Over the past several months I have read two excellent books about habits and how they influence our lives in some good and some not so good ways. If you get a chance, please pick up a copy of The Power of Habit by Charles Duhigg and/or Atomic Habits by James Clear. Both books offer some practical advice on how habits can build us up as well as serve as roadblocks to achieving our goal of becoming the best version of ourselves. In this post, I offer three ways that habits can benefit you in building your retirement nest egg.

1. Start small. As James Clear points out, “habits are the compound interest of self-improvement.” If you have a big goal like saving $100,000 in your retirement account you won’t necessarily start by saving $1,000 every week if you haven’t saved anything to date. You start by looking at why you haven’t saved anything. Perhaps you are spending $50 a week on Amazon.com. The things you buy are not really necessary so you agree that every time you get the impulse to buy on Amazon you will put $25 in your retirement account. Once you feel good about that new habit you might increase it to $50 then $100, etc. You are using the same trigger that used to cause you to spend money on Amazon and you have replaced it with a deposit to your retirement account.
2. Focus on what you want to become. In the example above, instead of focusing on the $100,000 focus on who you want to become – a savvy retirement saver who builds a comfortable nest egg to provide income for life. You can identify with that transformation versus a dollar amount. It is like losing weight. Instead of focusing on the pounds you want to lose, focus on the vision of the healthier version of yourself who will enjoy life more once you lose the weight you want to lose.
3. Focus on your system instead of goals. If you want to save more money for retirement then focus on your system for getting there instead of the goal itself. Charles Duhigg in The Power of Habit speaks of the cycle of a habit. There is a “cue” then a “routine” then a “reward”. If you have a cue that leads to a bad habit yet the reward is positive then perhaps you can keep the cue and the reward just replace the routine. That is what we did in the example above. We replaced the shopping on Amazon with putting money in your retirement account. That is a system that works, in this example. What cues do you have that lead to bad spending habits? It could be boredom, hunger, a need to be social. How can you replace the unproductive behavior with a better routine? Maybe it’s paying with cash when you get an impulse to buy something on credit that you really don’t need.

Habits can be extremely helpful on the road to financial peace of mind. As the authors Cleary and Duhigg explain, habits need to help us become a better version of ourselves. In other words, they need to become part of our identity. Good habits shape our identity which is why good routines are critical to success in forming good habits. Habits can change our beliefs about ourselves. Pick one routine this week that you will work on changing that will lead to better spending habits.