Typically, we want to focus on the good habits we do and improve further on them. Of course, these are good things to know about like managing your money, budgeting, and so much more. Although we try our best to stay on track, the reality is it will not always finish the pathway. Our brains have developed to have a certain way of perceiving and understanding things. Our brains have default habits and modes it follows which can get in the way of even the most knowledge and objective people’s finance. It tends to steer away from logic and make us choose worse options even though we hold the information to do better. With the right precautions, we can teach you how to outsmart your brain.
To start, hyperbolic discounting is when there is a temporary discount for our preferred immediate over future rewards. We value something more that happens now rather than waiting for it in the future. Credit cards are one of the prime suspects of this action. We purchase an item we might not be able to afford using our credit card, which can potentially risk us from spending more in the long run due to the interest rates. Little spending habits we do not tackle early can snowball into a horrifying issue. It is so important for us to practice thinking of ourselves in the future. It is much easier to imagine yourself in the present because we live in it right now. Imagine yourself in a week, a month from now with that purchase and see how it enriches and creates freedoms in your life.
Status Quo Bias
We practice many habits we are comfortable with. When we are in an awkward situation, our brain tends to go back to its normal habits to decrease the uncomfortable feeling. Making a financial change in our life is scary at times, especially when we know it is not good for us. It causes us to be hesitant to decline or negotiate because we are not familiar with performing these actions. Much of the population tend to stay at their job much longer than we should switch jobs to make more money. People get their biggest bumps in pay when they go outside of their current job and move up the ladder. It might feel uncomfortable to leave the places to know but finding the courage to do so can be uplifting.
Being aware of how your brain can default to certain habits can help you ensure you will not be making the same mistakes again and again. These practices can help improve anyone’s financial relationship, but it will not happen overnight. Practising it time by time can help you stay aware of your behaviour and making a good change to them.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.
Relevant Links: Temporal Discounting, How to discipline your mind in spending money