How Spending Habits Form (And Which Ones You Need to Break)

Posted by: Ekalavya Hansaj Updated: 22 April 2020

Habits can be good or bad.

They’re simply routines and behaviors that are repeated on a regular basis and in a similar fashion until they become a normal part of subconscious processing and decision-making.

In fact, your life is one big collection of habits.

The way in which you turn off lights, lock doors, and adjust the thermostat prior to slipping into bed is a habit.

Walking into your kitchen and pouring a hot cup of coffee in the morning is a habit.

You might have a habit of taking a specific route to work, even if there are multiple other routes to choose from.

Working out is a habit – and so is smoking a cigarette.

Habits can be good or bad, healthy or unhealthy, inconsequential, or significant.

Your life, for better or worse, is the combination of your habits.

And this includes your finances.

While there are certainly outside circumstances and factors that affect your relationship with money, your habits are highly impactful.

The problem is that most people don’t have great habits around money – but that can change.

How Habits Form

When it comes to money and how you manage your finances, you have dozens of little habits percolating in your brain.

Where do they come from?

According to Charles Duhigg’s bestselling book The Power of Habit, the process of forming habits can be broken down into four clear stages:

  • Stage 1: Cue. The cue is the thought or object that triggers your brain to engage in a certain behavior. The cue almost always signals the possibility of some kind of reward. For example, you might buy a lottery ticket inside of a convenience store because one of your friends recently won $1,000 on a scratch-off ticket. Are you guaranteed the same result? Well, no…but the possibility for a similar reward exists in your brain.
  • Stage 2: Craving. Next comes craving, which is arguably the most powerful force behind a habit. If the next time you walk into a convenience store, you crave a scratch-off ticket, you’re on the way to forming a habit. (And to be clear, it’s not the actual lottery ticket or habit that you’re craving – it’s the way it makes you feel. You’re motivated by that temporary rush of adrenaline that occurs between the time you buy the ticket and the scraping of your thumbnail reveals the numbers.)
  • Stage 3: Response. In and of itself, a craving is harmless. You might crave the idea of being able to fly, but you can’t actually fly. For a craving to transform into a habit, you first have to be capable of acting upon it. Secondly, you have to respond. The response is where the habit is actually performed.
  • Stage 4: Reward. Finally, there has to be some type of reward. The reward might not always live up to what you thought it was when you first experienced the cue, but there has to be some kind of reward to deliver a feeling of contentment and relief from the underlying craving.

From how you make coffee in the morning to the way you manage your paycheck every month, virtually every good and bad habit you form runs through this four-stage process.

If one of these stages is lacking, it becomes impossible to form a habit. Each box must be ticked off in order for the behavior to become cemented in place.

How Long Does it Take for Habits to Form

If you’ve ever listened to a Zig Ziglar tape or attended one of Tony Robbins’ Unleash the Power Within conferences, you’ve probably sat through a talk on habits. And, more than likely, you heard them tell you that it takes 21 days for a new habit to form.

The 21-day theory is rooted in a book written by the plastic surgeon Dr. Maxwell Maltz. The book, titled Psycho-Cybernetics, was published in 1960 and sold tens of millions of copies. In it, Maltz discussed his own personal observations that it took patients “a minimum of 21 days” to grow accustomed to seeing their new face in the mirror after having a nose job performed.

This is where the notion of three-week habit formation started.

And while 21 days is certainly long enough to form a habit, new research suggests it typically takes much longer.

According to a study conducted by health psychology researcher Phillippa Lally, it takes somewhere between 18 days and 254 days a new behavior to become automatic.

More specifically, it takes 66 days to form a habit.

This extended timeframe can be a good or a bad thing, depending on whether you’re trying to form a healthy habit or avoid an undesirable one.

If you’re trying to form a good habit, sticking it out for an average of 66 days may seem exhausting.

If, however, you don’t want bad behavior to become a habit, you can find solace in the fact that you have a long runway.

How Habits Are Broken

Once a habit forms, it becomes part of your subconscious thought patterns and, in turn, your physical behaviors. When it’s a good habit, your brain’s ability to latch onto behaviors is a good thing.

When it’s a bad habit – not so much.

Thankfully, bad habits can be broken. But it’s not easy.

In order to break a habit, you essentially reverse engineer habit formation by inverting each of the four stages.

When it comes to the cue, you want to make it invisible. Out of sight, out of mind is the best policy.

As for the craving, it needs to become unattractive. This could be the most challenging part of the habit process to foil.

Next, the response needs to be made difficult. You need to establish boundaries – whether real or artificial – that prevent you from being able to respond (even if there’s a cue and a craving).

Finally, and perhaps most importantly, the reward needs to become unsatisfying. Should you follow through on a cue and a craving with a response, it must leave you feeling like you didn’t get anything in return.

4 Bad Spending Habits People Need to Break

The decisions you make with your money on a regular basis are habits.

Some of your money habits are good.

