Some examples: "I only buy used cars," "always take your tax return to the bank" and "I deserve to shop online after a hard day at work." As you can see, some heuristics are better for your finances than others.
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Why It Works
: If you're conscious about adopting helpful heuristics, they can be powerful enough beliefs to override bad money behavior. Case in point: "Banking raises, if it becomes a habit, helps us avoid being tempted to spend the money, when we'd rather save it," says Dr. Shefrin.
If you have bad money habits that you'd like to improvefrom getting zinged by bank fees to overspending on giftscome up with a specific heuristic to help you combat each one. Psychologists have found that we tend to feel poorly about ourselves for breaking the rule, even if we created it. Weird, but helpful.
2. Make Saving a No-Brainer
How It Works: In an experiment called Save More Tomorrow, employees were asked to save more for retirement by signing up for a 401(k), then voluntarily increasing contributions by a set amount every few months. The results? Over the course of 28 months, the average participant's savings rate jumped from 3.5% to 11.6%.
Why It Works: By having the money come directly out of their paychecks, before it hit their bank accounts, the participants never missed the money. Essentially, they bypassed the portion of their brains that loves temptation and activated the slow-thinking region that promotes self-control.
While they could opt out of upping their contributions at any time (so they didn't feel trapped), what happened instead was a phenomenon called "status quo bias." In layman's terms, it's a tendency to keep doing what we've always done. In this case, it benefited the people in the experiment because they continued to participate in the plan.
You, too, can apply this bit of trickery to any savings goal. Simply pick a start date, set calendar alerts for set times when you want to up your contributions, and then sit back and watch your balance grow. Certain banks and brokerages will even automate the process for you by letting you program a percentage amount by which you can increase your contributions over time.
3. Pick a Planand Stick to It
How It Works: Have debt to pay off? There's a way to outsmart your brain here too. In another experiment called Borrow Less Tomorrow (it came to be after Save More Tomorrow was such a smashing success), people with debt were put on a three-pronged program to help them pay down their balances.
First, they met with a member of the program's staff who advised them on several different repayment strategies, including "accelerated" plans that would up the amount that they paid off by a little each month. Then they corralled a buddy (or three!) who'd send them monthly reminders to keep them on track.
At the end of 12 months, 51% of the people who'd adopted a debt repayment plan were on trackand 41% of them had used an accelerated plan to pay down their debts faster.
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Why It Works: Researchers chalk the success up to three factors: choosing a particular plan, committing to the idea of allocating a certain amount to repayment each month and engaging peer support (read: those telephone or email reminders from friends).
Once again, effort trumped any underlying genetics: "Good habits do end-runs around the parts of our personality that give in to temptation," explains Dr. Shefrin.
It's easy to emulate this on your own: LearnVest's Money Center allows you to set a financial goal and then calculate how long it will take to reach it, depending on how much you put toward that goal each month. With any Chase Blueprint® card, you can also select a repayment plan that will show you when you'll reach a zero balance. Recruiting a friend to act as your financial conscience? Well, that's simple.
4. Spend on Your Best Self
How It Works: To make your money behave the way you want it to, you need to first decide who you are and then make your budget obey that identity. Perplexed? Let us explain.
It can be hard to just "save" blindly or "not spend so much" when you don't have a larger goal driving you. But if you're someone who believes that providing for your children is important (like this mom, who sayspaying for her daughter's college is her ultimate financial goal), you'll be a lot more likely to make financial decisions align with your principles.
RELATED: The Life You Have vs. The Life You Want: Do You Spend on Your Imaginary Self?
Accomplishing this is a cinch: In the Money Center, we break down your budget into three essential categories based on the50/20/30 rulebut you have free will when it comes to creating and naming the folders that describe your saving and spending. So if owning a house is important to you, designate a "dream home" savings folder. If being physically fit is your top priority, christen an exercise savings folder to reflect that goal.
Why It Works
: "If we identify ourselves as responsible, and take pride in living up to the virtues associated with that identity, then we activate reward centers in the brain associated with goal achievement," says Dr. Shefrin.
The other helpful factor: Humans have a desire to see themselves in a certain light, and we'll reject anything that conflicts with that reality. It's a phenomenon known as identity reinforcement theory. In other words, you can override bad money behavior by adopting good habits that reflect the person you really want to be.