As a Mr. Money Mustache reader, you are on the straight and narrow path to considerable wealth. You’re actively soaking up financial knowledge and putting it into play in your day-to-day life. Unless you are very new here, you probably don’t need convincing of either the value of creating a golden financial situation, or the methods by which we pursue it. Understand and optimize your spending with happiness as the prime directive, while improving the rest of your life and increasing your ability to earn money as a side-effect.

It sounds easy when you put it that way, but to newcomers there are many roadblocks. First is the issue of basic financial knowledge itself. Most of your neighbors believe that borrowing money for cars and kitchen renovations is a perfectly reasonable thing to do, a 5-10% savings rate is admirable, and credit cards are a way to borrow money when life’s little expenses temporarily outpace their salaries. With assumptions like these, wealth will always prove unattainable.

But even with a solid understanding of financial concepts, you still have to get over an even bigger hill: changing your behavior in a way that sticks.

After all, we already know that to get rich on an average income, you need to have lower-than-average spending. But a big part of average spending goes into car ownership.

So that will be one of the first things you’d want to address, by doing less pointless driving around in your car, right? But you’ve become very comfortable with habitual car trips.

It will mean making fewer visits to restaurants, bars, and coffee shops. But that has become a pleasant and comfortable habit too.

Booze, drugs, cigarettes, TV watching, video game playing, procrastination, unhealthy eating, sedentary living, convenience and comfort-seeking and unnecessary shopping are other habits that are widespread in US society. And most of these stand between the average person and a truly wealthy life as well.

Throughout this blog’s lifetime, I have been trying to attack these habits from a variety of angles in order to create more happy, wealthy people. Beneath my usual drill-sergeant routine and threats of face-punching, I have laid out logical and numerical justifications for some of the changes, and issued emotional calls to action in other ones. Sometimes the articles work, and sometimes they don’t. So what is it that makes a good change-creating piece of advice?

Recently, some important heavy iron plates of missing knowledge have been clunking into place in my mind, due to a string of really interesting practical psychology books I have read in recent months. Blink, Nudge, The Tipping Point, 59 Seconds, Switch, and most recently The Power of Habit, which is a great book.

As simple as it sounds, the missing piece has been the concept of habits, and how ridiculously important they are to the human life – every human life.

If someone asked you to define “habit”, what would you say? Until recently, I probably would have said something like “a repeating pattern of behavior, which is hard for some people to change, and easier for others. And the ability to change habits is sometimes called “willpower”.

But I was surprised to learn habits are much more than that. As it turns out, habits are little chunks of auto-pilot behavior that get burned right into your neurology – permanently. Once you develop a habit, you can never truly erase the program, even if you manage to deactivate it.

It gets even crazier than that: when your brain starts running one of its many habit scripts, a good part of your conscious judgement is shut off for the duration. The habit takes over, controls you until you get to the end of the script, and then dumps you out at the end. And this is not just a rare occurence – depending on who you ask, habits are in at least partially in control for between 50 and 90% of our waking hours.

This has been a popular field of scientific study for several decades, although recent breakthroughs in the area have brought it into the public eye (and the bestselling book list, as shown by the examples above). Consumer marketers have been all over the concept of habit formation, as it is the basis for much of the sales and profits in the world’s vast Unnecessary Products industry. But now the cat is out of the bag, and the fruits of this scientific study are available for you to use to your own advantage, instead of Proctor and Gamble just using them on you. If we can gain a more accurate understanding of what habits are and how to change them, we can get much more control over our own lives.

The studies that figured all this out have been fascinating. In one study, the brains of test rats were monitored, first as they learned their way though a maze to some cheese, then as they eventually repeated the maze run effortlessly every time they were released. Neurological activity was massive at first, but after the habit had been formed, they could race through with very quiet brains, making no decisions between the initial click sound that marked the opening gate,until finishing the quest.

Even if removed from the maze and trained for other things, the rats could re-activate the old maze program much later in their lives. And even if the maze was booby-trapped, with sickness-inducing cheese or an electric floor, the rats still played out their habit scripts to their own detriment.

Why is this relevant? Because as smart and fancy as we all are, our mind is subject to the same auto-pilot “chunking” of behavior.

Starting the shower, arranging your towels and clothes, and going through the full routine of washing and drying yourself is probably one good example of something you do automatically.

Reversing a car out of your driveway or driving or biking very familiar route that you’ve done hundreds of times is another.

Coffee drinkers (myself included) are certainly familiar with the process of habit formation. And smokers can be some of the modern world’s most dedicated creatures of habit.

And it goes beyond that. The way the average person responds to certain luxury products and makes purchases is highly habitual as well. Need to go somewhere more than a block away? Grab the car keys. Hungry at work? Head out to one of the usual restaurants. Have a problem with your house? Begin worrying immediately as you try to find a professional who can fix it for you. Uncomfortable or Inconvenienced? Find a product to address it. Mr. Money Mustache telling you to start riding your bike around town for local errands? Immediately think of why you can’t do it, and start typing complaints to that effect.

And here we get to the meat of the issue as it pertains to financial success: because habits become so automatic, they become effortless. This is a bad thing if the habit is destroying you, but wonderful if the habit is a life-boosting one.

