Establishing good money habits is an essential part of achieving financial freedom. While financial independence may feel like a huge goal to work too, it actually is a combination of a lot of tiny changes that create remarkable results. That’s why in our Design Your Financial Freedom approach and Toolkit we use the idea of Atomic Habits to shape financial change.
In this blog article, we explain more about Atomic Habits and why they are so powerful. We also share the main habits you need to create for yourself to achieve financial freedom.
About Atomic Habits
People tend to think when you want to change your life, you need to think big. But world-renowned habits expert James Clear has discovered another way. He knows that real change comes from the compound effect of hundreds of small decisions. He calls these atomic habits and he wrote an amazing book about it: Atomic Habits.
We discovered the book Atomic Habits after we set sail on our new catamaran. We already achieved our dream and created a passive income for ourselves. However, reading through the book made us realize that a lot of the things we had done to reach our goal had been through the habits we were able to create. Without knowing about atomic habits, we had used the approach described by James Clear.
The idea behind Atomic Habits
A habit is a behavior that has been repeated enough times to become automatic. An atomic habit is a little habit that is part of a larger system.
The idea behind Atomic Habits is that small changes in your life can accumulate into big life-changing results. Because habits are part of your behavior, you can start creating good habits to create a compounding system of improvement.
Creating a system of good habits is an easy and successful way of working towards any long-term goal you might have.
Why are habits important for financial freedom?
Achieving financial freedom isn’t done in a day. Depending on your starting point, it’s a long process of a few years at least. It’s a mindset you need to adopt for the rest of your life.
The problem with bigger goals in life, such as achieving financial freedom – is that they:
1. Get less attention than they deserve due to the issues of daily life
2. Feel unachievable because of the short-term sacrifices you need to make
3. Need a lot of hard work and are risky because we might not succeed
4. Are demotivating because you often don’t get direct positive results
Creating atomic habits is an easy and actionable way to counter these problems. By focusing on smaller actions in the present instead of the big result at the end. Whether you want to lose weight, run a marathon, or achieve financial freedom. It’s is much easier to achieve these big goals by focusing on small steps. The amazing thing about habits is that they become automatic behaviors which makes it even easier to stick to them.
Atomic Habits are essential for financial success
By creating a structure of habits that focuses on changing your financial behavior, you are setting yourself up for success in the long term.
It’s tempting to dream about your ideal lifestyle. But to actually achieve it, you need to start actively working towards funding it. Habits have the power to bridge the gap between your goals and your intentions.
Habits have the power to bridge the gap between your goals and your intentions
We feel that creating atomic habits is most valuable in the first part of the financial freedom process, which is all about setting your goal to save money. It’s especially in this first phase that you can encounter the problems we discussed prior.
If you want to succeed in building atomic habits for financial freedom you will be able to find ways to spend less and save more money.
How to build Atomic Habits for financial freedom
As discussed by James Clear, there are four triggers that help you to build a good habit:
- Cue: Make it obvious
- Craving: Make it attractive
- Response: Make it easy
- Reward: Make it satisfying
If you want to discard a bad habit, you just reverse the trigger. So instead of making it obvious, you make it invisible (cue) or instead of making it easy, you make it hard (response).
You can use these triggers to build atomic habits for financial freedom that stick. There are loads of ways you can make something obvious, attractive, easy, and satisfying to do.
However, if we look back at how we were able to achieve financial freedom before our 40th, there are three main ways we did that helped us tremendously to successfully build our atomic habits for financial freedom:
1. Design an environment that fits with your habits
One powerful way that will help you establish atomic habits is to create an environment that fits with these habits. Depending on the change you want, there are a lot of ways to do this. Overall, it is all about designing a setting that makes it obvious, attractive, easy, and satisfying to work towards your goal.
If you want to spend less money on things you don’t really need you could design your ideal environment for this by:
- Avoiding tempting situations. Why make your life more difficult than necessary? If you want to build a habit, don’t seduce yourself into breaking it. Don’t go shopping at the mall, unsubscribe from your favorite store’s email newsletters and cancel the subscription of that magazine full of buying temptations and remove your favorite online stores from your browser’s favorite bookmarks
- Selecting the right crowd. The people we surround ourselves with are the biggest influence on our behavior, attitudes, and results. So avoid hanging out with friends that like to spend money and increase time with people that have the same money mindset, follow people that are on your desired path on Instagram, watch YouTube videos of people that inspire you)
You are a reflection of the people around you
- Altering the things that surround you. Adding the right things (and removing the wrong ones) to your environment will influence your behavior and change your financial freedom habits. Hide your credit card, put a cool piggy bank in plain sight, and hang a poster that visualizes your big dream. We call this the big hairy audacious goal.
