Making The Money Habit Stick

Making the money habit stick

Some people find it easy to stick to a routine, and some people find it impossible. Whether it’s losing weight, exercising more or saving money, some of us have lost hope of making a new habit stick. We think we just haven’t got what it takes, and it’s not worth the effort. But human behaviour isn’t as much of a mystery as we might imagine; big business pours a lot of money into understanding what makes us act the way we do, and how to manipulate us into spending more. And sure, when I say that they want to manipulate us, it comes across as if I’m painting them as evil with a capital E, but it’s a company’s job to generate sales and turn a profit.

On the other hand, it’s our job to make the right choices for ourselves, and the best way to do that is to make informed choices. What if we could look at some of these behavioural mechanisms that usually work against us and put them to work for us, to help us save?

My name is Lee, and you’re listening to the Homely Economics podcast.

Behavioural economics is a fascinating field, and I’m not going to pretend to be able to break it all down in a few minutes. What we are going to do is look at a few principles that can help us to stick to a savings habit.

1 – Make it a game

Let’s talk about games.

I’m not much of a gamer, but I’m certainly aware of the power of video games, and in particular, social games. Mobile phone games and social games feel a bit more light than console games, as though you’re less committed… but that’s not the case.

Games have their own worlds and economies, where cash isn’t the only currency being traded; you’re also spending your time and attention. Game designers want you to keep coming back and logging in again and again, so they employ certain tricks to make their games more sticky.

Now let’s talk about stickiness.

Imagine that you’re a mobile game developer. You want people to come back open up your app and play your game over and over again. You want stickiness.

The first thing you need to do to make sure your game is sticky is to make it fun, and easy to start. After all if your game isn’t fun or easy to get into then you’ve got to work much harder to make it sticky through other means.
Similarly if you wanna keep returning to a habit or a lifestyle you need to make it fun, otherwise it’s just another chore. If it’s hard to get into, then you’re much less likely to break past the resistance barrier.

You want this savings habit to be sticky and to do that, you need to give yourself a reward just for showing up and logging in.

If you’re playing a game, you expect to go through levels and carry out a sequence of actions in return for your reward.


Schedule your rewards

Buying stuff can’t make you happy, but they call it retail therapy for a reason – there is an instant payoff to shopping, which is why so many people find it addictive. There’s no point in self-flagellation when you feel the pull exerted by the huge consumerist machine that surrounds us; you’d be a lot better off acknowledging how it affects you and building in a few valves to let off steam.

That’s why I’m a big fan of giving yourself an allowance.

Spending very infrequently has the effect of turning any purchase into an event – it feels like a shopping spree when you finally let rip.

This is natural and you can turn it to your advantage by identifying something you genuinely need in the short term and putting aside some savings for that.

It’s easier to be tight-fisted for your long-term goals when you know you’ve got something short-term to look forward to as well. This doesn’t even have to be something you spend money on, just something to break up the routine and make your long-term journey more enjoyable.

Leverage your sunk costs

There’s another way that game developers promote stickiness: some games compel you to open up the app on a regular basis – maybe a daily basis – to make sure that everything is alright and that you haven’t lost something by not being present. Maybe your hard-earned rewards go down if you’re not there to make sure they stay level, either from some external actor arriving to take them away from you, or maybe because everyone else who’s playing is going to be building up more rewards than you, making you drop in the rankings. In-game inflation, if you will.

Your sunk costs are whatever you’ve invested, be that time, attention or money. You’ve spent those things, and while you might not get them back you want to feel as though you’re getting value from them. You don’t want your investment to go to waste.

It’s all tapping into our loss-aversion, making us think that we need to hold on tight to our sunk costs.

If you want to manipulate your attachment to sunk costs, try a commitment contract. Nir Eyal has written about the $25,000 bet he made with his father that made his father quit smoking. Now, while Homely Economics has a staunchly anti-gambling stance, I can see and appreciate the principle (or as Nir calls it, the mind-hack) at work behind this. A commitment contract, where you put down a deposit to be returned when you reach your stated goal, can really motivate you due to that good-old loss aversion.

The fact that you’d work harder to avoid losing what you already have, than to earn something in addition, is pretty funny, and pretty useful.

There are sites out there dedicated to commitment contracts, but if you choose to make one with a friend or family member, make sure it doesn’t affect your relationship in any way!

2 – Commit to it privately and publicly

I’m a believer in tracking your expenses, but it’s equally important to start writing down your savings. It’s dangling the carrot before your eyes, giving you that hit of happiness from achieving a goal. This is the private aspect – doing it just for yourself. Seeing your progress recorded in a notebook or app will give you the boost you need, even if you don’t realise it at the time.

