Piggy bank peering up

Rate this article and enter to win

If you think you’re especially horrible at managing money—you’re not. And if you think your friends are especially horrible at managing money—they’re not. In fact, our entire species is horrible at handling money, according to a large body of research. Even as we’re thinking we’ve got the hang of it, we’re making basic errors.

For that matter, it’s not just our species. When researchers taught monkeys about money, the monkeys made the same irrational mistakes as we did. And, like us, they made those mistakes over and over. Several deeply rooted biases mess with our thinking and wallets, according to behavioral researchers.

Are we doomed to financial struggle? No. We can learn to recognize, understand, and anticipate our financial weaknesses. Start practicing these 11 techniques now to set yourself up for financial success.

1. Carry cash, not cards

Mom left you the “emergency” credit card? Keep it in the back of your wallet, where you’re less likely to reach for it. In studies, using cash is associated with spending less and making more thoughtful (and healthier) purchases.

We’re more likely to buy something if we’re paying with a plastic card than if we’re paying with cash, says a 2012 study in the Journal of Consumer Research. That’s because handing over cash gives us a painful emotional jolt, while paying with plastic is just too comfortable, according to a study in the Journal of Experimental Psychology.

Paying with credit cards is associated with less healthy food choices. A 2011 study of shopping behavior found that shoppers using credit or debit cards picked up more food items that were considered unhealthy. When we encounter cookies, cakes, and pies—and when we’re paying with a card—we’re more likely to fall victim to our impulses (Journal of Consumer Research).

When you do need to use plastic, set up transaction notifications on your budgeting app (such as Mint) so that you’ll be alerted when you’ve reached or exceeded your budget. This could help you be more realistic about your spending.

2. Watch your bank fees

Be aware of bank charges for overdrafts, insufficient funds, and ATM withdrawals. Set up alerts for when you’re approaching a low balance.

Often, overdrafts are the result of small transactions. Overdrawing makes these transactions far more expensive. “About 11 percent of [young adults] overdraft more than 10 times a year, and these overdrafts were typically for small purchases under $24 and were paid back within three days. With the median overdraft fee equaling $34, borrowing $24 for three days is like taking out a loan with a 17,000 percent annual percentage rate,” says Time.com.

If you’re paying $2.95 to withdraw cash, two withdrawals a week are costing you more than $300 a year. It’s time to get yourself to a free ATM. If you pay for everyday expenses using a debit card (which is risky, as we’ve seen), take advantage of asking for cash back when you make a purchase at a grocery store or market—no charges there.

3. Reorganize your apps

Put any apps related to spending—Amazon, Uber Eats, and games with loads of in-app purchases—in a folder so they’re less visible on your phone. The exception is your budgeting app, which should be front and center on your screen.

Ordering a pad Thai on Uber Eats is a non-cash transaction. And we know what happens with non-cash transactions—they make it way too easy to spend money. Instead, try making your own takeout-style Thai food.

Our behavior is powerfully influenced by our environment. Without the in-your-face temptation of these services, it’s easier to save that service for when you really need it.

4. Get rid of stuff you don’t use

Let go of the $150 bike in the garage; sell it to the friend who’s offering $70. That designer top in your closet that you never wear? Take it to a consignment shop. And do you really need to pay for the no-ads version of your music streaming service?

We have trouble giving stuff up—even if, rationally, it’s not worth keeping. This is about loss aversion. We work considerably harder to avoid, say, a $50 loss than we do to make a $50 gain, research shows.

That’s because we factor in our possible regret: “Maybe I’ll suddenly want to ride that bike again.” But the money we paid up front is already gone, and it makes sense to limit the financial damage.

5. Free? Ask yourself: “Would I pay for this right now?”

Free trial? Free shipping? Free gift? Be very careful. If the offer is for a product or service you would not pay for right now, decline it.

We ❤ “free,” but we can’t handle it. Research shows that the word “free” can wildly distort our thinking and choices. This makes “free” a great opportunity for retailers.

“For some reason, the word ‘free’ seems to scramble our brains,” writes Jeff Rose, CFA and author, on his website Good Financial Cents. “We forget what other costs there might be to that item or service because we are so focused on the fact that we’re not paying money. What’s really interesting is that we are willing to pay more in order to get something free.”

Free product trials capitalize on loss aversion. For example, video streaming services know you’ll be more willing to pay to keep your account going after your 30-day free trial than you are to just buy it outright.

Free samples—even those tiny servings of prepped food in grocery stores—invoke our sense of wanting to give back. They change consumers’ purchasing behavior and boost product sales, according to a 2011 study in the British Food Journal.

