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1 Simple Way to Hack Your Spending Habit, Save Money, and Invest

A good diet can be tough to maintain.

We know what we should and shouldn’t be eating, but sometimes we cannot help ourselves. Keeping our spending in check can feel that way sometimes. We know what we should spend on or not spend on, but it can prove hard to maintain our discipline. At times, it feels like a habit that we need to break.

Unfortunately, breaking a habit is not an easy task. But, it can be done.

Understanding how habits work

Let’s start first with understanding how habits work. According to author Charles Duhigg, MIT researchers found that habits consist of three major parts; that is a cue, a routine, and a reward.

It moves in a loop like in the diagram seen in the tweet below:

The cue acts as a trigger that leads into a behaviour routine, such as spending money.

Isolating this “spending cue” could be the key to limiting your spending behaviour. This trigger could be a number of things. It could be that you are feeling rich from receiving your paycheck. Or, it could be something as simple as the “ON SALE!” signs in your favourite shops.

Hacking your spending cue

My Foolish colleague Robert Brokamp has a suggestion on how we can break the chains of the spending cue.

He says that it may be a good idea to put a simple card with your financial goals listed down in your wallet or your purse. This way, when you reach for your wallet or purse, the card will remind of your goals that you need to fulfill.

This could be one way to intercept the cue before you get into the routine of spending money.

Foolish takeaway

Building your wealth can be distilled to three simple steps : work hard, spend little, and invest the rest.

The investing bit, for those who would like a hands-off approach, could perhaps be done by dollar cost averaging into something like say, the SPDR STI ETF (SGX: ES3), which is a proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI).

The past is not a guarantee of the future, but there are still some useful lessons we can learn from it. Since inception nearly 13 years ago in April 2002, the SPDR STI ETF has achieved a total annual compound return (inclusive of reinvested dividends) of 7.2%. A 7.2% annual rate of return will double your money every 10 years.

If such returns sound interesting to you, then consider the simple action above in hacking your spending habit so that you can save some (or perhaps, more) money for investing.  

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.