s going to be difficult to spend less, especially with rising food and health costs. Your only alternative is to earn more.

I know, I know! That’s easy to say. It’s much harder to do. But it’s important to regularly evaluate your contribution to the company you work for. If you feel as if your salary doesn’t reflect your worth, consider asking for a raise. If that doesn’t work, at least ask for a performance review so that you’re able to find out how to improve your chances for promotion.

Helpful tip: If life circumstances prevent you from changing your position or moving companies, consider diversifying and increasing your income streams. This could happen in the form of starting a side hustle or turning your hobby into a small local business. Find out what problem you can solve with the skills that you have and you’ll have a side business.

It’s All a Mindset

A common thread among most of these poor money habits lies in not being mindful. By their nature, habits bypass the thought process to make life simpler and easier.

In order to break them, develop a solid strategy to catch yourself in the habit loop and to realign your actions with your financial priorities.

To learn about some more financial strategies that can benefit you, take a look at some previous posts that highlight the importance of setting smart goals, becoming a highly effective saver, decluttering your finances and derailing your debt.

Feel free to share and provide comments about what financial habits you’re working on breaking and strategies to help others do the same.

Dr. Kyle O'Hagan is a UCT scientist and an avid personal finance blogger. With over 20 years worth of experience in the SA schooling system, he has come to appreciate the value of a proper education and feels that personal finance is an area that is often neglected, particularly at a young age.

O'Hagan is one of Personal Finance's New Voices and his finance blog is called the Saving Scientist

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