How to create self-discipline when it comes to money

If you want to reduce debt and increase savings in 2019, take some simple steps now to make it easier to reach your goals.

How to create self-discipline when it comes to moneyMany economists and psychologists have made careers out of trying to understand why we make “bad” choices, which we invariably regret.

We know if we want to lose weight we need to eat less and exercise more, and we know that in order to grow wealth we must spend less and save more. So why do we give in and buy the chocolate bar at the counter when we purchase our groceries, or whip out our credit card for the latest smart TV, or purchase a car with massive monthly repayments, derailing our financial plan?

This is because we all suffer from something called “present bias”. This means we place more value on the present than the future, so our present happiness or gratification is more important psychologically than future happiness.

But what we do know, is that the further away we are from an actual event, the better we are at making the “healthier” decision. Psychologists conducted an experiment to prove this by telling a group of people that they were going to have a meeting in a week’s time and could select a healthy snack such as a banana or an unhealthy snack such as a chocolate.

Nearly three-quarters of the group asked for the healthy option. On the day of the meeting, however, they were told that there were enough bananas and chocolates, so they could choose either. Almost everyone took the chocolate.

But what if you couldn’t change your mind on the day? What if you could set your healthy intentions upfront and have them enforced, protecting us from “present bias”? What if we could make our well-intended New Year’s Resolutions last past February?

What we need to do is to commit to something in the future when our resolve is high and make sure we cannot change that decision too easily once present bias kicks in. While you are still in a positive frame of mind, do the following:

  • Cut up your store cards – the hassle factor of applying for another one will make you think twice.
  • If you want to have paid off a loanby the end of the year, calculate how much you need to pay in each month and set up a stop order which goes off the day your salary hits your account – you cannot spend money you don’t have.
  • Put a file together with all your FICA documents (copy of ID, utility bill, bank statement) so that the paperwork is handy when you want to open a savings account.
  • Put a stop order or debit order on your account that immediately goes into savings, before you spend it.
  • Ask your HR department to increase your pension contribution by an additional 2 precentage points with your next salary increase. In other words, if you currently contribute 10% of your salary to your retirement fund, increase that to 12%. You will still have extra money from the salary increase but a portion of the increase is boosting your retirement savings.
  • Include an automatic annual 10% escalation on any savings plan.
  • If you go “window” shopping make sure you leave your cards at home – most of us are not able to resist the temptation to buy.

This article first appeared in City Press.

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