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Create Better Money Habits in 2014

Kimberly Palmer

Chances are, you've set some money-related New Year's resolutions for yourself this year. According to the Fidelity 2014 New Year Financial Resolutions Study, which sampled 2,027 adults, an all-time high of 54 percent of Americans are considering financial resolutions this year. (By comparison, back in 2009, just 35 percent of respondents said the same.)

According to the survey, Americans are focused on savings goals (both short- and long-term). Paying off debt, spending less money and developing a long-term plan were also among the most commonly mentioned goals. The median annual savings goal came in at $2,400.

If you're looking to meet those types of goals in your own financial life, you might want to consider the findings of Charles Duhigg, author of "The Power of Habit: Why We Do What We Do in Life and Business." Duhigg, a New York Times reporter, found that shifting habits involves a neurological process.

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"In the last 15 years, we've learned that every habit has three components. There's a cue, or a trigger for the behavior to start, then the behavior itself, and then the reward. That's how the neurology learns how to encode that behavior for the future," he says. Changing a habit, then, involves focusing on that cue and reward.

If you want to establish a running habit, for example, you can add a "cue" to your day: Put on your running shoes before breakfast, for example, or keep your running clothes next to your bed. The point is to have some kind of "trigger" that your body connects with the new habit.

Then, you want to reward that habit, Duhigg explains. After your run, do something pleasurable, such as eating a piece of chocolate or taking a shower. "There has to be some kind of reward at the end," he says. That reward doesn't have to last forever, since exercise feels good in itself, but for the first few weeks, a tangible reward afterward can help cement the new habit.

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"Within six weeks, the person will stop eating that chocolate and the brain will latch onto the internal rewards, but first you need some type of external reward to retrain your brain with the reward it enjoys," Duhigg says.

Changing a bad habit also works the same way. "You need to diagnose the cue and reward, and then change the behavior. Once the habit is established in neurology, it is almost impossible to eradicate and takes huge willpower," Duhigg explains. That means instead of simply saying, "I'm going to ignore the bad habit and come up with a new one," you need to look for a new behavior that can be triggered by those old cues that gives you a new reward.

For example, if you want to stop smoking after meals, you have to do more than simply tell yourself to stop smoking. Instead of reaching for a cigarette after your morning bagel, have a large coffee. That way, you'll receive a similar energy reward, which will make it easier to give up the smoking addition. "You're overriding an old habit," Duhigg says.

[Read: 25 Ways to Improve Your Finances in 2014.]

Habits can take a range of time to change - some deeply ingrained habits take longer than others, Duhigg says. "But the process is accretive; every single time you do it, the pathway associated with it becomes thicker and easier for the current to run down, so it's easier as it goes on. At some point, it will feel automatic," he adds.

And habits are incredibly important to our daily lives. Duhigg cites a Duke University study that found that 40 to 45 percent of our daily activities are governed by habits. We all only have so much willpower, so shifting habits to make behavior automatic is the easier way to go. "Habits make these behaviors automatic and effortless," Duhigg says.

Duhigg used his own techniques to give up his daily cookie addiction. He started exercising more, which he describes as a "keystone" habit that can make changing other habits easier, too. He soon stopped eating cookies and lost weight.

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