3 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 reward at the end of the loop is what keeps us coming back for more. In this case, it could be gratification from spending money that we may crave.

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

1. Hack Your Spending Cue click here 

2. Hack Your Routine click here 

3. Hack Your Reward System

The final step involves your reward system. Here’s a suggestion on how we can hack that system from my Foolish colleague Robert Brokamp:

“I had a conversation with a Motley Fool member who was trying to teach their grandkids how to invest. He was saying, “It’s hard because they have these stocks. They see that they’re going up, but it doesn’t mean anything to them because it’s a piece of paper.”

I think the solution there is you have to let the kids spend some of it. There has to be something along the way that keeps you interested. It isn’t just something for 10, 20, or 30 years down the road.”

If we are able to build momentum for a good saving habit, we may think of small rewards to encourage ourselves. This could be a day out at your favorite cafe. A small indulgence to reward yourself for sticking to saving money. This way, you can be motivated to continue on this path.

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.