Beyond Willpower: The Psychology Behind Stubborn Bad Money Habits
How can Financial Psychology and Behavioral Finance help me?
Your money habits, like saving procrastination, impulse spending, or avoiding financial planning often hold you back more than your income or financial knowledge. Behavioral finance reveals how your upbringing, emotions, and mental biases shape your spending, saving, and avoidance behaviors. By uncovering your deeply held beliefs and family money stories, you can break unhelpful patterns and take control of your financial future. Awareness is only the first step toward smarter, calmer, and more intentional money decisions.
Unlocking Your Financial Potential Through Behavioral Finance
Are your money habits holding you back from your financial goals? I think most of us have financial goals, yet many feel stuck, as though they’ll never truly get ahead. Do you ever feel that way?
Perhaps you find yourself clicking “buy now” on Amazon in a frenzy of impulse spending when feeling low or stressed. Or maybe you're procrastinating saving for retirement because other important priorities demand your attention, leaving you with a nagging sense of guilt. Or you simply avoid financial planning because no one has ever shown you where to even begin.
The truth is, we often know what we should do; we just want to face it another day. And that’s when automatic behavior—spending or avoiding without thinking—takes over. This is exactly where behavioral finance, the psychology of money, comes in. By understanding why we make (or avoid) the financial decisions we do, we gain crucial insight into ourselves and our behavior. This understanding can then unlock and turbocharge our ability to break bad money habits and propel us toward our goals.
This guide will explore the psychological roots of bad money habits, identify common financial pitfalls, and offer actionable, behavioral finance strategies to help you break bad money habits for good, leading to greater financial control and peace of mind.
The Deep Roots of Our Money Habits: Understanding Our Financial Psychology
We struggle with bad money habits for a few key, interconnected reasons. These roots often lie in our past and the inherent workings of our minds.
A. Your "Money Classroom": How Upbringing Shapes Our Financial Beliefs
First, consider how we grew up and how our parents talked (or didn’t talk) about money. Secondly, the lessons we learned as young children, teens, and adults significantly shape us. When we experience a major event, consistent pressure, or prolonged stress, it can make a profound impact, sometimes even leaving us with money trauma. Most people make financial choices and fall into habits of behavior because of the way they grew up.
Rachel Cruze, in her book Know Yourself, Know Your Money, talks about the four money classrooms we can grow up in. These range from:
Anxious Classroom (emotionally stressed and verbally closed) and the
Unstable Classroom (emotionally stressed and verbally open), to the
Unaware Classroom (emotionally calm and verbally closed), and the
ideal Secure Classroom (emotionally calm and verbally open).
Your upbringing might have been any of these environments, shaping your perspective on money in distinct ways.
For me, much of my upbringing felt like a "verbally closed and emotionally calm" classroom. My parents rarely discussed money with us, and the unspoken message was clear: their money was not our money. While this meant we never feared financial instability, I also grew up with a dad who had pulled himself out of poverty. His parents, in turn, were teens and young adults during the Great Depression, which instilled in them the deep-seated belief that another depression could happen at any time.
As a result, I unwittingly absorbed a message—one I still find myself telling my own kids—that "we don’t have money." This, despite my parents’ and our family’s current financial stability, is a messaging error. My husband and I are financially secure; we may not have money to burn, but we are careful with what we do have and live very happily.
But where's the bad money habit in that? My deep-seated fear that we "don't have the money" makes me hesitant to spend on experiences, pushes me to always wait for a price to fall, and, ironically, leads me to buy cheap items that don't stand the test of time, because I'm often afraid we won't have money in the future.
These are the types of bad habits that are deeply rooted in our beliefs and background, often stemming from the stories and experiences we grow up with. Perhaps, like me, you carry deep impressions from the experiences your parents or grandparents had. Things you learned about money, like there was never enough, it would run out, or conversely, there were no problems with money because there was always another loan to take out or a family member will always swoop in to save you. These stories are often intrinsically tied to our emotions around money, making them a significant reason why money habits are hard to change.
Our Mental Shortcuts: How Biases Fuel Unwanted Financial Habits
Beyond our upbringing, we also have inherent biases and heuristics. As I mentioned in my previous blog, a heuristic is a shortcut – a way of figuring things out quickly. Our brains make these connections to be more efficient. But sometimes, these quick connections and heuristics can become biases that inadvertently fuel bad money habits. I’ve discussed this in detail here, but just as a quick refresher, here are some common biases that fuel undesirable financial behaviors:
Present Bias: Habit it fuels: Overspending today instead of saving for the future. Example: Choosing daily lattes over retirement contributions because the immediate reward feels stronger than future security.
Optimism Bias: Habit it fuels: Overspending, under-saving, and assuming “future me will figure it out.” Example: Taking on credit card debt, believing you’ll pay it off quickly, but without adjusting your current spending habits.
