5 simple hacks to improve your financial health

You might hide the chocolate and sleep in your running gear when you want to start a new health habit. What are some similar behavioural hacks you can set up to get on top of your money?

Staying on track with our finances can be difficult at the best of times. But we may be making it harder than it needs to be by swimming against the current of our own psychology.

By better understanding the way we think about money, we can ultimately make some small, simple and powerful changes to improve our financial behaviours. Here are five simple hacks you can use to improve your financial health.

1. Introduce small frictions

Picture yourself at an auction, and up for grabs are two tickets to the Melbourne-based Boxing Day Cricket Test Match.

Before the bidding begins, you are told that you will be able to use your credit card in the event you win the auction. How much would you bid?

Now, imagine an alternate reality where you are told the winner will need to pay for the prize in cash. How much would you bid now?

Researchers in the United States conducted a live version of this experiment with baseball tickets, and it showed that the bids for the credit card group were around double that of the cash group!

The study speaks about the concept of the “pain of paying”, and how we are more likely to spend when the pain of paying is lower.

With the results of this survey in mind, one way you can slow down your spending (or create better financial behaviours) is to introduce small frictions back into your life at certain moments where you might want to have extra control.

This might mean switching to cash for some shopping trips, having pre-set household rules of what you will pay for different items, or setting spending locks and limits on your cards.

2. Change the way you think

Another simple change you can make to help you better manage your money involves reframing the way you think about your spending.

For example, studies have shown that more people are inclined to say they can manage on 80% of their pay cheque, than say they could save 20% of their pay cheque.

Further, similar studies have found that we are more willing to sign up for a savings plan that commits us to $5 a day, than to one that commits us to saving $35 a week.

Now think about the money language you use, the names you give your bank accounts and the labels you put on your cards. By reframing your finances, you can change the way you think about saving and spending.

3. Pick a start date

Another simple hack people can use to better manage their money is to simply start their improved financial habits on a particular day.

Research from the University of Pennsylvania showed that when we arrive at certain milestone dates, such as birthdays or the first day of the week, month or year, we are more likely to reflect on our goals, enjoy the feeling of a clean slate, and feel motivated to start a new habit. Researchers call this the “Fresh Start Effect”.

So why not consider an upcoming fresh start milestone in your life, and schedule time to set up some new financial disciplines and goals you have been thinking about.

→ Related: 31 financial tasks to tick off in the next 31 days

4. Keep the momentum going

When attempting to start a new financial habit, it’s imperative you don’t just rely on the motivational spike of the fresh start moment, as this is temporary.

Instead, consider automating important behaviours like saving, and essential bill payments, so you don’t have to rely too much on memory and willpower later. If you make it a little bit harder to access any goal savings you are building (with a locked or limited account), it will help you avoid future temptations that may arise.

Set up clear and specific rules of thumb that are easy to remember and action, rather than vague goals to reduce spending or increase saving. For example, it is easier to say that you will immediately transfer all of your annual tax return into your goal savings account each year, than it is to commit to saving 5% more each year.

5. Reward yourself

Finally, create small rewards to motivate important but difficult behaviours. We all know it’s important to contribute to our superannuation, but unfortunately, it’s just not naturally motivating to us when the benefits of doing so are still 30, 40 or 50 years away.

Give yourself a small reward, such as a nice lunch, when you complete really important tasks for your financial future that are difficult to feel excited about today.

Many of us want to be better with our money. Fortunately, small changes to our routines that work better with our human tendencies can make it happen.

Cover image source: 5 second Studio/Shutterstock.com

About Will Mailer

Will Mailer is Commonwealth Bank of Australia’s Chief Behavioural Scientist and leads the Commonwealth Bank Behavioural Economics team. He has 20 years of experience consulting large private, public and not-for-profit organisations. He is a regular speaker and trainer, and his team’s work has been showcased in both popular media and academic outlets. Will is the founder and chair of the Sydney Behavioural Science Network, with over 3,000 members internationally.