Friday, April 17, 2020

Atomic Habits

James Clear is an author, entrepreneur and one of the leading experts on habits.   James Clear writes on and read his email newsletter on a routine basis.  I found his new book Atomic Habits to be helpful and enjoyable.  Atomic Habits is designed to help anyone improve any aspect of their lives including health, productivity, finance, relationships and more.
What is a habit?James Clear defines a habit as “a routine or behavior that is performed regularly – and, in many cases, automatically.”
“Changes that seem small and unimportant at first will compound into remarkable results if you’re willing to stick with them for years.  We all deal with setbacks but in the long run, the quality of our lives often depends on the quality of our habits.  With the same habits, you’ll end up with the same results.  But with better habits, anything is possible.”
The core of the Atomic Habits book is going through the four-step model of habits and then going through the four laws of behavior change.  James Clear lays out his guidelines in a clear and concise manner.
The four-step loop of habits that underlies all of human behavior are: cue, craving, response, and reward.  The cue triggers your brain to notice a reward and initiate a specific behavior.  A craving is the motivational force behind every habit – our reason to act based on motivation or desire.  The response is the habit that we perform, which can either be a thought or an action.  The reward is the end goal of every habit – the reward satisfies the craving and tells our brain which actions are worth repeating in the future.    
How can small habits make a big difference?James Clear emphasizes the importance of the aggregation of marginal gains, a philosophy of striving for just a tiny bit of improvement in everything you do.
“It is so easy to overestimate the importance of one defining moment and underestimate the value of making small improvements on a daily basis.  Too often, we convince ourselves that massive success requires massive action. … Meanwhile, improving by 1 percent isn’t particularly notable – sometimes it isn’t even noticeable – but it can be far more meaningful, especially in the long run.  The difference a tiny improvement can make over time is astounding. 
Here’s how the math works out: if you can get 1 percent better each day for one year, you’ll end up thirty-seven times better by the time you’re done.  Conversely, if you get 1 percent worse each day for one year, you’ll decline nearly down to zero.  What starts as a small win or a minor setback accumulates into something much more.”
While daily habits may not seem much on their own, James Clear describes habits as “the compound interest of self-improvement.”  The effects of your habits multiply as you repeat them, with huge impacts over time.  Because huge results don’t seem to happen right away when implementing small changes in routine, many people give up and go back to unproductive routines.
“A single decision is easy to dismiss.  But when we repeat 1 percent errors, day after day, by replicating poor decisions, duplicating tiny mistakes, and rationalizing little excuses, our small choices compound into toxic results.  It’s the accumulation of many missteps – a 1 percent decline here and there – that eventually leads to a problem.”
“Making a choice that is 1 percent better or 1 percent worse seems insignificant in the moment, but over the span of moments that make up a lifetime these choices determine the difference between who you are and who you could be.  Success is the product of daily habits – not once-in-a-lifetime transformations.”
The importance of setting up good systemsJames Clear wants you to know that no matter how successful you are now, the most important thing to know about your habits is whether they are putting you on a trajectory of success or failure.  The journey is more important than your current results.  Tiny improvements, even 1 percent improvements will push you towards the results you want to achieve.  While setting goals can help define the results you want to achieve, James Clear stresses that one should focus on systems and processes instead of goals.  Developing and sticking to good systems is much better for making progress than just having a goal.
“If you’re having trouble changing your habits, the problem isn’t you.  The problem is your system.  Bad habits repeat themselves again and again not because you don’t want to change, but because you have the wrong system for change.
You do not rise to the level of your goals.  You fall to the level of your systems.”
Choose behaviors that align with the type of person you wish to be“Behavior that is incongruent with the self will not last.  You may want more money, but if your identity is someone who consumes rather than creates, then you’ll continue to be pulled toward spending rather than earning.  You may want better health, but if you continue to prioritize comfort over accomplishment, you’ll be drawn to relaxing rather than training.  It’s hard to change your habits if you never change the underlying beliefs that led to your past behavior.  You have a new goal and a new plan, but you haven’t changed who you are.
The ultimate form of intrinsic motivation is when a habit becomes 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. 
True behavior change is identity change.  You might start a habit because of motivation, but the only reason you’ll stick with one is that it becomes part of your identity.  Improvements are only temporary until they become part of who you are.”
How does one create a good habit?
Make it obvious, make it attractive, make it easy and make it satisfying.  James Clear goes into extreme detail with the steps involved with creating a habit and making sure that habit sticks.  In the beginning, small changes seem meaningless.  But over time as small changes continue to stack on top of each other, a tipping point is reached and the habits compound.  At some point, your system keeps you consistently sticking to your good habits.  The process is continuous as you always look for the next step to get 1 percent better.Breaking a bad habit involves doing the opposite of creating a good habit
Make it invisible, make it unattractive, make it difficult, and make it unsatisfying.  Bad habits “repeat themselves again and again not because you don’t want to change, but because you have the wrong system for change.”
Applying principles from Atomic Habits to your finances
1. Make good financial habits obvious.  You can start improving your finances by first tracking your spending.  This can be done manually with ClearCheckbook or automatically with Mint and Personal Capital.  You can implement intentions such as “I will save 20% of my income.”

Make bad financial habits invisible.  Unsubscribe from all mailing lists from retailers and deal sites.  Saving 20% off something is often spending 80% on something you don’t need.

2. Make good financial habits attractive.  Join a culture where saving and investing is considered normal behavior.  This includes following financial bloggers such as Mr. Money Mustache and JL Collins.  This includes listening to financial podcasts such as ChooseFI and Afford Anything.  You can join online financial communities such as Bogleheads.  Saving and investing consistently is easier when everyone around you is doing it.

Make bad financial habits unattractive.  Reframe your mindset.  Think about how having a low savings account balance or a high credit card balance can make you feel like you have lost control of your finances.  The benefits of financial peace outweigh the detriment of financial stress.

3.  Make good financial habits easy.  Automating your saving and investing locks in consistent behavior.  Investing in your 401K is a perfect example of sticking to a great financial habit with zero effort.  Every time you get a paycheck, a portion of money is automatically taken out and invested in your 401K – you don’t even see that amount on your paycheck so there is no temptation to spend it.  You can set up automatic transfers into a savings account as well as contributions into an IRA.  Setting up autopay for your bills ensures that you never miss a payment. 
Make bad financial habits difficult.  If your savings and investments are automatically taken out of your checking account, your account balance will be lower.  You will be less likely to spend money if you have less money in your account.  Consider moving your savings account into an online bank, which typically offer much higher yields.  When you link your checking account to an online savings account, it takes longer to access that money.  By increasing the friction of access to your online savings account, you will be less tempted to access the money.

4.  Make good financial habits satisfying.  Watching your savings and investment accounts grow can be extremely satisfying.  Having a large amount of savings can provide a great deal of comfort and safety, especially in times of financial uncertainty.  Keeping your credit card balances at $0 can provide excellent peace of mind.
Make bad financial habits unsatisfying.  Having an accountability partner such as your spouse or significant other can help keep an eye on your financial behavior. 
Atomic Habits makes it crystal clear on how to create and maintain good habits.  James Clear is an excellent writer.  He provides plenty of science and research behind his claims.  His storytelling is fluid and easy to read.  The best part of this book was the chapter summaries that really helped to concisely tie everything together.  I’ve been able to slowly integrate many of his strategies into my daily life.  Atomic Habits is the most influential book I’ve read in a long time; I highly recommend it.  You can pick up your copy of Atomic Habits from Amazon here or check to see if your local library offers a digital copy for loan.

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