You may or may not know this about me, but I LOVE behavioral finance. In simplest terms, behavioral finance is the love child of finance and psychology–the psychology of money!

Oh. My. God. Such fascinating stuff.

As it turns out, there’s a whole body of literature bent on exposing the ways that our brains can get in the way of our financial success. That’s lucky, because if you can figure out how our brains subconsciously influence our financial decisions, you have the power to work around those impulses.

I call this “hacking the money brain.”

When we hack our money brains, we take a behavioral bias, or subconscious thought pattern, reveal it to ourselves, and then take advantage of the way we naturally think in order to make behavior change easy.

In other words: that silly money impulse you’ve already got? Let’s take it and use it to your advantage.

Hack #1: Stop overspending by cheating Parkinson’s Law.

In the perfect world, your budget spreadsheet would rule your life: every Amazon purchase you indulge in, every fancy lunch you buy, every grocery store trip you make, ALL OF IT would be tracked to the penny. You’d have an amount you want to spend in each category, and then you’d perfectly tabulate all your spending and only ever buy the things you can afford.

Confession: I don’t do that, and I’m guessing you don’t either.

Instead, most people use their bank account as a litmus test for what they can and can’t afford. Did payday just hit? Then your account is flush with cash and you’re feeling like a big spender. A couple of days and a few auto-drafts on your account later, and you’re probably feeling less fancy.

Don’t worry, I used to live this way too—until I hacked my money brain (Eh? Eh? This phrase has such a ring to it, right?! I will seriously repeat it until it becomes A Thing.)

The secret, it turns out, is a twist on Parkinson’s Law, which states that “work expands so as to fill the time available for its completion.” In other words, if we have two days to do a project, it takes us two days. If we have two hours, it takes two hours.

Turns out that our spending expands too, as money is more available. We could also call this the Notorious B.I.G. effect: Mo’ Money, Mo’ Problems.

This can be fixed with a rather simple hack: simply convince yourself that you have less money than you do.

My version of this is the weekly allowance, my preferred alternative to the traditional budget.

Here’s how it works: While I have main one checking account set up to collect my direct deposit and pay my recurring bills, there’s no debit card associated with that account!

What?! CRAZY RIGHT.

Instead, my debit card is linked to a SECOND checking account, which gets a smaller amount transferred every Sunday. I use this for all my variable spending: groceries, gas, eating out, shopping, entertainment, and other shenanigans.

This way, when I look at that account, I never see the full value of my paycheck. Only seeing a little at once helps me stay on track with my spending in a way I never have before.

Seriously, try it. It will change the way you casually spend your money.

Hack #2: Stick to your savings goals by harnessing the power of mental accounting.

One of my favorite behavioral biases is our tendency to view different pools of money as being different from one another. In other words, we see our 401(k) or retirement fund as being different from savings, which is different from the money in our checking accounts.

Moreover, the SOURCE of the money matters too: paychecks are for adult things, but tax refunds are for vacation, amirite?! You might not want to use your weekly allowance to go out to lunch, but if you find $20 on the ground, then it’s time for that good sandwich place!

This isn’t necessarily a bad thing, when you think about it: you don’t *want* your retirement being treated as casually as you do your checking account!

The question is, then, how can we hack this tendency to treat money differently in order to make saving for stuff even easier?

For me, the answer is another simple banking trick: if you really want to stick to saving for a goal, it needs its own separate, clearly-labelled savings account!

This might seem weird, because most of us are used to having only one savings account for EVERYTHING. You might low-key call it your emergency fund, but if everything comes out of there, it gets really damn hard to decide what constitutes an emergency—and it’s tempting to pull money out to cover stupid mistakes or do fun stuff.

That’s why I’ve got one savings account for each of my big goals. For example:

· Emergency fund
· Car Maintenance Fund
· Trip to Europe
· New clothes/make up
· 2018 Taxes

And so on.

Moreover, they are all labelled with those names, so I know exactly which account corresponds to each goal!

I love this system for two main reasons:

It lets me better track my progress towards each of those goals, which is super gratifying, and
If something happens and I need money, I now have the power to make a conscious decision about where the money comes from

It might be easy to transfer money from a savings account, but if you know that money is specifically earmarked for a fun trip you’ve been wanting to take, all of a sudden you get way more protective of your savings.

I cannot recommend this system enough. It will make it so much easier to save money.

Hack #3: Automate your savings goals to beat present bias.

What’s the number one thing that gets in the way of financial success? INSTANT GRATIFICATION.

No joke, we as humans are awful at delaying gratification and saving for the long term. It’s hard to picture yourself old and grey and retired and dicking around. It’s easy to picture yourself today wearing a new jacket or attending a sweet concert. So when it comes down to it, our current pleasure wins out over our future goals.

Our tendency to overvalue immediate rewards at the expense of our long-term goals is called present bias. It also takes the form of telling ourselves that we’ll start saving later / extra to make up for bad behavior now.

It’s that classic donuts-today-I-swear-I’ll-exercise-tomorrow thing we do.

To hack this behavior, you need to do two things.

First, take some time and visualize what your future goal will look like. If you want to save money for a trip to Europe, visualize where you’re going. Start a Pinterest board with cool landmarks. Start reading travel blogs. Picture yourself eating gelato by the Trevi fountain, whatever you have to do to make it real.

That exercise is easier with fun goals, but let’s say you’re trying to save for next year’s taxes. Picture how much of a badass you’ll feel like making a tax payment without stress. Imagine yourself cutting a check to the IRS without chewing your nails and praying it doesn’t bounce. Think of how awesome it will be to not have money anxiety burning a hole in your heart next April. Good stuff, right?

Then, back up that mental work by making it *impossible* to forget to save. If you’ve already implemented Hack #2 and set up separate accounts for all your savings goals, this is easy as pie. Simply set up an auto-transfer from your main checking account to your savings goals on a regular basis.

This makes it way less tempting to put off your future plans! Plus, if you can time it so that the money transfers as soon as your paychecks it, you can tuck it away out of sight before your spending urges kick in.

Brilliant, n’est pas?

Parting Thoughts

Our brains can be our worst enemy when it comes to personal finance: they cause us to overspend, treat our money differently in weird ways, and ignore future goals in favor of current pleasure.

But in this way, our brains can also be our greatest asset (PUN ABSOLUTELY INTENDED). By taking the behaviors we already engage in and turning them on their heads, we can hack our money brains and make better financial decisions.

How else do you hack your money brain? Share your ideas in the comments below!

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