James Clear Thinks Focusing on Financial Goals Is Short-Term Thinking

It's about making progress.

Zero debt. An emergency fund. $1,000 in your brokerage account. All fantastic financial goals to kick off 2023. But is figuring out the finish line enough to carry you through your money marathon?

James Clear, author of bestseller Atomic Habits, thinks otherwise: "Goals are good for setting a direction, but systems are best for making progress." Clear believes savers should focus on creating good financial habits -- ones that stick around past the first week of January.

Why are goals less critical than habits?

Atomic Habits offers a few reasons that explain why habits are so important. The most compelling argument for prioritizing habits is the so-called "yo-yo effect," when people lose motivation after completing their goals and back into old habits like overspending.

For example, someone who makes it their goal to add $1,000 dollars to their savings account might stop saving when they hit their number. They conditioned themselves for a brief sprint -- not a lifelong marathon.

The point is to focus on building lifelong habits. Forming good financial habits has helped me pay down thousands in margin debt and stay healthy (the less often I'm forced to make insurance claims, the better). Even though I sometimes slip, my habits keep me moving forward.

Are you looking to build wealth in 2023? Here are three ways you might use the power of habits to reach your financial goals.

1. Automate your finances

Make good habits easy by automating the movements of money. Many of the best banking apps offer features that help you save without even trying. For example, the Chime app allows me to automatically send 10% of every paycheck directly to my savings account.

Say you make $40,000 per year. By the end of 2023, you'd have $4,000 saved. That's enough to pay for a lifetime's worth of Costco memberships. Best of all, automating your finances removes temptation from the equation. Out of sight, out of mind.

2. Partner up

Have someone hold you accountable for reaching your goals. James Clear recommends having accountability buddies with whom you share progress. An accountability buddy makes failure all the more unsatisfying, holding your feet to the proverbial flames.

For example, my mom asks me about my emergency savings once per month. Her skeptical eyebrow raises keep me motivated like nothing else.

Often, I fail to get to where I want to go. It's a bummer, but the point isn't to be perfect -- it's to recognize when you aren't meeting your expectations. An accountability buddy forces you to recognize when something is wrong, allowing you to reflect and reorient.

3. Treat yourself

Make good habits satisfying by treating yourself when you engage. Every time you pay down credit card debt, eat a snack. Take a nap. Do what makes you happy, and do it right away. You'll associate paying down debt with good vibes, making you more likely to stick with it.

Last year, I wanted to spend less on ordering food delivery. So each time I resisted the temptation, I wired $20 to my brokerage account. I didn't just order less delivery; I also built up my long-term savings. Two birds, one habit.

Build long-term financial habits

The principles put forth in Atomic Habits apply to building long-term wealth. Goals are great, and I wouldn't ditch them entirely, but habits indeed form the backbone of healthy money management. Without them, we lack the motivation to achieve our lofty ambitions.

You're in control of your relationship with money. Consider whether you're spending enough time building good financial habits.