Getting better with money is also NOT a knowledge problem.  But many people believe it is.

In James Cleary’s best-selling book, Atomic Habits, he outlines strategies to improve our lives by developing better habits. It’s a small, but powerful book.  For me, the basics come down to the following principles:

  • You are a product of your habits.
  • Your habits are what you repeatedly do.
  • Want better results? Change your habits and results will follow.

I wouldn’t say this is groundbreaking data.  Mr. Cleary hasn’t solved time travel.  However, like all great teachers and educators, has found coaching methods to turn age old wisdom into tactics we can all act on.

One of the very best insights I took from his books was about how the simple act of changing your environment can lead to developing better habits and breaking those nagging bad habits.

Let’s take a challenge we are all familiar with, losing, weight.  At its core level, losing weight is about performing more healthy actions such as exercising and eating well.  The act of exercising and eating well lead to the desired result, weight loss.  Will you lose weight by exercising once and having a salad? Of course not!  You need to repeat the positive activity regularly.  That repetitive action is habit.  Like I said, not rocket science.

Habits: Easy to understand. Hard to do

So why is it so hard to lose the bad habits and keep good ones?  Many say it’s all about will power.  Nike says ‘Just do it.’ Some people have it, others don’t.  Cleary disagrees and states that willpower alone is not enough.

His suggestion?  Alter your environment.

For example, if you need to exercise more, you should first change your environment and so it is as easy as possible to exercise.  Remove anything from your immediate surroundings that would delay, impede or cause a distraction from exercising.  For example, putting out your workout clothes and shoes next to your bed will dramatically increase the likelihood you will work out.  Download your favorite songs on a playlist and have it ready.  Tell your husband in advance that he has breakfast duty with the kids that day.  What you are doing is reducing friction in order to increase the chance of accomplishing the good habit.  ‘Greasing the skids’ my grandfather would say.

The same environmental altering method works against bad habits, like eating poorly.  Rather than taking proactive measures such as researching a diet, meticulously foraging at the grocery store, prepping all means in advance, you could first alter your environment so that making bad food choices is harder.  Cleary calls it adding friction.


Lock the pantry

For me, snacking late at night was the culprit in my continual failure to lose weight.  With three small children there are plenty of carb rich foods at my fingertips that are great for 4-year-olds, but awful for 40-year-olds.

Did I need more willpower?  Probably.

Could I use an assist from my environment? Most definitely.

In order to eliminate snacking I added a small bit of friction to the process of getting the food. Our snacks are located in the pantry, a small walk from the coach and the TV.  I added one small obstacle, a combination lock on the pantry.  I placed it on after the kids went to bed (I’m not that bad of a parent)  Any time I wanted a snack, I had to take the 3 seconds to open the lock.

Believe it or not, that 3 seconds made the difference.

Did I still try to get to the snacks?  You bet yourself!  But more often than not I said, ‘forget it, I don’t want it that bad.’  The lock was not exactly Fort Knox security but it worked.  I hardly snack anymore.

I’ve lost 10 lbs. since I added that 4-dollar lock on the pantry.  Pretty good results.

Great results given the almost zero effort I put into the strategy.

The impact on increasing or decreasing friction on our financial lives can be just as dramatic.

Not for lack of knowledge.

The fact that people make bad money decisions is no secret.  Heck, the most common New Year’s resolutions are losing weight and making smarter money decisions.  We also know that losing weight is not a lack of knowledge problem.  The basics are rather straightforward: eat more vegetables, consume less sugar and exercise more and you’ll lose weight.  (For most people) You can try more detailed diets like KETO or Atkins and more complex ways to exercise, but we fundamentally know it’s primarily a habit issue, not a knowledge issue.

Getting better with money is also NOT a knowledge problem.  But many people believe it is.

I find that when most people attempt to ‘get better with money’ they start with the knowledge side of the problem.  Rather than focus on simple behaviors such as saving more, or spending less, they buy a book like ‘25K Options Trading Challenge: Amplify your Stock Markets returns by combining options and Technical Analysis.  Don’t fault the authors, this book was popular enough to have two editions.