The more changes you make to your environment the more obvious it will become to stick to your habit. Just like If you want to lose weight, you shouldn’t buy a big box of cookies just for them to stare at you from the cupboard. Or go to the ice cream shop. The same accounts for a financial habit like spending less money.
2. Create strong structures that support your habits
Designing the right environment is important, but atomic habits also need a strong structure. In society, we think that success comes from willpower. Although having motivation is important, it is far more important to create a structure that supports your habits. The structure is key when it comes to financial freedom. By mastering the structure side of your finances, you will see an automatic shift happening towards your goal.
Don’t focus on willpower, focus on structure instead
If you want to spend less money you need a strong structure that helps you to establish the habits for it. You can create a solid structure by:
- Using the structure of time. When you look to create structure, using the underlying structure of time can be a great asset. Determine a specific time and location for going through your expenses, for instance, every week or month, and use the beginning of the new week (for instance Monday) as a cue to start a new weekly budget challenge
- Automating as much as you can. The best structure is the structure that works by itself. We created a structure in saving money by structuring our bank accounts in such a way that only the money that we left on one of our checking accounts was meant to be spent. The whole process was automated and this structure helped us to not spend more money than we had available. There are now also services that help you save money automatically or invest in stock automatically
- Utilizing already existing structures. When creating new habits, it is smart to use old existing structures and combine them with new habits. For instance, we started a habit of tracking our expenses using an app. Every time we would buy something at the store (existing structure), we add the amount to the app instantly (new habit). By connecting the spending moment to the new habit of tracking, it was way easier for us to keep track of our expenses
3. Make sticking to your habits satisfying
The third way to build atomic habits that stick is to keep yourself motivated throughout the whole process. As we discussed before, willpower is overrated. That’s why creating a good environment and building the right structure are so important. However, in the end, it is YOU who needs to make the effort and stick to the plan. Making sure that your habits are attractive and satisfying is therefore very important.
Be the energy you want to attract
Achieving financial freedom is a long-term goal. That’s why the better you are in making the process satisfying and rewarding for yourself, the more likely you are to succeed.
You can make the process of sticking to your financial habits more satisfying by:
- Visualizing your progress. Start creating insights first (make an overview of your current expenses, calculate your current savings percentage, determine how much years you need to save to achieve your goal) and use this as a base to track your growth. Nothing is more satisfying than tracking and seeing your goal come closer.
- Going through the process together. You can work on financial freedom alone, but if there is someone around you, whether it is your partner, a friend, or a colleague to do it together with, it will be much more motivating. If you don’t have someone in your environment, consider professional coaching.
- Making it fun. Challenging yourself, push your limits, and rewarding yourself when you hit a target are all ways to make sticking to your habit fun. The fun theory by Volkswagen is all bout stimulating behavior by making it fun. Sticking to habits can be boring since you will have to it for a long time. The more fun, the more success!
The main lessons from the book Atomic Habits by James Clear
Hopefully, this blog article already gave you loads of inspiration to get started with building atomic habits for financial freedom. In essence, once you start focusing on 1) designing an environment that fits with your habits, 2) creating strong structures that support your habits, and 3) making sticking to your habits satisfying you should be well on your way towards achieving financial independence in the long-term.
To conclude this article, we would like to sum up the six main lessons we feel are most valuable from the book Atomic Habits by James Clear:
- Small habits make a big difference Don’t bite off more than you can chew, but focus on creating 1% improvement over and over again. In the long-term, the compound of all these 1% effects will be huge
- The results of your efforts are delayed We expect progress to be linear. That invested effort should directly payout in results. However, it actually is exponential. In the beginning, efforts may not seem to deliver any results. It takes time.
- Willpower is overrated Don’t focus on your goal alone but put the system in place to work towards that goal step by step. Success is more about discipline than about wanting it bad enough.
- There is a difference between motion and action Motion is all about preparing, planning, and learning, it might be important but it’s not the same as taking action. It isn’t creating a result. You can get stuck in motion for years because it feels like making progress, while it actually isn’t.
- We are lazy It’s in our human nature to follow the Law of Least Effort. When deciding between two options, people will naturally gravitate towards the option that requires the least amount of work.
- We are more likely to repeat the behavior if the result is satisfying But there is an additional important factor here. We aren’t looking for normal satisfaction, we want immediate This is tricky because with bad habits the immediate outcome usually feels good, but the ultimate outcome feels bad, while is completely the other way around with good habits.