6. Make a budget

If you aren’t actively budgeting, start now. Simplify the process with a free or low-cost app.

“The biggest challenge to budgeting is the idea that because students have limited resources, they don’t need to take steps to take control of their finances. They do,” says Bryan Ashton, BSBA, assistant director of the Student Life Student Wellness Center at The Ohio State University.

This principle starts now and applies throughout your life. “Pay attention to the little things,” says Dr. David Just, a professor of behavioral economics at Cornell University. “Reevaluate the decisions you’re making day to day with your money” (quoted on CreditCards.com).

Apps and websites students recommend include Mint, AllBudget2, bank and credit union apps, LearnVest.com, CreditKarma.com, and YNAB [You Need a Budget].

7. Ask yourself: “What else could I do with this money?”

“A friend of mine did this when she was a poor college student and she thought of everything in Ramens (her go-to cheap meal, which only cost $0.25 each) rather than dollars. If she wanted to eat out, $14 might seem reasonable, but 56 Ramens (nearly two months of dinners!) was far more than she could afford to spend,” writes Emily Guy Birken at MoneyNing.

Being exposed to sticker prices has a powerful effect on what we are willing to spend. Psychologists call this the anchoring bias. Say you’re planning to spend $35 on a pair of jeans. In the store, you see jeans priced up to $150. You end up buying a pair for $50. You’ve spent significantly more than you intended, but your new jeans seem like a bargain compared to the $150 brand. In other words, we think about money in relative terms, not absolute terms.

In other words, we think about money in relative terms, not absolute terms. That’s why we go to some effort to cut $15 from our grocery bill but don’t hesitate to pick a $225 vacation rental over the $210 option.

To some extent, you can offset this bias. “In order to combat the effect of anchoring, it’s important to put your own anchor to the amount of money you would otherwise spend,” writes Birken. The Ramen trick (above) is an example of self-anchoring.

Another anchor to consider: “Between your graduation and your retirement, if you save $10 a day and invest it in the stock market, when you retire you will likely have $1 million from those savings alone,” says Larry Pike, CFA, a financial planner in Massachusetts.

8. Get a money coach or club

Accountability is key to regulating or changing our behavior. When you’re planning to manage your budget, start saving, or reduce your spending, it’s helpful to engage a friend, parent, or mentor you respect.

Accountability is key to changing behavior. When you show your progress to your coach or ally, you know that they will know if you slip. “This way you have a built-in motivator who will make you think twice before you go off the plan,” says Dr. Hersh Shefrin, professor of finance at Santa Clara University’s Leavey School of Business, California (LearnVest).

9. Reward yourself for weekly check-ins

Schedule a regular half-hour each week to review your recent spending. First, get it on the calendar. Second, figure out how you’ll reward yourself each time.

“The most important step is to understand where your money really is going. If you can’t get a handle on your spending, it will be difficult to take control and make changes,” says Pike.

Intellectually, you know that good budgeting habits will work for you in the long run, but research shows that immediate rewards are more motivating. Use that. Follow your budget review with a Netflix movie or a DIY mani-pedi, or work a self-bribe into that budget as you go.

Also: Block out the time on your calendar. This is key to getting things done. Studies prove it.

10. Automate your savings or repayments

If you have money going into your checking account and you’re trying to save, set up automatic deposits into a savings account. If you don’t have a bank account yet, open one.

Humans evolved for day-by-day survival. Even as we live until age 75 or 80, our instincts remain stuck in the short term.

Be realistic. Optimism is a delightful personality trait, but it makes us less likely to put money aside to deal with future financial challenges—even though we’re all bound to experience these at some point. Being overly optimistic about how much money you’ll have in the future leaves us financially vulnerable, say behavioral economists.

11.Deposit large sums into savings

Better still: When you receive a large sum, such as money gifted to you for your birthday, deposit it directly into your savings account. If ever you come into a large amount of money unexpectedly, get it into your savings account and wait several months before deciding what to do with it.

How we handle money depends on where it came from. We spend inheritances or gifts differently from earned income or our allowance. When we are suddenly gifted money, it doesn’t feel like real money, so we splurge or take risks—and then we regret it. This is because we tend to value items according to how much labor we think went into them.

Find out more or get help today

You must enter your name, email, and phone number so we can contact you if you're the winner of this month's drawing.
Your data will never be shared or sold to outside parties. View our Privacy Policy.

What was the most interesting thing you read in this article?

If you could change one thing about , what would it be?

HAVE YOU SEEN AT LEAST ONE THING IN THIS ISSUE THAT...

..you will apply to everyday life?

..caused you to get involved, ask for help,
utilize campus resources, or help a friend?

