If you read my last post, “How to Think like Warren Buffett”, you should know more about human behavior than 99% of your friends.
My goal for today – give you 57 specific ways to apply what you know to personal finance.
When you choose to work with the mind, instead of against it, you’re using the secret of prosperity. From identifying triggers, to making bets with friends, this post covers how to make change easier, make fewer mistakes, and make managing your money a tad more interesting.
Make Yourself Aware
- At the end of every month without looking at your budget, estimate how much you spent. Then, calculate how far your estimate was off by. Keep doing this month after month, until your estimate is within a few %.
- Create default reference points.
- Compare the short-term positives and negatives with the long-term positives and negatives of your current habits.
- Practice zero based planning. Ask yourself, “If I had not made this decision, knowing what I now know, would I make it today?”
- Ask someone whose financial behavior you want out for a drink. Ask for advice.
- If you really want something, put it on a 30 day wish list. Revisit the purchase in 30 days.
- Keep a notebook with you to write down your excuses. If you spent too much because it was your friend’s birthday this month, write it down. If you took a vacation this month and overspent, write it down. Or, I’m going to eat our just once because I didn’t eat breakfast. At the end of every month, look review each excuse.
- Identify the triggers that cause you to spend. Eliminate those negative triggers.
- Have Mint or any other budgeting software email you anytime you go over budget.
- Have Mint email you your goal updates each month.
Change Your Environment
- Since most money is spent on the weekends spontaneously, take Wednesday to plan what you want to do and how much money you want to spend.
- Automate your investing and savings by contributing to a 401(k), using automatic withdrawals to an IRA, and transfers to sub-savings accounts. You’re less likely to spend money, if it’s not there.
- Make a list of all the fees you paid last year for banking. Now, find a bank that doesn’t charge you those fees…i.e., if you frequently overdraft by a few dollars and paid $180 in fees the last 12 months for doing so, find a bank that has free overdraft protection. If you have $123 in ATM charges over the last year, find a bank that reimburses you for ATM fees.
- Go cash only for 30 days. Budget your expenses, using the envelope method.
- Use a plug-in/extension on your browser to block any websites you frequently spend on.
- Give all of your credit cards for a month to a family member who you trust and tell them about your goals.
- Delete your credit cards from any websites.
- Freeze your credit to avoid impulse loans.
- Use auto bill pay instead of manual bill pay to avoid fees.
- Unsubscribe to any email newsletters or catalogs you have made an impulse purchases from.
- Have food delivered to your home by subscribing to a CSA. This way you always have food around and will cook at home more often.
- Cut the cable TV. You’ll have a lot more free time and won’t even miss it after a week.
- Limit the amount of cash you carry.
- Batch your cooking and then immediately divide into individual servings. Anything that you’re not eating today, store in the freezer. This way you won’t overeat, you’ll have healthy meals on hand at all times, and save money and time from batching the cooking and cleaning.
- Take an alternate route. If you find yourself stopping routinely somewhere after work to make a random purchase, drive a different way home.
- Don’t put extra food on the table. Research shows men eat 29% more when food is left on the table. Women around 10%. That’s a lot of leftovers. And a lot of unnecessary stomach aches.
- When you make any extra money, put it immediately towards your goals or savings. Don’t wait or it will disappear.
Be Laser Focused
- Instead of saying to yourself, “I want to spend less money”, set and write down an actual goal. The more specific the better. For example, I want to cut my eating out expenses by 20%, which results in you saving 5% overall, is a better goal then saying I want to cut my overall expenses by 5%.
- Set daily, weekly, monthly goals.
- Review your daily, weekly, and monthly goals every day.
- Identify the 20% of tasks that will generate 80% of the results.
- Set a time limit for each tasks. This allows you to focus on getting done, what needs to get done.
Make it Fun
- Use a visual. Have a picture closely by of your dream home. If you’re saving for a trip, print out a picture of the destination.
- Chart and track your goals on your bathroom mirror or fridge. Write out your goals and use them as a background on your phone.
- Wager with a friend. For example, whoever makes the least money this month has to buy the other dinner.
- Set a goal with a friend. For example, if we both save $400 this month, let’s take a road trip next month.
- Reward yourself for accomplishing your goals. If you manage to save $1,000 over the past three months, take $100 to $200 and reward yourself.
- Track something more exciting than net worth (vacation time, % of income spent on experiences, net wealth etc…)
- Set mini goals. Give yourself a small reward upon completing a mini milestone.
- Rename your savings accounts after your goals. (ING Direct lets you do this. Not sure who else). Instead of “trip”, name your account “21 Days in Costa Rica”.
Make Getting Started Easier
- Add a new habit you’d like to begin, to an existing habit.
- Use a trigger to make remembering to perform an action easier. For example, have an email or text message sent to you the day before your credit card is due to avoid any late fees.
- When first attempting to make a change, concentrate on your strengths. Don’t try to work on your weaknesses.
- Understand when you have the most energy. Only take action at times of the day when your energy is high.
- If you’re trying to save, start with a small goal. For example, save just 2% of your income this month. Increase the amount by 2% every month.
- Never commit to a change for over 30 days. If you need to start tracking your expenses, do a trial run for 30 days. After the 30 days is over evaluate yourself and decide to continue or try something else.
- Look for the smallest and simplest action you can take to reach your goal.
- Sell or giveaway 1 possession a week. Soon you’ll start to question more your motives for buying.
- Commit to doing a task, such as listing something on eBay or cleaning out your closet, for just 25 minutes. If you want to continue after 25, go ahead. If you feel like stopping, stop. The important thing is to make a small time commitment upfront.
- Do the hardest thing first. The rest will be easy.
- Schedule a large chunk of time in the future to get started. Eliminate all distractions.
- Make a list of tasks you can batch. Do them in one sitting at a peak energy time.
- Set a deadline.
- Set an appointment with a fee only CERTIFIED FINANCIAL PLANNER® that offers a free initial consultation.
- Start a task that will give you immediate results. Call your credit card company and increase your limits to improve your credit score. Sell something on Craigslist or eBay and use it to pay off debt.
Defeat the Urge
- Make a plan for what you will do once the urge comes to break your new habit/behavior. For example, your goal is to not buy any clothes this month to save for a trip. Upon setting this goal, decide what you will do once you get the urge to shop, which will come. Choose something that’s fun, that you’ll look forward to.
- Splurge on a few healthy and quality frozen meals. This way when the urge comes to eat out because you’re too lazy to cook, you can eat your frozen meals. Still a lot cheaper than going out.
Make it Painful
- When you set a goal, set a penalty for failure. This way you won’t be able to return to status quo if you fail.
- Make your goal public. No one likes to fail publicly.
- Every time you fail, make a list of what you give up. The more you associate failure with negative emotions, the better.
Secrets of Prosperity
Managing your money doesn’t have to be boring.
Make it rewarding. Play games with yourself. Make small bets with friends. Challenge yourself.
Just be interesting. Interesting money management makes for an interesting life. That’s the secret of prosperity.