2 Simple Ways to Kick 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 too. 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 routine part of the loop is the action you take (in this case spending money), upon being triggered by the cue. Part of the reason why the routine is alluring is because of the potential reward at the end. In essence, we are performing the routine (spending money) because we may be looking for the reward that follows (gratification).  

Here’re two potential ways to deal with our spending-related habits:

1. Hack Your Spending Cue click here 

2. Hack Your Routine

The first step involved hacking the cue. Here’s a suggestion on how to build a new routine. This hack comes from an unlikely source, the comedian Jerry Seinfeld:

“[The] Jerry Seinfeld method for building better routines is you get a huge piece of paper and you write a huge calendar on it. Whatever habit you want to establish, you do it and every time you do it, you put an X through that day. Eventually what you have is a series of Xs. What you don’t want to do is break the chain. Seeing visually up on your wall that you have successfully gone two weeks without breaking your habit apparently is a very successful way to maintain a habit.”

We may want to take our cues from Seinfeld. So, to develop a habit of saving money, one way would be to set aside a fixed amount we want to save weekly (say, $50) or daily (say, $10). Marking down our calendars each time we save on a weekly or daily basis may help us generate a new routine that we do not want to break.

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 actions 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.