Seems that everyone wants to be the next Warren Buffet and want to hit home runs. So, we read and adopt hard to follow strategies. This is the financial equivalent of a crash diet.  As in food, the money results that follow this approach are typically disappointing.

Books and knowledge are great and vital.  But if we don’t work on the habits that made us bad with money in the first place the information won’t help.

Auto-enrollment. Small changes, massive impact.

Let’s take our snacking lesson from my life and apply it to financial planning and alter our environment to make good money decisions easier and bad money decisions harder. There are plenty of areas that we can improve upon such as budgeting, paying down debt, and investing.  However, there is one area that you may already be doing environmental change without even knowing, your work 401(k) account.

In recent years, employers have begun to use an approach called auto-enrollment in their retirement plans.  What is auto-enrollment?  When you are initially hired, you employer automatically enrolls you in the retirement plan at a predetermined percentage of your paycheck?  That’s it.

For example, let’s say that amount is 5% of your compensation. That means 5% of your pay is automatically deducted and added to your 401(k) plan and the investment is already chosen for you.  (Typically, an age-appropriate target date fund)

Simple but brilliant.  And a clear attempt by employers to reduce friction on retirement.

Before auto-enrollment, the old way of starting your retirement involved accessing your retirement account after being hired, completing the forms, choosing how much and where you want to save and you are enrolled.

One approach requires literally no action on your part to save for retirement.  The other action requires you to complete a series of steps.  Which of these approaches has less friction? More friction?

So, you might be thinking to yourself, that’s a little heavy handed of my employer.

Why do they care so much about my retirement?”

That’s my money, no one should mess with it!”

At some level, I can’t argue with them. I’m sure there are people that discover their paycheck had a ‘deduction’ they didn’t know about and got upset. They may even make an angry call to HR before opting out of the plan.

But those people are in the extreme minority.  The results are conclusive.  Most people remain in the plan.  The plans with auto enrollment have much larger savings rates than those without.

Plans with auto-enrollment first reduced friction by automatically putting you in the plan you and then increased friction by requiring you consciously decide to opt out.

Good habit established.  But…it also elicits and an uneasy feeling.  It seems most of us need that forcing mechanism to trick ourselves into a good decision.

I say so be it. Perfect is the enemy of progress in this case.

Yes, in a perfect world, we would always be saving for retirement.  We ‘should’ know better.  It’s not like we don’t have the information.  How many books are written on this topic?  There are news stories, blog posts and podcasts solely devoted to helping people make smart money decision.

As we’ve said before, knowledge is not the cause of the problem.  The problem arises in our own humanity. People are human and humans have emotions and we don’t always act rationally.

This inconsistency isn’t isolated to finance. Look no further than health and medicine.  Our doctors and nurses are highly skilled professionals, trained and taught the leading medical schools. We literally have WebMD at our finger tips. Yet, have you ever seen the outside smoking section of at hospital?  Notice the doctors and nurses there?  I have.

Key takeaway: Perform an environment audit

Good health, like good money, is not lacking for information on what we should do.

It’s the lack of the good habits and behavior that govern what we can do.

Rather than focus on the perfect, let’s focus on areas than actually produce results.

  1. What good money habits do you want to adopt? How can change your environment so it’s easier to do more of them?
  2. What are your bad money habits? Can you make changes to your world to make it harder to indulge?

Here are a few examples…

Trying to cut down on credit cards spending?  Take the cards out of your wallet.

Trying to save more?  Open a savings account that does not have an ATM card.  You then HAVE to go the bank to withdraw money.  Talk about friction!

Want to get a handle on your spending? Ditch the spreadsheet, sign up for a service like and they will auto track it for you.  There may be some mistakes but at least it gets done. (Perfect is the enemy of progress)

Remember, knowledge is vital, but habits beat knowledge any days of the week. Let’s use the lessons of environment on habit formation to make it easier to ‘auto-enroll’ in good money habits.  Let’s try to add friction to areas of our money lives that hurt performance.

Simple truths are sometimes the most impactful.

Happy planning friends.

Tony Bucci

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The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.”

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* Source: Pew Research Center
† Source: “Quantitative Analysis of Investor Behavior, 2014” Dalbar Inc. Most recent data available. An index is un-managed and one cannot invest directly into an index.

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