Tell us More
How can we get more people to read ?
First Name:

Last Name:

E-mail:

Phone Number:

What was the most interesting thing you read in this article?

If you could change one thing about , what would it be?

HAVE YOU SEEN AT LEAST ONE THING IN THIS ISSUE THAT...

..you will apply to everyday life?

..caused you to get involved, ask for help,
utilize campus resources, or help a friend?

Tell us more.
How can we get more people to read ?
First Name:

Last Name:

E-mail:

Phone Number:



HAVE YOU SEEN AT LEAST ONE THING IN THIS ISSUE THAT...

..you will apply to everyday life?

..caused you to get involved, ask for help,
utilize campus resources, or help a friend?

Tell us more.
How can we get more people to read ?

First Name:

Last Name:

E-mail:

Phone Number:




Article sources

Amar, M., Ariely, D., Ayal, S., Cryder, C. E., et al. (2011). Winning the battle but losing the war: The psychology of debt management. Journal of Marketing Research, XLVIII, S38–S50. Retrieved from http://webuser.bus.umich.edu/srick/Winning%20the%20Battle.pdf

Ariely, D. (2016). Tag: Habits. DanAriely.com. Retrieved from http://danariely.com/tag/habits/

Bakker, T., Kelly, N., Leary, J., & Nagypal, E. (2014, July). Data point: Checking account overdraft. Consumer Financial Protection Bureau. Retrieved from http://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf

Bar-Gill, O., & Stone, R. (2012). Pricing misperceptions: Explaining pricing structure in the cell phone service market. Journal of Empirical Legal Studies, 9(3), 430–456.

Birken, E. G. (2011). How anchoring in behavioral economics explains your irrational money choices. MoneyNing. Retrieved from http://moneyning.com/money-beliefs/how-anchoring-in-behavioral-economics-explains-your-irrational-money-choices/

Birken, E. G. (2011). How loss aversion in behavioral economics explains your irrational money choices. MoneyNing. Retrieved from http://moneyning.com/money-beliefs/how-loss-aversion-in-behavioral-economics-explains-your-irrational-money-choices/

Chatterjee, P., & Rose, R. L. (2011). Do payment mechanisms change the way consumers perceive products? Journal of Consumer Research, 38.

Dratch, D. (2014, January 7). How behavioral economics explains six common money mistakes. CreditCards.com. Retrieved from http://www.creditcards.com/credit-card-news/behavioral-economics-6-money-mistakes-1267.php

Epley, N., & Gilovich, T. (2006). The anchoring-and-adjustment heuristic. Psychological Science, 17(4), 311–318.

Finkelstein, A. (2007). E-ZTax: Tax salience and tax rates. NBER Working Paper No. 12924. Retrieved from http://www.nber.org/papers/w12924

Grubb, M. D. (2009). Selling to overconfident consumers. American Economic Review, 99(5), 1770–1807.

Heilman, C., Lakishyk, K., & Radas, S. (2011). An empirical investigation of in-store sampling promotions. British Food Journal, 113(10), 1252–1266.

Johnson, E. J., Hershey, J., Meszaros, J., & Kunreuther, H. (1993). Framing, probability distortions, and insurance decisions. Journal of Risk and Uncertainty, 7(1), 35–51.

Lock, C. (2013, July 16). The game that could turn your kid into a money whiz. LearnVest. Retrieved from http://www.learnvest.com/2013/07/the-game-that-could-turn-your-kid-into-a-money-whiz/

O’Hara, C. (2014, June 3). 10 questions for a behavior change expert. LearnVest. Retrieved from http://www.learnvest.com/2014/06/behavior-change-expert

Pinsker, J. (2014, October 1). The psychology behind Costco’s free food samples. Atlantic. Retrieved from http://www.theatlantic.com/business/archive/2014/10/the-psychology-behind-costcos-free-samples/380969/

Raghubir, P., & Srivastava, J. (2008). Monopoly money: The effect of payment coupling and form on spending behavior. Journal of Experimental Psychology: Applied, 14(3), 213–225.

Renzulli, K. A. (2014, August 27). The spending mistake that millennials are making. Time.com. Retrieved from http://time.com/money/3182089/millennials-spending-mistakes/

Sunstein, C. R. (2012, October 5). Show me the money. New Republic. Retrieved from https://newrepublic.com/article/108153/show-me-the-money

Thomas, M., Desai, K. K., & Seenivasan, S. (2011). How credit card payments increase unhealthy food purchases: Visceral regulation of vices. Journal of Consumer Research, 38. Retrieved from http://forum.johnson.cornell.edu/faculty/mthomas/VisceralRegulationofVices.pdf