Regret Aversion: Habit it fuels: Avoiding decisions for fear of making the “wrong” one, leading to inaction. Example: Not investing at all because you’re afraid of regretting a bad pick and “losing the money I put into the stock market.”
So, what is your bad money habit? Do you need help to identify it, or do you already know it? More importantly, do you know what to do about it? Let's explore how to overcome these habits, which are often so deeply rooted in our beliefs and background.
Actionable Strategies: Breaking Free with Behavioral Finance
The Power of Self-Awareness: Identifying Your Unique Money Patterns
The first crucial step is absolute self-awareness. If we’re not aware of what’s happening, we’ll continue to repeat the same patterns. This is because our brains have some kind of reward system in place; we never create habits for no reason. So, we must identify what we are doing and why.
Where are you most likely to overspend?
What emotions trigger your spending? (Have you slowed down to even notice how you feel right before you make a purchase?)
What stories or narratives do you still hold onto from your growing-up years? Are they serving you, or are they pushing you toward behaviors that don’t actually get you to your goals?
Breaking bad money habits is hard to do alone. If you’d like support identifying your personal money patterns, book a free intro call and let’s talk through your unique situation.
Engineering Your Environment: Making Desired Habits Easy, Undesired Habits Hard
Next, we need to make things harder for the bad habits and easier for the good ones – essentially, setting up friction where it's needed. Let’s use buying too much from Amazon without thinking as an example. How can you make that process harder to access? Try logging out after every session, clearing out saved things like your fingerprint for quick access, or detaching your credit card from the app entirely. Each extra step creates friction, making it harder to purchase something impulsively.
Conversely, make positive habits easy. Tie your money up in areas where you don’t want to (or can’t easily) take from. You could do this by automatically deducting from your checking account to another online account that takes too much time to pull from easily – effectively setting up a separate savings account.
To make saving feel effortless, start with an amount that feels small, yet is still significant. Avoid the common trap of committing to a large sum like $500 or $1000, feeling the immediate pain of that decision, and then backtracking to use that money elsewhere. Instead, begin with just $50 per paycheck. This strategy aligns with James Clear's advice in Atomic Habits: make the habit so incredibly easy that you can do it consistently, even when motivation is low.
Visualizing Your Financial Future: Fueling Your Motivation
Visualize your future to keep your motivation high. Make your progress tangible and visual.
Create a thermometer that you color in every time you save.
Or create a checkmark box for each time you put money into a specific line item or savings account.
You could also create a goal within your EveryDollar or YNAB budget and track your progress there.
Seeing your progress makes the future reward feel more immediate and achievable.
Beyond Self-Awareness: The Path Forward
But self-awareness ISN’T the key to financial change alone. Most people already know what they should do. What they truly need is data, encouragement, and a clear path forward. That’s where financial therapy comes in. A financial therapist can help you understand information (data) that will help you make better decisions, give a supportive environment for encouragement, and a clear, specific roadmap for you to navigate your unique financial journey.
Final Thoughts: Behavioral Finance is Your Secret Weapon Against Bad Money Habits
Quick recap: Bad money habits aren’t always simply a lack of discipline — they’re predictable patterns rooted in our past and our brain’s wiring.
1. More Discipline is Rarely the Answer:
Often, our perceived lack of discipline is actually a result of running out of willpower because we haven’t made the context of our life easier. Think of it like potato chips: when those potato chips are in the cupboard, I will absolutely eat them all. They press on my willpower until I’m tired at night, and then I eat them. So, the solution isn't just more willpower; it's to not buy the chips in the first place.
The same applies to finances: if you can’t resist buying at a certain time, then don’t make buying easy. With behavioral finance, you can spot these patterns, interrupt the cycle, and replace these habits with healthier ones.
2. Habits are Hard to Break; Replace Them Instead:
Remember, all habits must be replaced. We don’t truly ‘break’ bad habits; we replace our behavior with a different, more beneficial one. So, which behavior are you going to replace? What beliefs about yourself and your money are you going to replace?
3. Building Resiliency is Key:
Cultivating resilience: progress isn't always linear, and those old beliefs can resurface when setbacks occur. Resilience allows you to take a hit—say, missing a savings target for a new car this month—and then adapt and bounce back. Because growing in this strength can be challenging, working with a professional provides the strategies and support to navigate obstacles, identify false beliefs, and stay firmly on track with your financial goals.
Ultimately, breaking habits requires understanding the underlying psychological roots. To explore the foundational principles that make these habit-breaking strategies work, see my deep dive on What Is Behavioral Finance?
Do you need help adapting to a new circumstance, or want support identifying and changing your unique money patterns for good? Book a free consultation today.
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