By Matthew Kneller

I have recently read a fascinating book entitled, ‘The Power of Habit’ by Charles Duhigg. It describes how the right habits were crucial to the success of Olympic swimmer Michael Phelps, Starbucks CEO Howard Schultz and civil rights leader Martin Luther King.

In the book, Duhigg argues that the key to exercising regularly, losing weight, raising exceptional children, becoming more productive or even building revolutionary companies is understanding how habits work.

Habits are generally created when we repeatedly follow a three step process. First there is a cue to tell our brains to go into automatic mode. Next there is the routine which is the habit itself. This could be anything from backing out the drive way in a certain way to putting on your left sock before your right sock when getting dressed in the morning. The final step in the process is the reward which determines whether the habit is worth remembering in the future.

Over time the cue and reward become so entwined that a powerful sense of anticipation and craving emerges and eventually a habit forms. Without habits our brains would shut down, overwhelmed by the minutiae of daily life.

Duhigg also argues that, although habits are extremely powerful, they can be transformed by rebuilding the cues, routines and rewards that make up the three step process.

After reading the book I was struck by the fact that introducing the right habits could have a significant impact on a person’s financial success.

All too often, people have accepted bad habits when it comes to their personal finances. For example, when people receive their annual pension statements (the cue), I wonder how many of these are routinely put in a drawer unopened. The reward is that the person doesn’t have to worry about what their retirement might look like; in other words they can continue living for today rather than think about the future.

This ‘living for today’ approach is epitomised by recent reports that close to one million people with interest only mortgages have failed to put in place an adequate savings vehicle with which to repay the capital at the end of the term. The average shortfall is now estimated to be around £71,000.

We therefore need a fundamental re-think of our habits when it comes to our personal finances. I believe that a good financial plan, regularly reviewed is fundamental to a successful financial future. For our clients, we regularly send a Portfolio Review and subsequently hold at least one financial planning meeting with them each year to discuss and implement any recommendations. The reward is the satisfaction of knowing that they are making progress towards achieving their goals and objectives.

Do drop us a line if you want help in transforming your financial habits.

Telephone: 01249 700402

Email: matthew.kneller@fp-fp.co.uk

 

Disclaimer
This article contains the current opinions of the author and does not represent a personal recommendation. Information contained herein has been obtained from reliable sources but cannot be guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission from Fresh Perspective Financial Planning Ltd.