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Train your brain to behave financially

  • Story Highlights
  • If you want to stop shopping, hold off on other changes that also require willpower
  • Put savings on autopilot; you may be programmed to want something now, not later
  • Professor: If an expenditure is small, it may feel like we're not spending at all
By Jean Chatzky with Arielle McGowen
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( -- In money, and in life, you are very often your own worst enemy. You promise yourself you're going to diet, then eat not one or two french fries but a whole plate. You decide to really commit to saving for retirement, only to wind up with a new pair of shoes in your closet.

When it comes to your finances, your brain's natural inclinations may not always work in your wallet's favor.

When it comes to your finances, your brain's natural inclinations may not always work in your wallet's favor.

Why does self-sabotage happen no matter how hard you try to prevent it?

At least part of the blame lies with your brain. It spends a lot of time working for you -- it's involved in everything from breathing to buying shoes -- but it can also work against you.

"Your brain will give you a lot of emotional signals, and some of them are not very useful. In fact, they can be quite misleading," says George Loewenstein, a professor of economics and psychology at Carnegie Mellon University.

Knowing how to interpret the signals and trying to ignore ones that may lead to trouble is key to getting your finances in order.

Use your willpower

You probably think of willpower as a renewable resource. Yet, "psychologists have found that there's this thing called eco-depletion, where you have that 'umph' for controlling yourself, but it's like a muscle -- you can wear it out and run out of willpower," says Princeton University professor Sam Wang, co-author of "Welcome to Your Brain."

That means if you're trying to stop shopping or smoking, you shouldn't try other changes that also require willpower. You'll have the most success if you concentrate your efforts: Stop smoking, curb your shopping, then work on a diet. The order is up to you. 25 tricks to keep money in your wallet

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Save automatically

I've said this countless times: If you make automatic contributions to your 401(k) or other savings accounts, the money is out of your hands, out of your wallet, and you're less likely to spend it before you can save it.

But there's another reason: Your brain may not do well planning for the future. It may be programmed to want something now, not later. "You can basically trick people's brains into doing the right thing by setting up situations where they don't quite feel the bite of what they're being asked to do," Wang says.

Put all your savings on autopilot, and you won't likely notice the missing cash.

Haste makes waste

"Your brain doesn't give you very reliable signals about when you should spend and when you should save, and the implication of that is that you really need to think it out," Loewenstein says.

That's why impulse buys are a no-no. How many times have you bought something only to regret it? You can return it, but that's energy -- and often money, in the form of shipping or gas -- wasted. How to be a master shopper


Research shows we tend to get more pleasure from experiences than things.

A vacation gives you memories you can think about over and over. A new watch you may not really need? Not so much. That doesn't mean a ban on buying, but when money is tight, you need to put more thought into not only whether you spend it, but how you spend it. Take a vacation for much less

The peanuts effect

If an expenditure is small, it may feel like we're not spending at all, Loewenstein says. In your brain, these don't register as purchases.

While it's true a small treat won't blow your budget, indulging every day could -- the same way a slice of cake probably won't hurt but, if you make it a daily habit, you may have trouble fitting in your pants. What kind of shopper are you?

From by Jean Chatzky with Arielle McGowen © 2009

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