In my recent experiment where I tried to spend money wildly, I had to expend great daily effort and still didn’t manage to match the average high-income person’s automatic routine. Not buying unnecessary stuff during trips is an age-old habit for me, and it would be hard to break even if I wanted to.

In fact, the habit extends to every financial transaction I make: I tend to run through a routine of: “will this really make me happier? / is there any other way to get the same happiness? / can it be delayed? / how can it be optimized to get the most at the lowest cost?”. Anything from a piece of pie right up to a house or investment property gets this automatic scrutiny, and the result is usually fewer, better purchases.

So if habits are so automatic, biological and hard to break, how do we do it? Distilling all the books and the science down to a tiny list, the answer seems to be this:

Habits are like little loops. They start with a trigger, which sets off your automatic behavior. They end at a reward, which is the little pleasant occurrence that reinforces your habit.

For a standard consumer/car driver, the habit might look like this:

For a Mustachian, you can see the habit loop is different:

This difference is vividly illustrated right on my own street, where my neighbors each make several short car trips around our tiny city each day, and my wife and I make a smaller number by bike. Neither group is expending effort to make its choices – cars are just a habit for them, and bike transportation is ours. But if either of us tried to change our habits, that is where there effort would come in.

Luckily, enough research has been done that we now do know how to make habit change easier. It involves keeping the same cue and a similar reward, but substituting in a different routine. And this is how it is done:

1: Find the trigger point of your habit: You do this by describing your own behavior in detail, searching for clues you might have missed before. My habit of making coffee is triggered by entering the kitchen. Every time I walk in in the morning, I feel like firing up the espresso machine to make some lattes. If I wake up or spend the day in an unfamiliar setting (for example, at a campsite or out at a construction site), the coffee craving abates. But if I spend the day at home and return to the kitchen to make some lunch – hey, there’s that nifty espresso machine again.. maybe I need to fire it up! Similarly, some people smoke in response to a lull in their afternoon’s office work, eat in response to boredom, or buy stuff in response to desires. Find your own trigger.

2: Take the same cue, but trick yourself into triggering a different behavior: If I wanted to quit coffee, I could give away the coffee machine and put a box of herbal tea on the countertop on its place. Then I’d make tea instead of coffee. Or I could put a nice water glass, or even a pair of boxing gloves on that part of the countertop. Each morning could trigger a nice round of boxing practice with a heavy bag in the garage, and I’d be better off for it.

3: Try to make the new reward similar to the old one: With coffee, the reward is a warm, tasty beverage and an excuse to sit still, contemplate, or talk for a while. Caffeine may be a secondary part of it, but the physiological part of habits is only a tiny part of the reason they form (this was big news to me). So the tea would probably work, but boxing would be a bit of a stretch.

That’s the basic Habit Substitution trick, and you’ll go far just by understanding that. But for even more power, add the following two ingredients:

4: Get your foot in the door – with Keystone Habits:

Some habits shake things up so much that they automatically trigger other changes. I believe that embracing Bike Transportation is one of these things, as explained in “What Do You Mean, You Don’t Have a Bike!?“. It eliminates spur-of-the-moment shopping, sedentary living, and weather wussiness all in one stroke. To make the change even easier, I once suggested starting by using bikes for just one initial purpose: getting your groceries. This has a keystone effect because you already live close to a grocery store, and you always need groceries at least once a week. By forbidding yourself from taking the car out for this errand, you automatically start to build a biking habit.

The ultimate Keystone Habit can be simply “Waking Up”, because you know that is going to happen each day. So if you set out a note for yourself that you’ll see when you first wake up, and find a way to compel yourself to take a tiny step in the right direction (stretch down to touch toes or do one pushup before breakfast), you have accomplished the hardest part – performing something on a daily basis.

5: Reinforce habits with belief and community: This is the reason Alcoholics Anonymous works for so many people, and probably a big part of this blog’s success in changing habits as well. I tell stories of my own life to show that financial changes are not only possible, they are easy and fun to make. That creates belief. Then readers chime in with their own stories, much as JJ did recently, showing that others are achieving the same thing. The inevitable response is “Shit, if Mr. Money Mustache can do it, AND all these readers can do it too, then so can I”. Interestingly enough, both AA and MMM stumbled upon the success formula without much scientific study of habit change. But because we happened to get certain parts of it right, we stuck around.

And thus my new understanding of habit has been born.

I used to wonder why I seemed to have less trouble than others with bad habits. Now I understand that certain people are more prone to habit-formation than others.

For example, while others can drive to work automatically without even being conscious of what happened during the drive, I have always been hyper-conscious of every moment in the car, thinking about traffic speed, route selection, engine speed, and even wind direction as part of an always-on driving optimization game.

Routines at home are rarely automatic as well – when I eat, I’m always tabulating nutrients, calories and protein in my mind and adding or subtracting components from meals in response to how much stored fat I see on the belly. Spending and investing has always been an optimization game too.

So while the individual routines might not look like habits, I might be stuck in an overarching habit of Relentless Optimization of Everything. This is a good one, as long as your “Everything” includes “Fun and life satisfaction for me and everyone around me”.

Whatever your individual style may be, it seems that understanding habit formation is useful for everyone, so we’ll be using the new tricks around here often.