Money and finances rank way up there with health and relationships when it comes to what’s important in most people’s lives. They can be the source of much comfort or much anxiety.

Over the course of my 20+ year career, I have worked with many financially successful people. What’s interesting, is that it didn’t seem to matter whether they built their wealth from being a high income earner, or if they earned very modestly during their careers.  The common factor amongst almost all of them, is their habits. Of course other important factors played a role – smart planning, wise investing, etc., but habits seemed to be at the core of every success story, and on the flip side, the source of most financial failures.

In the book, The Power of Habit: Why We Do What We Do in Life and Business, Charles Duhigg explains the science behind habits.  According to the research in the book, habits are made up of patterns, which start with a cue, then lead to a routine, which gives a reward. When that reward becomes a craving, bang, you’ve got a habit – good or bad.  Habits are at the core of success or failure in all areas of our lives – diet, exercise, relationships, finances, brushing our teeth, even how our mind reacts to things like a compliment or a negative comment from a friend.

What you do when you walk past a plate of cookies, whether or not you remember to take your vitamins every day, and whether you are a saver or a spender, all stem from the habit patterns you have created in your live.  Every spring, (assuming you’ve filed your taxes), the Canadian government mails out your Notice of Assessment, showing your tax assessment, as well as how much you can contribute to your RRSP.  When you receive this Notice of Assessment, it’s a cue, and it leads you to a routine.  Do you start thinking about how you’re going to maximize your RRSP, and/or call your Investment Advisor? Or do you stuff that paper in the filling cabinet, or at the bottom of your “to do” pile, and avoid thinking about how you’re going to come up with that money?  Either way, you’re getting a reward, the satisfaction and good feeling of accomplishment – saving for your future, or the relief of sweeping the problem under the rug.

Every year when Sandra, a client of mine, receives her annual bonus, she calls me excitedly, anxious to invest it into her portfolio.  For her, the reward of watching her portfolio grow is one of achievement, getting her closer and closer to her ultimate goal of retirement. For every Sandra out there, there are dozens of people who have spent their bonuses before they even receive them…on the latest electronics, vacation, new car, or whatever will stimulate their reward centre.  The cue may be the same, but the routine and rewards are completely different.

What kind of shopper are you? Do you make impulse purchases? Do you go to Costco with a list, and stick to it? Or do you wander through the aisles, attracted to all the brilliant and well-priced products that Costco knows you think you need, and fill up your cart? When you’re feeling down or bored, do you go buy yourself something, feeling momentarily rewarded by the new purchase? When you need new boots, do you patiently wait for them to go on sale?  Marketers are constantly trying to change our habits to buy their products. Our habits are constantly evolving. Habits are part of who we are, and lead us to the choices and decisions that we make every day.

What kind of investor are you? When the stock market corrects, do you leap into the bushes for safety, or do you excitedly throw money into the market, seeing it as a great buying opportunity? Again, how you react to cues, such as the market dropping, will impact your overall success.  Obviously, having a trusted Investment Advisor by your side can help develop good habits in this area, and guide you when decisions need to be made. But understanding what your natural habits and routines are, is key when determining if you’re likely to be financially successful or not.

In my experience, having clear goals and objectives makes it easier for people to have good habits and/or change bad habits. Whether your goals are saving for retirement or a major purchase, protecting your investments, or ensuring you won’t run out of money, a good financial plan, and a financial planner who understands your goals and concerns, can help you clarify and focus on habits that will lead to financial success. If you think your financial habits could use some improvement, a good financial coach can help.  They’ll lead you to identify the cues and routines that make up your current habits, and guide you to establish new financial routines that will change your habits and reinforce positive results.

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Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with 20 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected].

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.