You can be your own worst enemy when it comes to managing your finances. You resolve to do better one week, and the next week you’ve sabotaged your finances and fallen off-track.
That’s where money hacks come in. They help you work with your psychology, rather than against it, to make better financial choices.
There are some simple, science-backed strategies that you can use to reframe your finances and make better money choices. Here are four life hacks to save money and help your decision making.
1. Follow the money advice you’d give a friend
When it comes to making tough financial decisions, it’s hard to be impartial. Our money choices are tied up in our own wants, emotions, and judgments. It can be tricky to get past all the personal stuff to make an objective, smart money decision.
That’s where money-saving life hacks can help. If you’re struggling with an area of your finances, for instance, one study from researchers at the University of Michigan found a solution. Distance yourself from your situation.
Based on three experiments, the study found that participants had wiser reasoning when it came to another person’s problems compared with their own.
This money hack means instead of obsessing about your financial issues, take a step back. Ask yourself what advice you would give to a friend, or even a stranger, in the same situation.
Maybe you’ll see the hangups holding you back are really just excuses. Or you might realize that you don’t feel you’d know enough about a financial topic to give friend advice and take that as a sign that you need to learn more.
2. Take a moment before making money choices
Money hacks can be very simple: Even just hitting the pause button before making money choices can be effective.
“Studies have shown that response accuracy can be improved by prolonging the decision process, to allow the brain time to collect more information,” according to a study from Columbia University Medical Center. That’s because the brain needs distraction-free time for the information-processing centers to work.
When you’re making a financial decision, your brain first collects information to base it on.
What’s the price?
What’s your budget?
Is it affordable?
What value are you getting in return?
Pausing and giving yourself a moment free of distractions or new information can give you greater clarity. This allows your brain to fully integrate and process the information. Then you can make a decision based on the most accurate information and analysis your brain has to offer.
3. Visualize your future self
Smart money decisions often comes down to making sacrifices today to benefit yourself tomorrow. But this delayed gratification is hard to pull off because your future self often feels abstract and distant.
Studies show that people tend to view their future selves similarly to how they view strangers or other people. However, people who connect to their future selves make more responsible choices, according to research from the New York University’s Stern School of Business.
In the study, some participants looked at images of themselves that were aged, while others looked at current images of themselves. Then they were asked to decide how to allocate $1,000.
“Subjects exposed to aged avatars put nearly twice as much money into the retirement fund as the other people,” said Hal Hershfield, an NYU professor who worked on the study.
You can imagine yourself five, 10, or more years in the future. Doing so will prime you to make wiser decisions that are will benefit your future self.
4. Switch to cash over cards
How you pay can also affect your financial decisions.
A study from MIT’s Sloan School of Management tested the hypothesis that credit cards increase spending. It found that “willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash.” The effect was pretty dramatic, with people willing to pay up to 100 percent more.
This is because credit cards make money feel less real and tangible than cash, making it easier and more painless to spend. Credit cards remove the natural limits on spending — like how much cash is in your wallet. These limits are replaced by an artificial credit limit.
Plus, credit cards are backed by marketing messages designed to get you to spend. Even a glimpse of a credit card logo can trigger a conditioned response to spend more, according to The New York Times.
That’s why many money-saving life hacks revolve around putting away the plastic and replacing it with paper. Leave your credit cards at home and remove saved credit cards from online shopping accounts. You can even go as far as to freeze your credit cards in a block of ice.
Switch to doing your shopping in-person and with cold, hard cash. It might require a bit of effort and planning, but it can go a long way in resetting spending habits. When limited to cash only, you’ll naturally be more frugal.
So the next time you find yourself financially stuck, try one of these money hacks instead. They can help you get out of a rut and do more with your money.
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Citizens Bank Disclosures
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