3 Ways to Close Your Brain’s Financial Loopholes

April 06, 2016

Connect Member

Personal finance expert at Creative Money: a resource for gaining clarity & confidence about money.


For some people, bad financial habits are just as difficult to break as an addiction. Meanwhile, others are able to change their habits quite quickly and effectively.  

Do those latter people just have more willpower? Are they smarter? Are they somehow better than the rest of us?

I suspect not. In her book about habits, Better Than Before, Gretchen Rubin points out that people change their habits in three main ways.

  1. They have an epiphany — a “lightning strike moment” that changes everything.
  2. They change their environment so that the habit is no longer possible.
  3. They take baby steps toward change.

The first is hard to manufacture. It’s the kind of thing that happens pretty rarely, and usually as the result of a big life event. Forget that one.

The second can be difficult when it comes to finances. Some people do things like freeze their credit cards to curb spending, but for the most part, we can’t go cold turkey with money.

So that leaves the third option.

Rubin posits that one way to take baby steps toward change is to recognize when we’re making excuses. She calls these excuses loopholes, because like loopholes in a contract, they give us a way to get out of living up to our new habits.

The False Choice Loophole

This is the loophole you invoke when you think you can’t have two things at once. People tend to think that they can’t make lots of money while having lots of freedom. Or that you can’t pay down debt while having fun.  

Instead, ask yourself, “Can I have this and that?” or “Can I do this at some level while maintaining my focus on my short-term priority?” It’s surprising how often that’s possible.

The One Coin Loophole

This loophole gets its name from “the argument of the growing heap” in Erasmus’s Praise of Folly. To summarize: Often, any one instance of an action is almost meaningless; yet, the sum of those actions is meaningful. Any one visit to the gym is inconsequential, but the habit of going to the gym is invaluable.

People may confront this when they’re considering saving money. They think that the amount they’re putting into savings each month isn’t that big of a deal, so they use the excuse to spend it, “just this once.” They are ignoring the compounding effect of saving over time.

The “This Doesn’t Count” Loophole

This loophole comes up with clients when they’re trying to break a chronic overspending habit. Even if their intention is to give up the habit, they’ll rationalize a slip-up by saying “it doesn’t count” for some reason.

Unfortunately, everything counts. We may tell ourselves that a particular time doesn’t “count” — but in fact, while we can always mindfully choose to make an exception to our habits, there are no magical freebies.

The good news: Knowing your financial loopholes can help you close them. Once you know which loophole your subconscious brain is likely to use to rationalize an old habit or poor choice, you become instantly more aware. That momentary disruption is all you need to start breaking those habits that aren’t helpful, and replacing them with new, better ones.

Mindy Crary is a member of the DailyWorth Connect program. Read more about the program here.