Millions of New Year’s resolutions will have already bitten the dust by now. We all started 2023 with the best of intentions, but life has a habit of getting in the way.
If one of your goals was to get a better handle on your money this year, and you remain determined to do so, it might help to look into the science of human nature and behavioural change.
Being good with money is about numbers, but it’s also largely psychological. If we can get the latter right, the dollars and cents often follow.Credit:Louie Douvis
In one sense, being good with money is about numbers. But in another sense, it’s largely psychological and if we can get the latter right, the dollars and cents often follow.
Paying down debt is a standout example. The most rational strategy is to use what’s known as the ‘avalanche method’, where you pay down the debt with the highest interest rate first because it’s costing you the most. This will often be a credit card.
But there’s some research to suggest that the “snowball method”, coined by US broadcaster and personal finance guru Dave Ramsey, is more successful for many people – especially those who are debt procrastinators. This involves paying the smallest debt first and building up momentum.
Ramsey is fond of saying that “winning at money is 80 per cent behaviour and 20 per cent head knowledge…people need quick wins in order to stay pumped enough to get out of debt completely” and some academic papers have backed his view.
Just getting started can turn new money-saving strategies into habits, at which point they move to a part of the brain called the striatum and become subconscious and less demanding.
In his bestseller Atomic Habits, former athlete James Clear looks at the science of changing tiny habits and how it can help us to achieve bigger long-term goals. If we can make just a 1 per cent improvement each day, he calculates it will make us 37 times better at a task over the course of a year.
So maybe put aside grand money goals for 2023 (like ‘I must spend $1000 less on petrol this year’) and focus for now on minute improvements, such as riding a bike for short trips to the shops, or checking a fuel price app every time you pull out of the driveway.
Clear writes about ‘habit stacking’, where you add a new habit to an existing one to make it easier (when you write your weekly grocery list, why not check an app to see what the half-price specials are this week?).
He also recommends the Two Minute Rule, where you kick off a new habit by doing just two minutes of it. “The idea is to make your habits as easy as possible to start … The point is to master the habit of showing up. The truth is, a habit must be established before it can be improved,” he says.
Download a budget spreadsheet, visit an energy comparison website, search for lost super, and you’re much more likely to finish the task and repeat it next time.
Ultra-marathoner Turia Pitt, who must be one of Australia’s most inspirational people, has a similar rule when she lacks motivation.
In her new podcast ‘The First 30’, Pitt says she has a “5-minute rule”: she makes herself do it for 5 minutes and after that, gives herself “permission to quit”.
The common thread in all the research is that change is hard but understanding the limits of our human nature makes it easier. Once we begin, we’re much more likely to finish. Money can be a bore but start amassing small wins, and it can become yet another source of success, dopamine and wellbeing.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Joel Gibson is a Money columnist, TODAY regular and author of EASY MONEY: 7 Steps to Bust Your Bills (Simon & Schuster, $29.99).
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