But if you’re like most Americans, you’re holding on to some bad ones, too.

The challenge is maintaining the healthy money habits you’ve developed and replacing the bad ones before they cause undue harm.

In particular, you must suffocate your bad spending habits.

Bad spending is almost always at the root of irresponsible personal finance and poor money management. If you spend too much on the wrong things and in the wrong manner, it’ll negatively impact your savings, investments, retirement, and long-term financial security.

Here’s a rundown of some of the bad spending habits that run rampant in today’s society (as well as some practical tips for breaking them):

  1. Failure to Track Spending

How many plastic cards do you have in your wallet?

Between debit cards and credit cards, most people have at least two or three options to thumb through in the checkout line. This makes it very easy to buy something and forget about it.

A failure to track spending is actually a lazy habit of indifference. And while it might not affect you very much right now, it could eventually lead to serious problems – including high-interest credit card debt.

The best way to break this habit is to develop a budget.

A budget is best created at the beginning of each month. It should account for every penny coming in (income) and every penny going out (expenses).

A budget forces you to account for every purchase. At first, this feels constricting, but it eventually has a freeing effect. You know precisely what you can spend, which removes any feeling of guilt from your purchase decisions.

  • Eating Out

There’s nothing wrong with the occasional date night at a fancy restaurant.

Likewise, you shouldn’t feel guilty about grabbing a fast food meal when you’re on a road trip.

But the constant eating out is a bad habit that needs to be broken.

Let’s say, for example, that you work downtown and each morning, you grab a grande cup of coffee and a bagel from Starbucks on the way into the office. With a daily tab of $5, this little habit costs you $25 per week.

You also eat lunch out with coworkers five days per week. The average meal is $9 – which means you spend $45 per week on lunches.

But you also grab beer and wings with your friends every Sunday afternoon. That tab runs you somewhere around $25.

Then there’s the weekly family night out where you grab pizza after your kid’s basketball practice. That tab runs you $35.

Any one of these is fine in isolation, but when you add up the morning coffees, the lunches with coworkers, the beer and wings on Sunday, and the family pizza night, you’re staring at $130 per week – or $520 per month.

Maybe you have a nice fat salary and $520 per month is chump change, but for most people, it’s a big deal.

Nobody is telling you that you can’t eat out, but there’s something to be said for cutting back.

For example, simply replacing your weekly pizza outing with a couple of inexpensive frozen pizzas at home could save you something like $25 per week – or $1,300 per year!

Reevaluate your food expenditures – that’s the moral of the story.

  • Buying Cheap Products

On one side, there are people who spend way too much money on things they don’t need and/or can’t afford.

On the other end, you have folks who have a tight grip on their money and refuse to spend.

By definition, both ends of the spectrum are extremes. And while big spenders often get shamed for being irresponsible, cheapskates tend to get a free pass.

But here’s the thing: Cheapskate spending habits are just as dangerous.

When you buy cheap products, you’re really just plugging holes in your budget with temporary fixes. Over time, you have to replace these cheap products and services because they stop working. And you eventually reach a point where the cheap product becomes more costly than the expensive one (which actually lasts).

If you were raised by penny-pinching parents, cheap shopping habits are hard to break.

But break they must.

Prior to purchasing something, make it a point to read online customer reviews. Does the product work? Does it hold up over time? How long until it breaks?

Try running a long-term cost analysis to see whether it makes more sense to invest in an expensive, high-quality product.

Oftentimes, it does.

  • Leasing a Vehicle

When it comes to vehicles, you have three basic options: buy in cash, finance, or lease.

While the latter option might seem attractive in certain situations, leasing is almost always a terrible idea.

Yes, the monthly payments may be lower than they would be if you financed the purchase, but you would have nothing to show for it. When the lease ends, you have no asset.

Not a sexy piece of advice, but the majority of people are best off buying a used car with cash. (That’s because new cars depreciate by 10 to 20 percent the moment they’re driven off the lot.)

The problem with leasing is that it quickly becomes habitual. You get used to the new car feeling without feeling the pain of the new car price. As a result, you’re likely to continue leasing indefinitely.

The best way to break the habit is to buy an inexpensive used car and then track the money you’re saving. (Don’t forget to add in the potential resale/trade-in value!) The numbers will do all of the talking.

Forming Smarter Habits for the Future

It’s never too late to weed out a bad habit.

It’s also never too late to form a healthy habit.

When it comes to how you manage money, smart spending habits are a must. By forming smarter habits around how you spend, you can positively impact your future savings, investments, retirement, and long-term wealth building.

Healthy habit formation can be tough work – but it’s well worth it in the end.

Now’s the time to lean in, roll up your sleeves, and get your hands dirty.


An entrepreneur who chased success till it chased him. Founder at Quarterly Global. Father to Mayra Hansaj and Husband to Anjali Hansaj. Author of “The Criminal Wolf” and “Rise of the wolf”. 114 Days in a slumber haunts me yet.

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