Trick Your Mind Into Spending Smarter
Let’s be real — no matter how well you try to budget each month, you almost never manage to feel confident about reaching your financial goals. And the stats paint an even bleaker picture. Even if you set a budget, it’s pretty hard to control spending when the impulse to buy hits. In fact, millennials are 52 percent more likely than any other generation to make impulse purchases.
So how can we improve our spending in a way that actually works? The key is to trick our minds. Yes, it sounds like magic, but it’s based on science. Want to tame your spending habits and have more cash in the bank? These hacks and tricks are all you need.
1. Protect your stuff (and your home).
Most of us put off adult responsibilities like getting renters or home insurance because they sound boring and time-consuming and, frankly, like a total pain. But think of all the unfortunate things that could happen to your stuff when you travel, on your commute to work, while hosting a party or even when you’re just sitting in a cafe. Theft and water damage happen — and more frequently than we’d like. The problem is that when we don’t have insurance covering our stuff, we have to buy a new laptop after someone swipes it or save for a new TV after a leaky roof ruins it.
So why do only four out of 10 of us have an insurance policy that will protect us and our stuff? According to Dan Ariely, a leading professor of behavioral economics at Duke University, your run-of-the-mill procrastinator simply struggles with misaligned incentives between short-term rewards and long-term goals, favoring short-term feelings over their future selves. Studies back this up. Poor financial choices like being uninsured are associated with high levels of in-the-moment-living. Combine this with the fact that the strongest predictor of smart financial decisions is not our level of financial literacy, but rather how often we stop to think about the future.
It’s difficult to think about our future selves. Our brains exhibit the same neurological activity when thinking about our future selves as when thinking about a complete stranger. They just don’t understand. Long story short, when you’re given the choice between new sneakers or keeping your stuff protected, you’ll probably go with the shoes because something bad happening seems foreign to you. So do yourself the favor and get your belongings covered. With companies like Lemonade, policies start at just $5/month and you can be covered in 2 minutes.
2. Recognize the consequences of your spending.
When making a purchasing decision, especially an impulsive one, it’s difficult to imagine the opportunity cost. Say you’re at the supermarket and there’s a really great wine sale. In the moment, you probably won’t realize that buying two bottles of wine means spending less money when you’re out with friends later. So how do we trick our minds into recognizing the consequences of our spending? Lemonade Chief Behavioral Officer and renowned behavioral economist, Prof. Dan Ariely, says we need to label our goals and anti-goals.
“There’s a trick we call goals and anti-goals,” explains Ariely. “Take two domains of — let’s say grocery shopping and dinner out with friends. Tie them together. If you spend more on one, you spend less on the other.”
Put this concept into practice. Say you decide on a $500 budget to cover your groceries and dining each month. Toward the end of the month, you’re invited to dinner with some friends. Will that outing fit into your monthly budget? If you have enough food to hold you over until your next paycheck, then go for it.
Now, imagine yourself back at the grocery store, with your cereal and bananas, eyeing this exciting wine sale. But this time, you recognize that the money you spend on the wine will mean one less sushi dinner out with your roommate. Will you be just as tempted to buy the wine? Probably not. By pairing domains together, you can trick your brain into remembering the opportunity cost of each additional purchase.
3. Cut back on one category or activity.
Professor Ariely says an easy way to cut spending is to simply ax things as a category. Telling yourself you’ll limit a certain type of expense eliminates your need to choose on a daily basis because the decision made itself. But how do you decide what to eliminate?
The key is to give up what will have the smallest impact on your happiness. Is it shoe shopping, going out to dinner, or taking Lyft? Ariely wanted to get to the bottom of it, so he conducted a study and found that participants mostly ended up regretting the money they spent while going out. Why? Because going out is expensive and we often wake up the next day regretting how much we ate or drank.
The bottom line: Cutting back on just one area of your life can make a serious impact on your budgeting efforts. But everyone is different. For some, cutting back on dining out is the best solution, and for others, going out for dinner is the highlight of the week.
4. Break bad habits.
We all have that one bad spending habit we just can’t shake. Whether you have to buy the latest gadget on Amazon Prime or can’t help but purchase that expensive cheese at the grocery store, bad habits can set back even the healthiest of budgets.
Imagine you have a habit of buying a large, double shot latte every day on your way to work. While the latte is the perfect boost to your morning, spending that extra $5 every day gets in the way of your spending goals. You want to cut the routine but just can’t muster up the motivation. So where do you start?
First, identify the behavior you’d like to change. In this case, it’s that you pass by the coffee shop, walk in, order the latte, pay and then enjoy it on your way to work. That was easy. Now, identify what that triggers this habit. Is it thirst? Boredom? Low energy? Time of day? Location? Once you figure out your habit loop, you can begin to shift your behavior by planning.
For example, if you know you crave a caffeine boost every time you pass by the coffee shop, find a different route to work or plan to bring a caffeine boost along on your walk so you’re prepared as you pass by the shop and the craving hits. If one small fix can save you a few dollars every few days, you’ll see the results add up pretty quickly. Correcting a bad habit will help you take better control of your spending and will allow you to splurge on what you love out of novelty — not routine.
With these quick brain tricks and hacks, you’ll get rid of that sense of dread when opening your bank statement. The secret to better budgeting is to simply trick your mind into feeling the impact of your spending each day and making sure you have protection (even if it’s preemptive, like renters insurance). It may be tricky at first, but we promise it’ll feel effortless down the line. Pretty soon, saving more money each month will be a walk in the park.
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