How the Book "Atomic Habits" Changed My Perspective on Finances

Posted by Derrick Herbert in MindsetApril 14, 2021(Last Updated January 11, 2023)4 min read
Key Takeaways
  • The New York Times Bestselling book, Atomic Habits by James Clear, changed my perspective on the importance of building good habits.
  • Your financial habits are either positively compounding for you or negatively compounding against you.
  • The sooner you make changes to your financial habits, the sooner you will see changes in your finances.
Are you ready to make some real money moves?

The New York Times Bestselling book, Atomic Habits by James Clear, changed my perspective on the importance of building good habits. The book offered great advice, and I figured it would be best to implement it into one of the most important aspects of my life — my finances.


The Fundamentals: Why Tiny Changes Make a Big Difference


It is easy to look at one's overall wealth and overlook the small habits and sacrifices it took to acquire that wealth. Just as money multiplies through compound interest, your habits have the power to multiply as you repeat them. This is why the tiny changes you make toward your financial behavior can go a long way. Your financial habits are either positively compounding for you or negatively compounding against you. For example, if you go out for lunch a couple of times a week, it can seem harmless, but you could be spending well over a thousand dollars a year just on eating out.


Another fundamental aspect of financial habits that challenged my beliefs was that financial goals are good, but focusing on your system instead is key. Many people have great goals, such as buying a house or starting a business. However, many people don't reach their goals because they don't have a system in place. Clear said it best, "You do not rise to the level of your goals. You fall to the level of your system."


1st Law: Make it Obvious


The process of changing your behavior always starts with awareness. You need to be aware of your habits before you can change them. Often people don't change their financial behavior because they aren't aware of their behavior.


A simple exercise to make yourself more aware of your financial habits is to create a financial journal. Look at your transactions from the last two weeks on your bank statement and make a list of them in your journal or the note section of your phone. Once you have made your list, look at each transaction and ask yourself, "How does this financial habit benefit me in the long run?" If it is a positive financial habit, place an addition sign (+) next to it. If it is a negative financial habit, put a minus sign (-), or if it is a neutral habit, write an equal sign (=) beside the transaction.


Starting a financial journal is a great exercise to become aware of your financial behavior. Those behaviors can then be measured and ultimately improved. Clear said it best, "People with high self-control tend to spend less time in tempting situations. It's easier to avoid temptation than it is to resist it." Most people have been in situations where they've told themselves they were only going to spend "X" amount of dollars but ended up going over budget. By practicing self-control, the situation could have been avoided altogether.


2nd Law: Make it Attractive


Who you're around can have much influence over your life, and it's no different with your finances. One of my favorite quotes by Clear in Atomic Habits is, "One of the most effective things you can do to build better habits is to join a culture where your desired behavior is the normal behavior." You can probably relate to having a coworker or friend who you try to avoid hanging out with when trying to save funds because you always end up spending money anytime you all hang out.


It's important to understand that we are all in a different spot financially. Therefore, you must set your boundaries.


The final and probably the most important piece to the 2nd Law is being in alignment with your spouse financially. We tend to imitate the habits of those who are closest to us. This is why it is vital for you and your spouse to build good financial habits and have a plan for your money.


3rd Law: Make it Easy


An efficient way to build good habits with your money is to create an environment or system where doing the right thing is as easy as possible. It is human nature to do what is most convenient. Unfortunately, sometimes with your finances, the most convenient thing can be getting a paycheck, having fun over the weekend, and worrying about your bills and savings afterward. This financial behavior can lead you to live a paycheck-to-paycheck lifestyle. As Clear expressed, "Using technology to automate your habits is the most reliable and effective way to guarantee the right behavior." Setting up automatic bill pay or having an automatic savings plan is a great way to start building wise financial habits.


4th Law: Make it Satisfying


Making progress is one of the most satisfying feelings. Clear states, "The Cardinal Rule of Behavior Change: What is immediately rewarded is repeated. What is immediately punished is avoided." This is the reason why it can be tough to stick with your positive financial habits. Great things take time, and it takes time to see the payoff of your good financial habits. It can be challenging staying consistent with habits such as "no eating out this month" or "no unnecessary expenses" because you aren't immediately rewarded. To flip this on its head and help immediately reward yourself, create a savings account and label it for something you want, such as "Trip to Jamaica." Whenever you get an urge to eat out or make an unnecessary purchase but pass on the buy, transfer that same amount of money in your "Trip to Jamaica" savings account. Resisted going out for lunch? Transfer $10. Did you pass on buying that new shirt? Move $50 over. This is essentially creating a rewards program for yourself.


If you found this article helpful, I highly recommend reading Atomic Habits by James Clear. It will help you build great financial habits along with habits to help you succeed in other areas of life!


Thumbnail and Main Image Editorial Credit: Karim Abdul Jabbar /

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