Corey Stokes

In his book “The Art of Deception,” Kevin Mitnick famously observed that even the most sophisticated security system can be compromised by a single human error. This isn’t just true for physical security; it applies to our financial security as well. A well-crafted financial plan can be derailed by a lapse in discipline, just like a complex security system can be bypassed by a single mistake.

Economist Shlomo Benartzi, in his TED talk “Saving for Tomorrow, Tomorrow,” explores the human element in our financial decision-making. He argues that our brains are wired to prioritize immediate gratification over long-term benefits. This explains why many of us struggle to save for the future – our natural inclination is to spend what we have now rather than sacrifice for what we might need later.

But fear not! With the right approach, we can overcome these inherent human biases and secure our financial futures. Here are some strategies to consider:

Outsmarting Our Biases

• Automate Your Savings: One of the biggest hurdles to saving is the need for constant decision-making. By automating your savings, you remove this temptation altogether. Set up automatic transfers from your checking to your savings account each month. Enroll in your employer’s 401(k) plan to ensure a portion of your paycheck is automatically saved before you even see it.
• Harness the Power of Visual Cues: Our brains respond well to visual information. Use this to your advantage! Create a visual representation of your financial goal, like a chart or graph tracking your progress over time. Place this somewhere you’ll see it daily, like on your fridge or desk. This constant reminder will keep you focused on your long-term objectives.
• Gamify Your Savings: As Benartzi points out, we’re wired to be motivated by a challenge and the thrill of achieving a goal. Turn saving into a game! Challenge a friend or family member to a savings competition. Use a savings app that rewards you for reaching milestones. By framing saving as a game, you can make the process more enjoyable and engaging.

Beyond Saving: Taking Control of Your Finances

Overcoming the human element goes beyond just saving money. It’s about managing your entire financial life effectively. Here are some additional strategies to consider:

• Sticking to a Budget: Create a budget that allocates your income towards your needs, wants, and savings goals. Regularly monitor your spending and adjust your budget as needed.
• Curbing Impulse Purchases: We’ve all been there – that impulsive splurge that derails our budget. Develop strategies to combat impulse purchases. Try imposing a waiting period on yourself before making non-essential purchases. This will give you time to consider if you really need the item and avoid buyer’s remorse.
• Work towards Eliminating Debt:  Debt can be the biggest obstacle to building wealth. It can also spiral out of control quickly, leaving you unable to afford the life you desire. To tackle this challenge, develop a plan to pay down your existing debts and avoid taking on unnecessary ones in the future. This means planning and saving for upcoming expenses, rather than relying on debt to cover them.

Conclusion

Financial planning is essential, but it’s only effective if we can overcome our inherent human biases. By incorporating these strategies – automating your savings, using visual cues, gamifying the process, and applying them to other financial areas – you can outsmart your own mind and take control of your financial future. Remember, achieving your financial goals takes discipline and effort, but with the right approach, you can overcome the human element and secure your long-term financial well-being.

Are you struggling with debt? A financial coach may be just what you need. If you need help creating a personalized plan to help eliminate your debt and start building financial security, Schedule an appointment with me today!