MP Dunleavey

Uncommon Sense

7 stages of lasting financial change

How is changing your financial habits like dancing? Sometimes you have to repeat a few steps. But the secret to ultimate success is not giving up.

By MP Dunleavey

Editor's note: Columnist MP Dunleavey and seven other women have come together online to strip away the myths surrounding money, speak frankly about their finances and liberate themselves from debt. Follow the quest for financial fabulousness of these Women in Red every other Monday in Dunleavey's column on MSN Money.

Everyone joined the Women in Red with the same fervent desire: to tackle a financial issue or make progress on a particular money goal.

But it's pretty clear that desire -- even when it's precipitated by a crisis, like Lyndsey's or Stephanie's (or my own) giant debt burden -- doesn't immediately translate into actual change.


As someone who is always looking for the secret to financial progress, I decided to do a closer analysis of this mysterious process, based on my experience with the group -- and on the research of James Prochaska, Ph.D., co-author of "Changing For Good" and a leading authority on how and why change occurs.

The process of change

I have mapped out the natural progression (or lack of it) that the Women in Red seem to go through as they've tackled their financial issues.

1. Panic: Often accompanied by feelings of nausea, helplessness and depression. This is the moment when you realize, "Wow, I'd better deal with these money issues."

2. Determination: You pull yourself off the couch and resolve to take some action, make a plan. Just as soon as you finish that last spoonful of chocolate-chip raspberry caramel swirl.

3. Cluelessness: Plan? What plan? You realize you don't have a plan. So you buy a personal finance book, log onto a Web site, take a class, call your mom or join the Women in Red (always an option).

4. Confidence: You've developed a financial strategy and taken the first successful steps toward fixing your problem. You realize, "Hey, I can do this! I'm going to be OK!"

5. Despair: You relapse, lose focus, return to your old ways. You think, "I'm a failure, so I might as well take out my credit card and have some fun, because clearly I'm not cut out for financial sanity anyway."

6. Renewed faith: You discover that backsliding is only temporary and work at restoring your momentum. You pull out of your financial funk, polish up your plan and get back in the saddle.

Note: Most people repeat steps 4, 5 and 6 several times before breaking out of the loop and moving to …

7. Success: After many months, maybe even years, you finally get the hang of making happy and healthy financial choices. Some days it feels natural, some days it's a struggle, and sometimes you may slip up. But overall you're able to sustain the kind of financial life you've always wanted.

We are only human

Thus far, I have to admit, most of the gals in red are stuck in the 4-5-6 loop.

  • Lyndsey and Stephanie really want to get out of debt. But it's hard for them to stick to the necessary lifestyle changes that would help them spend less and save more.

  • Carole joined wanting to save money for a down payment but not knowing how -- and now she's doing it.

  • Brice has gone missing, and I wonder if it's because, when last we spoke, she was having trouble with step 4 (i.e. making a plan that would work for her).

Not that I would judge anyone for getting stuck in quicksand on the way to financial sanity. I have my bad days like everyone else.

But the main thing I've learned, and what Dr. Prochaska's research supports, is that change never looks perfect. It's always messy, hard, uncomfortable. The only secret, really, is not giving up.

How change works

Prochaska has studied tens of thousands of people as they attempted various life changes, e.g. quitting smoking, giving up drugs, getting out of debt, etc. He says financial problems are no different than any other negative pattern. "They're all habits, and habits are hard to break."

According to his work, people reliably pass through five stages when they change successfully:

  • Precontemplation. You might be aware you have a problem, but you don't plan to do anything about it.

  • Contemplation. You know there's a problem and you really want to do something about it, but you haven't committed to action.

  • Preparation. You've resolved to tackle the problem and you're creating a plan.

  • Action. You change your behavior, environment, experiences, relationships in order to overcome the issue.

  • Maintenance. You sustain your efforts and try not to succumb to old habits.

Mistakes and misconceptions

One reason you, me and the Women in Red get stuck, Prochaska says, is that we don't understand how change really works. A big misconception is that it's all or nothing, he says: "Either you take action or you don't."

This black-and-white scenario leads people to feel, mistakenly, that there are only two options: Either you take action and succeed -- or you fail. For that reason, Prochaska prefers the word progress rather than action. "Progress IS change," he says.

In other words, change isn't an upward diagonal line on a graph. It's more like a squiggle -- with ups and downs, hiccups and pauses and lots of small but steady steps forward, despite bad moods and bad weather and a tax refund you accidentally decide to spend on a Mini Cooper.

Weigh the pros and cons

In my experience, recognizing that all the small measures do add up is particularly hard in the financial realm. Debt takes years to pay down. It takes decades to save for retirement. Just getting financially organized has taken me several months -- and counting.

On top of which, life intervenes, throwing a wrench into the best of financial intentions -- as Stephanie discovered when she moved into a new apartment, or Beth when she lost her job.

So how do you stick to your financial resolutions, even when you stall, even when the barrage of sale catalogs in your mailbox seemed designed to derail you?

Let your priorities be your guide

Sustained financial progress requires an awareness of something Prochaska calls the "decisional balance": i.e., being aware of the pros and cons of changing.

He says it's important to write down what you stand to gain -- and what you have to give up -- in order to make the desired fix in your financial life. The key to successful change is being aware of how your internal set of pros and cons influences each of your choices.

Beth, for example, has been so focused on the payoff of having a secure retirement that this priority has outweighed the difficulties of cutting back her lifestyle to save more.

There is no 'right' answer

Another fascinating insight from the research on change is that one technique is as good as the next. There are dozens of different ways to quit smoking -- or manage your money. One isn't better than another in terms of guaranteeing the success of your efforts.

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What works is the effort itself, moving forward, messing up, keepin' on keepin' on, as they say.

As the "leader" of the WIR, I sometimes fret that the gals aren't making enough progress, that they aren't taking their financial lives seriously. I wonder if there's more I can do.

Then I remember that I've been trying to make progress for four years now. All I can do for my financial sisters is tell them what I've learned: Every step counts.

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