We spend too much and don’t save enough. We pay interest on credit cards. We buy shares in GameStop Corp. at the top of the market. We are, in short, human. Fortunately, there are hacks that can help us get our financial lives under control with minimal time and effort. Here are tricks for beginners:
Use your birthday. People often assess their lives and make new commitments on their birthdays, so it’s a “beautiful opportunity” to make changes that are short-term annoying but long-term beneficial, says Katy Milkman, a professor at the University of Pennsylvania’s Wharton School and author of the forthcoming How to Change: The Science of Getting From Where You Are to Where You Want to Be.
Save a few bucks every day. People are more willing to save $5 a day than to save $150 a month, even though it’s the same amount of money, according to research by behavioral scientist Shlomo Benartzi and others in cooperation with the robo-saving app Acorns.
Picture yourself in a hot air balloon. When you’re up in a balloon, you see farther, right? Believe it or not, after people visualize themselves in a balloon, they tend to make more far-sighted financial decisions, preferring large, delayed gains over small, immediate ones, according to research by Pankaj Aggarwal of the University of Toronto and Min Zhao of Boston College.
Turn inertia from a liability into an asset. Once you start making 401(k) contributions, they continue unless you stop them. You can likewise automate contributions to other accounts, such as a rainy-day fund, says Aline Holzwarth, a principal at the Center for Advanced Hindsight at Duke University.
Get instant feedback. You can set up budgeting apps such as Intuit Inc.’s Mint to send alerts when you’re spending more than you intended in a particular category. Sometimes all it takes to change your behavior is a nudge.
Compartmentalize. Standard finance theory says it’s dumb to mentally compartmentalize your spending or saving since money is fungible. But in the real world, it works. Put your savings account in a different bank so it’s harder to siphon money from it into your checking account, or relabel it “emergency fund” so you’re less likely to touch it, suggests the Center for Financial Planning Inc.
Cool off. Before you make that impulse purchase, leave the store—or website—and take a little walk. (Or take a ride in a hot air balloon.) As an investor would, you can set up a “self-control contract” with a cooling-off period to keep you from your worst instincts, writes Daniel Egan, director of behavioral finance and investing at investment adviser Betterment LLC.