The human brain is amazing, taking in millions of bits of information a day and turning that into the life we experience. In relation to money, goals, fitness, etc., your brain weighs hundreds of choices to help you pick the best one.
But the brain is also capable of making poor choices seem better just because of how your brain can understand reality and time. Learn the five ways your brain is doing its best to trick you into wasting your hard-earned money so you can avoid them.
1. The future is a hazy place
Your brain is truly wondrous at helping you experience the present – the now. It has a much harder time considering positive things (rewards) vs. negative things (consequences) when they are well into the future.
This situation has the fancy name of hyperbolic discounting, and it just means that you think less of a reward or consequence the longer you have to wait for it to happen.
Here are a few examples:
- It’s been proven time and again that it’s easier to spend on a credit card than with cash. The payment for the credit card is next month, and you want the item now. The consequence is not as big of a deal to you as it would be to hand over the cash now.
- You take out a mortgage that you can only afford in the first year and get behind when the rates go up a year later.
- You want the reward of looking fit now and quit the gym after a month because you cannot wait the 3–6 months to see the changes.
- You lose your job and are offered a replacement the next day. It’s not great, but taking a month to finding something better seems too risky, despite your six-month emergency fund.
- It’s more appealing to take a vacation now than save for retirement.
To combat this problem, you can consider a situation and pretend the reward or consequence is happening today or tomorrow instead of further along.
- Do I want to buy this if I have to pay the credit card bill this afternoon?
- Would I take this mortgage or car payment if the payment went up tomorrow?
- Would I quit working out if I would look amazing tomorrow?
- Would I take this job if a better one was available next week?
- Would I buy these fancy electronics, new TV, or car if I was going to retire next month?
2. Your brain thinks of yourself as TWO people
This seems really weird, but our brains think of us in the now as our present self. When scans are done of the brain thinking about ourselves in the future, it lights up the same regions of the brain that light up when we are thinking about someone else.
You can read about this in detail in Kelly McGonigal’s book, “The Willpower Instinct.” You reward your present self a lot and put off hard work or negatives on the stranger who is our future self.
- Present Katie is going to eat this cake now, and Future Katie will go to the gym and work it off.
- Present Matt is not going to save now because Future Matt will start saving in five years.
- Present Laura wants to buy these shoes now, and Future Laura will not buy anything for three months.
The way to combat this mistake is to imagine in detail the future you and see that person as your true self.
- Is Future Katie really going to work off six hundred calories at the gym tomorrow? Because I certainly wouldn’t want to do that today.
- Where is Future Matt going to get the discipline to save if I don’t have that discipline now?
- Is it truly reasonable to think I won’t shop for three months?
No, I don’t want to put up the laundry now, but I doubt Future Katie will either, so I might as well get it done.
3. Your brain doesn’t want you to waste money you’ve already spent
Your brain thinks of the money you spent – which is money you no longer have access to – as something we have invested vs. something that is gone.
It tries to make sure you use this investment and has a harder time realizing it is gone and shouldn’t influence our decisions nearly as much as it does. We end up spending more money, time, emotions into situations to “save” the money, time and emotion we’ve already spent.
Here are some examples:
- I joined the gym and bought $300 in new shoes and gym clothes. I hate the gym and never want to go, but I keep the $35/month membership because I’ve already “invested” in the shoes and clothes.
- I have dated Amy for three years, and I don’t think she is right for me. But if we break up, I’ll have to start over and lose three years of getting to know someone new.
- I bought an iPhone, so now I should upgrade my computer to a Mac, and why not get Apple TV while I’m at it?
- I’ve invested $50K into this new product design at work. It doesn’t work and is a mess, but if we stop working on it, we’ll lose that $50K.
- I started a new business that isn’t making money and am close to going broke. But if I stop working on it, I’ll have wasted the last two years of my life.
Think of the situation from a perspective of going forward.
- I don’t go to the gym like I thought I would so I’m going to cancel the membership and resell these clothes.
- Amy isn’t right for me. I’m going to make a clean break and find someone who is.
- I bought an iPhone, but that new Dell laptop is amazing and half the price of a Mac.
- I’ve invested $50K into a new work design, and it isn’t working, so I’m going to cancel the project and start fresh.
- This business I started is about to make me go broke. I need to find a job that pays so I can save my house and provide for my family.
4. Your brain thinks price = quality
While we managed our last company, my husband and I argued over product prices all the time. I had read that your brain equated price with quality and was always fighting my husband over his desire to lower prices.
Our products were a great quality at a very moderate price. We often got calls into customer support with people asking if they really got X, Y, and Z for the one price because they couldn’t believe something so inexpensive could be high quality.
This happens with price as well, we naturally assume a $40 bottle of wine is better than a $12 bottle.
This happens in many situations:
- Those jeans can’t be as good as regular ones because they are being sold at the outlet store.
- The off brand spaghetti won’t be as good as Bertolli.
- I need the couch from Ethan Allen because they sell higher quality furniture.
- I only shop at Target because everything from Walmart is terrible.
I could go on and on with examples of how we fall into ruts thinking that if something is cheaper or doesn’t have a brand name, it’s just not as good.
In some rare cases, this might be true.
But in many cases, we are paying more so that the company can market and advertise to us, or we believe our ego needs certain things to be happy.
5. Our brain thinks we DESERVE it
According to the American Psychological Association, willpower is a limited resource, and it can be depleted. Many of us think it would be easier to save, spend less, or live healthier if we only had more willpower.
Researchers think that willpower can strengthened but also admit that as a day goes on, the more temptations you turn down, the less likely you will be able to turn down the next temptation.
We get into a mode where we deserve something because our days are hard, or our life has been stressful. Here are two examples of days when your willpower will be lower than normal.
- Despite loving to sleep in, you got up early Saturday and went for a torture session called a jog. You got home and spent two hours cleaning and doing laundry. Your afternoon is stressful because you had to do some studying for a test Monday. A friend calls with plans for an expensive night out you can’t afford, do you go?
- This morning you passed on muffins in the office, you also pass on your co-workers birthday cake and instead eat five almonds for your afternoon snack. You run several errands and arrive home starving. Your husband suggests a night out at a Tex-Mex restaurant. Do you feel like sticking to your diet?
Think about paying for that crazy night out when you want your savings account to grow instead. Envision withdrawing all the cash from the ATM to pay for it, then maybe suggest your friend come over for a movie and a $10 bottle of wine.
Think about Tex-Mex for dinner and getting on the scale the next day. Eat out, but maybe order two things à la cart with a skinny margarita instead of letting yourself get crazy.
Now that you know these things can happen use them to evaluate choices and decisions with the knowledge that your first thought might not logical or good for you in the long run.
Don’t let your brain’s desire for now get in the way of a great future. Your future self will thank you!
Question: How has your brain tricked you into making poor spending decisions? Please leave a comment below.