If you’re like me, you’ll probably love the idea of a good graph. Graphs can help you visualise your progress and make the whole thing feel more like a game.

Committing in public is different; it’s not as if the world is waiting with a collective breath held to find out what your financial plans are. But if you can find just one person to talk to about your savings plan – that’s going to help you keep going.

What’s going on here is a bit of constructed and a bit of real peer pressure. When we say things out loud, we’re not only reinforcing them with the action of making our thoughts into words, the very sound of them coming back to us reinforces their reality.

It also makes us feel under pressure to reach the expectations of others. Once we’ve told someone else that we’re going to do something, we feel accountable to them as well as to ourselves. If it feels weird to offer yourself up to the judgment of others in this way, ask yourself how many times we’ve chosen our clothes so as not to look weird. That’s peer pressure, but at least this kind of peer pressure can lead to you saving money.

What I find really interesting about this social commitment is seeing how many people end up starting financial blogs as a way to tap into this notion of accountability and reinforcement. And before they know it, the years have flown by and they’re suddenly recording a podcast.

3 – Take it out of your hands

If you’ve spent any time on the internet looking up personal finance advice, then you’ll have come across the old “pay yourself first” mantra.

Personally I don’t actually do this, but I’ve built up the savings habit in other ways. The fact is that this advice does work. Many people aren’t capable of leaving cash in their current account, and if that’s you, then take comfort from the fact that you’re not alone, and there’s something you can do about it.

As soon as you get paid, move the amount you’ve designated for your savings across to a separate account. Even better, find a method of doing this automatically: take it out of your hands. There are lots of ways of doing this, with one of the simplest being to set up a standing order from your bank account. You can use different financial apps and get alerts on your smartphone when your savings are topped up. This is one vital way of making it easy, because remember, if it’s not easy, it’ll be harder to make it stick in other ways.

4 – Limit your choices

Decision paralysis happens when we have too many choices available to us. We have limits on the amount of attention we can give, and when we have to choose between several different products, it actually gets harder the more options we have. Why? The cognitive load becomes too great.

So when you’re in the supermarket staring at tinned beans, trying to work out whether you want Brand A, Brand B or Brand C, that can feel simple enough. But when you’re scanning down through Brand F, you’re probably either going to go off beans entirely or just grab the kind you had last week, regardless of the cost.

Beans probably won’t break you financially, but when you’re struggling to shop around for a remortgage deal, or a new broadband contract, you could be doing yourself a major disservice by pickling your head with too many options.

How can you make it easier? It depends on what your tolerance level allows – if shopping around comes naturally, you may want to limit the amount of time you spend uncovering options and when you get to a set limit, then commit to making a choice. If your tolerance level is at rock bottom – and let’s face it, it probably will be if you’re starting a savings habit from scratch – then use a comparison website, or in the case of utility bills, use a switching service like Look After My Bills.*

Making some progress is going to be better than making no progress at all.

5 – Don’t let your wants distract you from your needs

Writing a list of the things you need helps, as it can make you more focused, but writing a list of the things you want might be counter-productive. There’s an infinite amount of things that you can want, and it might just make you think about all that other stuff that you could have, but that you’d probably just forget about eventually.

I’ve found that it’s hard to balance contentment with striving for a far-off goal, especially if that goal has to do with material things. Spending a lot of time looking at the beautiful things you might be able to afford at the end of the line will probably only make you feel more discontented with what you already have. If you keep on seeing too much of what you want and not what you needed or can reasonably achieve, then you can set yourself up for disappointment.

6 – Change the way you talk

Don’t say you can’t, say you don’t. If you’re on a diet, and you say that you can’t eat that piece of cake, you’re reinforcing to yourself that you aren’t allowed. The choice is out of your hands, and you are not able to eat the cake… although you want to. But if you don’t eat cake (either for the time being or for good), then you’re reinforcing that you’re someone who has the power, but just chooses not to do one thing or another. The choice is in your hands, and you can eat the cake, but you won’t.

So don’t say you can’t spend, say you aren’t spending.

And yes, I do know that earlier I said to “take it out of your hands”, but in this case, you want the power and choice in your hands, not an obligation or a chore!

Don’t forget to subscribe through your favourite podcast player, and if you’d like to read the transcription of this podcast you can find it at Feel free to leave your comments on the blog, and I’ll catch you next time!

You can find Nir Eyal’s book Hooked: How To Build Habit-Forming Products on Amazon* or Waterstones*

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