Improve Your Finances by 3495% | Atomic Habits by James Clear (2)
And there's something that might be even more powerful that you can do …
Takeaway number 4: Rooting Your Habits in the Deepest Layers
There are three layers of change: Outcomes, processes, and identity.
We've concluded that processes, or systems, are more powerful than outcomes, or goals,
but the most powerful habits have their roots in the deepest of the layers; identity.
Here's an example.
“I'm trying to quit smoking.”
“I'm not a smoker.”
Which one do you think is more powerful?
Another one:
“I want to save $20,000.”
“I am an investor.”
It's one thing to say that you want this,
and a whole other story to say that you are the person who is this.
People hate contradicting themselves to such a degree that sometimes
they can become completely blind even to facts,
just to stick with a certain identity or belief that they've built up over the years.
Therefore, you want to choose your identity and beliefs carefully.
Habits and identity are a two-way street.
Imagine that you have jars of multiple characteristics inside of yourself,
some of them even contradicting.
Every time you choose a certain action,
you are casting a vote for one of these characteristics.
This makes some future actions more likely and other actions less likely.
Therefore, we cannot talk about these things in a vacuum.
Habits and identity live in a constantly reciprocal relationship.
Suppose you wish to strengthen your identity in a certain area.
In that case, one of the most powerful things you can do
is to join a community where many people share the beliefs you are aiming for.
Takeaway number 5: 80% Exploit, 20% Explore
Machiavelli said that:
“Men desire novelty to such an extent that those who are doing well
wish for a change as much as those who are doing badly.”
Habits have a certain weakness.
They lock you in on a given path.
If you are not satisfied with where you are right now,
chances are that you need to push a little bit to change things up.
Meanwhile, if you are content with where you are,
you needn't change much – repeat what works!
However, as Machiavelli says,
even people on an obviously successful path will eventually reach an obstacle – boredom.
Boredom is the enemy of habits that move you in the right direction.
Sooner or later, these habits will lose their shine,
just like that shirt you used to love,
now hanging in the back of your wardrobe.
It's still a nice shirt but …
you need novelty.
James Clear suggests that there must be a balance here.
If you are going where you want to
exploit, or repeat what works,
80% of the time
but do not forget to explore for the remaining 20%.
This is a great way of stopping yourself from fiddling with the 80%!
For an investor it could look something like this.
Maybe you've been a successful index investor for a while,
but you're getting bored from just automatically transferring
a certain portion of your salary into the same old index funds every month.
Then take 20% of your capital and try some individual stock picking.
This doesn't just combat boredom.
It's also a chance for improvement.
Take Google.
Incredibly successful company,
with many successful products.
No matter, employees at Google are encouraged to take one day a week
(20%)
to explore and seek out,
just … what they find interesting.
By doing this, the company has invented many new great products, such as AdWords and Gmail,
and I think a similar approach can help you and me to become more explorative too.
- Stack a ton of 1% improvements on top of each other,
and you'll see remarkable results over time
- The score takes care of itself when you have a proper system in place
- If you are having trouble sticking to a certain habit or a system of habits,
the answer lies somewhere in the cue, craving, response, and reward loop
- Making behaviours a part of your identity
is to root them in the deepest of layers
- Repeat what works 80% of the time and renew yourself the remaining 20%
Next up, you may want to check out this video.
The 3rd takeaway contains 12 financial ideas
that you probably want to create habits around.
Cheers guys!
