Investing 101

Atomic Habits

“Without good financial habits, you will always be struggling for the next dollar.”

-Atomic Habits

“You get what you repeat.” It’s a simple message that author James Clear establishes in his New York times bestseller, Atomic Habits, and one that he drives home superbly. Clear starts the book with data driven, as well as anecdotal evidence on the importance and power of habits. He convinces us that massive results are not a consequence of big acts, but of small consistent actions and often we struggle to change course on our habits because we do not see the consequences immediately. However, the correlation between habits and outcome is undeniable—both the good and the bad.

“Your outcomes are a lagging measure of your habits. Your net worth is a lagging measure of your financial habits. Your weight is a lagging measure of your eating habits. Your knowledge is a lagging measure of your learning habits. Your clutter is a lagging measure of your cleaning habits. You get what you repeat.”

The problem is that it takes time to feel the consequences of our habits. Eating one ice cream is not making you overweight, and buying the expensive shoes is not making you poor. One often immediately feels a reward or short-term happiness from these actions, yet they don’t feel the long-term effects until much later. The opposite is true for habits like saving money or investing. The habits can make you wealthy, but you do not get anything immediately.

That is, you don’t feel immediate reward unless you are able to change your mind frame. One of the greatest takeaways of the book for us is how Clear explains the way that habits shape your identity and vice versa.

“The ultimate form of intrinsic motivation is when a habit becomes a part of your identity. It’s one thing to say I’m the type of person who wants this. It’s something very different to say I’m the type of person who is this.”

Clear argues that the best way to change habits is not to focus on the goal, but rather on who you want to become. It is much easier to start (and stick to) habits when you identify with them. Ask yourself: what type of person accomplishes what I want? For example, what type of person would be at my ideal weight? And then apply it to yourself: “I am the kind of person who takes care of my body.” Work this mindset into your small actions by repeatedly asking yourself what daily decisions a healthy person would make. Slowly, but surely, this has the power to change your beliefs about yourself.

As Clear indicates in the book, it is very different to refuse a cigarette by saying ‘I’m trying to quit’ vs stating ‘I don’t smoke.’ It’s not about what you are or aren’t trying to do, it’s about who you are. This seemingly small distinction, Clear argues, makes all the difference and for us, that is the single biggest takeaway from this book. Change your narrative and your actions will align.

Habits form when your brain learns that something is useful. It is the way the mind automates tasks that you face regularly in order to be able to focus on other things that you have not automated. Clear spends most of the book explaining and giving practical tips on how to apply the ‘Four Laws of Behavior Change’ in order to improve your habits.

Some of the best ones:

  • Create awareness: the first step is to start taking note of your habits.
  • Habit stacking: work in good habits by tying them to actions you already do. For example, meditate for one minute after you serve your morning coffee.
  • Your environment matters and you don’t have to be victim to it, but instead be a creator of what is around you: make good habits easy for you (automate) and bad habits difficult (don’t keep junk food in the house). In other words, reduce your exposure to bad habits.
  • Temptation bundling: similar to habit stacking, pair habits you want to incorporate with things you want to do. Think: After I sit at my computer, I will say one thing I’m grateful for from the day (new habit) and then I will check Instagram (want).
  • Surround yourself with people who have already adopted your desired behaviors as normal.
  • Make it easy and focus on doing over planning. Just start! Even if it is small. Every habit can be broken down into a two-minute version to start off.
  • Track your habits and feel proud and, if you miss, try not to miss two times in a row.

A last point worth highlighting (and trust us, it was hard to pick from this book) is that our brains will find evidence to support whatever we want to believe. Reframing habits to highlight their benefits rather than their drawbacks can reprogram your mind to want to do them more. Instead of saying “I have to get up and run,” try “I am going to build endurance and feel really good now.”

Creating and adjusting your habits is not as easy as flipping a switch, but it has the power to change your life. Clear’s book is convincing on the importance of focusing on the process vs the goal and is full of applicable tips on how to reprogram your brain for success.