This is a guest post from Leo Babauta of Zen Habits. His first book, The Power of Less, was recently published by Hyperion.

It was Aristotle who said, “We are what we repeatedly do … Excellence is therefore not an act but a habit.” If that’s true, it makes sense that if we’re having financial problems, they probably stem from our financial habits.

Bad financial habits lead to overspending, too much debt, a house full of things we don’t need, bills we can’t pay, and low balances in our checking and savings accounts. If you’re suffering from any of these problems, it’s not from a lack of discipline or knowledge — it’s probably because of your financial habits.

But there’s good news: habits are changeable, if you use the right techniques. I’ve done it, and so have many others. J.D. has talked a lot about what good habits should be formed; today I’d like to look at some of the effective habit-change techniques found in my new book, The Power of Less.

Bad financial habits
It’s always good to start by becoming more aware of your habits — what have you done repeatedly that have led to your financial situation? Some ideas:

  • Impulse spending.
  • Overuse of credit cards or other debt.
  • Spending without tracking.
  • Not paying bills on time.
  • Buying unnecessary items.

You might have different financial habits you want to change. List each one, and then see the next section to identify triggers for each one.

Habit triggers
Every habit has a trigger: another event that immediately precedes it and causes you to have the urge to do the habit. For example, you might exercise first thing in the morning, after you wake up — waking up is your daily trigger. You might brush your teeth after showering — showering is the trigger for the habit of brushing your teeth. You might smoke after drinking alcohol or coffee, after a stressful event, after sex.

The best trigger for a daily habit is something that happens every single day, and is already anchored in your daily routine. Some examples include waking up, eating breakfast, eating lunch or dinner, showering, brushing your teeth, cooking dinner, getting ready for bed, arriving to work, and so on — whatever is already in your daily routine.

Financial habits will have different triggers for each person, but it’s important to identify those triggers. When you notice yourself doing these habits, what happened just before it? Did you go to an online site and feel a strong urge to buy something? Was it from watching television or going to the mall? You might have several triggers for your habits — write them down.

Positive habits to replace bad ones
You can’t just eliminate the bad financial habits — you have to find better habits to replace them. Something has to happen when your habit triggers come up — it’s best if a positive habit is put in place for those triggers.

So the next step is figuring out what your new positive habits will be for each trigger. Some good ideas include:

  • Exercise, decluttering, playing with the kids, instead of shopping.
  • Saving until you have the money for a purchase instead of buying on credit.
  • Using a 30-day list for all non-essential purchases — you can’t buy something until it’s been on your list for 30 days.
  • Paying bills either immediately (when you get them) or automatically online.
  • Taking 20 minutes a week to update your financial tracker/register.

Creating your new habits
Once you’ve identified your bad habits and their triggers, and the positive habits that will replace the bad habits for each trigger, it’s time to start creating the new habits.

The best way to do this is a 30-day challenge. Tell yourself that you’re going to be as consistent as possible for 30 days. Every single day, when a trigger occurs, do your new habit without fail. The more consistent you are in tying your new habit to a trigger already in your routine, the stronger the habit will be.

Other important principles for forming your new habits:

  • One habit only. Focus only on replacing one financial habit at a time during this 30-day challenge — taking on two or more habits at the same time will decrease your chances of success. You can work on your second habit in the 30 days following the first challenge, and then tackle the third, and so on.
  • Start small. Don’t try to become a new person overnight. Increase gradually, after you’re used to the small changes.
  • Commit publicly. Try to tell as many people as possible about your habit — friends and family, on your blog, on Twitter or Facebook, etc. This will help motivate you. Report your progress to them every day during the challenge.

Photo by Haydn Seek.

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