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Your Financial Identity

Small changes are powerful

I always feel excited about the start of a new year. It’s a prompt to set goals, to think about what’s important to me, and to decide on what changes I want to make in my life. As the weeks roll forward, though, it’s easy to forget about the list of new habits I was planning on putting in place. Many of the items are forgotten. But not all of them. Some years I am able to remember what I wanted to do. This happens when I have a (short) list of simple and well-defined things I can do to work towards my desired habit.

Each year, I’ll bet many people swear that they will get more financially organized, be more “on top of things”. That’s not an easy task, though. Life is busy. We’ve got a million more interesting things to do than look at our bank account. Like many new habits we try to form, regularly and consistently doing the things we need to do to “stay on top of our finances” can be hard. It’s kind of boring and there is little instant gratification. There are a of habits that are hard to stick with. For me, they include taking time each day for quiet thinking and reflection, eating more vegetables, and playing the piano. I would love to make these things a part of my life every day, but when life gets busy, these things are among the first to go.

In his book Atomic Habits, James Clear has an explanation for why this is. He says that in order for us to stick to the good habits we’d like to adopt, the habits need to align with our identity. He describes three layers of behaviour change: changing the outcomes (such as losing weight), changing the process (developing a gym routine), and changing your identify (“I am a healthy person”). This means that the best way to develop a new habit is to make them identity-based habits, focussing not on what you want to achieve but on who you want to become.

Clear uses the example of a person who is trying to quit smoking. When offered a cigarette, one person might say “No thanks, I’m trying to quit.” The second person might say “No thanks, I’m not a smoker.” The second person has the identity of a non-smoker instead of a smoker trying to quit. That’s a powerful difference.

We often carry around beliefs about ourselves. What are some of the beliefs you hold about yourself? For some people, it’s “I’m terrible with money” or “I’m hopeless at understanding financial stuff” or simply “I hate anything to do with finances.” Are these beliefs true or do we just keep telling ourselves they are true?

Money is such a pervasive part of life. It’s impossible to avoid thinking about, talking about, or handling money pretty much every day. I have a belief that I’m terrible with directions - this doesn’t have much of an impact on my day-to-day life (thanks to Google Maps, the single best thing technology has done for me). But to have to deal with money daily, a constant reminder that you hate financial stuff or feel hopeless at it, well, that’s kind of a downer. It can really have an impact on your happiness.

So how you can alter this? How can you change your financial identity? Mr. Clear says it’s your habits and actions that define your identity. If you write every day, you would say you’re a writer. If you run even when it’s raining, you’d say you’re a dedicated runner. If you are in the habit of logging onto your banking platform once a week, you’d say you’re on top of your money.

Changing your identity is a two-part process First, decide who you want to be. Decide what kind of person you want to be when it comes to money. You might say “I want to be someone who is on top of their finances and is organized.”

In order to do the things you need to do consistently to stay on top of your finances, you have to believe that they support your identity. Someone who says “I’m hopeless with money” will probably give themselves a pass when it comes to filing their taxes on time or topping up their TFSA every year. But someone who says “I’m on top of my finances” will want to maintain that identify, making it much easier to sit down and do the task required. If I considered myself to be a piano player, I'll bet I'd play more regularly.

The second step is to prove your identify to yourself with small wins. In this example, you might start with checking your credit card statement each month before paying it. Review the transactions to make sure they are correct. Another small step you can take is to make note of when your bills are due and put a reminder in your calendar. So when you get your phone bill by email, check the due date and stick it in your calendar. I do this with my Visa every month as well as my property tax installments. When you start paying the bills on time, you will start to feel like you’ve got your s**t together, and this will encourage you to do more good things. Soon, you will identify as someone who is financially organized.

Atomic Habits includes a ton of suggestions for building good habit – changing your identify is the foundation. The execution is made easier by using his specific habit-forming suggestions. If you’d like to read more, I’m sure you could borrow the book from your library – it’s a great read to start a new year. He also has a good newsletter.

It’s exciting to realize that you can change a belief about yourself and develop the identity you want. If you want some idea for how to help your kids develop a strong financial identity, have a look at this article in the Globe & Mail.

Happy New Year!


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