How Understanding The Stages Of Change Can Help You Transform Your Financial Life

I think we can all agree that change is not easy. There can be so many factors that contribute to the habits and routines that we have set up in our lives that often those habits become an automatic part of how we live and who we are. Rarely do we even think about questioning them.

The Stages of Change Model (formally known as the Transtheoretical Model of Change) introduced by Prochaska, Norcross and DiClemente has opened the door towards understanding the psychology of behavior change from the perspective of biological, psychological and societal factors. This model has demonstrated that change progresses through 5 distinct stages before it’s made permanent. Understanding these stages of change and how they relate to our financial life can provide us with an awareness of what stage we might be in for a given financial goal, allow us to give ourselves credit where it’s due, and help us identify strategies that we can implement to help us move forward with those changes so that we can live our best financial lives.

Stage 1 – Precontemplation

Also known as “denial,” this is having a lack of awareness that a problem even exists. This stage represents a change that is needed but due to your unawareness or your unwillingness to question a particular habit or mode of thinking, you are unable to begin taking the next steps to change. For example, if you are tired of living paycheck to paycheck but have no serious plans to review your spending habits, you might be in the precontemplation stage.

What you can do if you’re in this stage:

Identify your goals and values: Start with listing your financial goals and aspirations and write down why achieving them would be important to you. What would it mean to accomplish those things, how would it feel, and what would it do for you and the most important people in your life?

Know where your money is going: From here, create a list of how you’re spending your money. Try to get an average for the last 3-6 months so that you capture the periodic expenses and the occasional upticks in spending. I think writing it down is the most impactful way to do it, however some individuals prefer a spreadsheet like this or using apps like these. Choose whichever approach creates the least friction towards progress!

Increase your awareness: Start asking yourself if your spending is aligned with your goals and aspiration. Then let those thoughts about your spending marinate.

Stage 2 – Contemplation

Congratulations! You have made progress towards having an awareness of change that is needed and are beginning to understand how that will benefit your financial life. In this stage, you also establish an intention to make a change. However, you may have some ambivalence as you weigh the benefits of changing with the benefits of keeping things as is. For example, you want to save and build an emergency savings so that you don’t live paycheck to paycheck or go into debt, but you love to be able to spend whenever you feel like it.

What you can do if you’re in this stage:

Think about your future self: Think about what will happen in the future if you don’t make a change. What will that future you feel and look like and how will it impact the most important people in your life? Then think about what happens if you do implement the change.

Begin taking small steps that start setting you up to act. For example, if you know establishing an emergency savings is important, take an initial step to open the account. (Check out a site like for ideas.)

Stage 3 – Preparation

You have progressed through 2 of the 5 stages, and these can be the MOST difficult. Take a moment to be proud of this accomplishment. You have now clearly identified the things you want to change and have made changing them a high priority. You’ve now started to think about and plan on ways to make the change happen. Perhaps that is downloading an app and beginning to track your expense or it’s determining what lower cost alternatives there are to eating out or other high-cost areas of your budget.

What you can do if you’re in this stage:

Create a plan of action: Map out what you are going to do to begin making progress on your financial goal. For example, if your goal is to pay off debt, use a debt reduction calculator like this one to explore debt repayment options and decide on the approach you want to take. If you’re ready to increase savings, select an approach to track and review your expenses and begin selecting the alternatives you plan on putting in place, areas you plan on cutting back on, and/or parts of your budget you’ll look to negotiate or compare shop for.

Anticipate triggers: This is also an important time to plan on how you will deal with the triggers that tempt you towards a particular financial habit. Triggers can occur in a certain environment, during a particular mood, or with certain people.

For example, if you notice that your spending spikes whenever you hang out with a certain friend or group of people, first try reducing the number of times you hang out or try setting a spending budget for each outing. Carry a reminder of your financial goal/aspiration on a note in your phone or post it and look at it before you go out or whenever temptation strikes. This additional step can go a long way to interrupt the trigger/impulse connection.

Stage 4 – Action

At this stage, you have made the commitment of time and energy to actively put your plan into action. You have begun implementing the steps in your preparation plan and can “see” your progress.

What you can do if you’re in this stage:

Seek guidance: This is the stage where you may actively look for guidance from a qualified personal finance professional such as a CFP® certificant or an experienced and qualified financial coach through your employer-provided financial wellness benefit. Some employer-provided employee assistance programs (EAPs) might offer you access as well. Help from an individual like this can provide you with support and encouragement in addition to helping you breakdown your plan of action into small digestible steps.

Be aware of relapse: Implementing change can get overwhelming. As a result, relapse is common during this stage. Remember, it is a normal part of the change process.

If you relapse back into a habit you’re trying to change, don’t become discouraged. Instead, look to learn from it each time it happens. Think about how you can address it better next time. Then apply these learnings as you refine your approach and keep trying. Taking action is not a one and done deal. It takes practice, failure, and grit to make it permanent and if you’ve gotten this far, you will get there!

Stage 5—Maintenance

This is the stage where your new financial habits are now part of your normal routine. You’ve been able to cope with temptations and can get back on track with relatively few issues, even after temporary relapses or setbacks.

What you can do if you’re in this stage:

Celebrate: After all these efforts, you have now incorporated lasting financial change that is set to permanently improve your life!

Be mindful of major life events: At this stage, the biggest thing that can shake your foundations is a major life event. Going through a divorce, starting a family, a death in the family – any major life change can create a trigger that can lead you back into counterproductive financial habits. Be prepared to speak to someone to help them guide you through this difficult period so that you can continue along your financial life change journey.

Change is always possible

Change takes time and effort. Understanding the road ahead can help you embrace the journey and celebrate the ups and downs that are part of the process. My hope is that understanding these stages of change can empower you to know that change, especially in your financial life, is always possible. If you need a little help, whichever stage of the process you are in, don’t hesitate to reach out to someone like a qualified financial professional or an experienced and qualified financial coach offered to you by your financial wellness benefit that can help support and guide you along the way.


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