No regrets! Using cognitive bias to achieve your goals
One of the most famous ways human beings are fundamentally irrational is our reaction to the possibility of regretting a decision. We really hate the idea that we might have future regrets. So much so that shops only have to put up a “sale” sign or mark something “limited edition” and we rush to buy in case the items we want become unavailable. Never mind that these items are often extremely generic and easily found elsewhere, or soon to be out of fashion and abandoned. Yes, I am speaking from experience.
So, regret aversion, as this phenomenon is called, has a bad name in the personal finance community. We’re encouraged to step away from the sale goods and give ourselves 24 hours to reconsider whether there’ll really never be another reasonably priced plain white t-shirt or if we’d actually find life meaningless without an avocado slicer like the one that influencer uses. (What even happened to avocados? Are they still a thing? I’m too old to know.)
I think, however, there are ways to make regret aversion work for you. Don’t get me wrong, it’s possible to make many silly choices from trying to avoid the possibility of regret. It’s a major cause of procrastination as we try to reconcile mutually exclusive options. Done right though, regret aversion can be harnessed to help us get motivated in the face of fear, self-doubt, boredom, frustration and plain old slog.
I have an image on the desktop of my computer that says “Turn ‘I could have’ into ‘I did’”. It’s there to remind me that I don’t want to look back on my life with regret. I don’t want to say “I had these gifts and opportunities and I didn’t use them”.
You can use this method for all sorts of goals including financial ones. Tell yourself “It might suck giving up my time to budget and meal plan, but if I can’t afford to spoil my partner on our anniversary, that’s going to suck even more”. Or perhaps, “I might feel uncomfortable negotiating my salary, but I’ll regret feeling I could have earned enough to save a deposit for my own home”. Or even, “It may feel awkward to ask the adviser to explain my pension to me yet again, but I don’t want to get to retirement and find I’ll be living on beans on toast instead of ”.
This is why it’s important to be really clear about your goals. The more you can visualise what you’re working towards, the more you can use the potential regret of not getting it to motivate you.
Exercise:
Imagine one of your personal goals very clearly, something you think you could do, with a bit of effort. Go on. I’ll wait.
Now picture the regret you would feel if you didn’t do everything you could to achieve it.
It feels horrible right? So, what can you do to make sure you never feel that way? What steps can you take towards that goal?
Comment below, what do you not want to regret?
Taking advantage of life changes to improve your money habits
A small change in your routine can mean big changes in how you spend and save money. We carry out so many of our habits on autopilot or near enough, that sometimes we miss opportunities to improve our lives. Anything that disrupts our habits can be a great way to create mindfulness and allow us to reset our behaviour in ways that benefit us.
As you may know, my husband and I moved house just over a month ago. It was a horrible, stressful process but we’re very happy in our new home. One side-effect of the move is that we no longer live opposite our local corner shop. This is the corner shop where I get my chocolate. Sorry, this was where I used to get my chocolate. The nearest corner shops are now at least five minutes walk away. Now I think twice before going to buy chocolate. The extra few minutes walk means I have to want the chocolate more before I‘ll be bothered to go and get it. This is what is known in behavioural science as friction. In this case, this friction is going to be good for my blood sugar and also my wallet, because I have expensive taste in chocolate. It doesn’t have to stop me altogether, even a 50% drop in trips to the shop will make a difference given time.
Friction can work for you or against you. We’ve also moved further away from the gym and I can’t see myself restarting my membership because I know the extra distance means I’m much less likely to go. Since I’m getting a surprising amount of physical activity sorting out our new garden, I’m not so worried about that. (Also yay! More money saving!)
These are changes that happened naturally as part of the move, but this change is also a chance to reassess our day-to-day lives and find opportunities for intentional improvements. For example, we’ve reconsidered which bank account we use to pay our bills. We’ve set up joint savings for the work we’ll need to do on the house. We’re planning our finances more as a household than as two individuals who happen to be married and live together.
It’s no surprise that all the research says that big life events are the time when people often seek financial advice or coaching for the first time. Getting married; buying a home; giving birth or adopting; and approaching retirement are all big changes with obvious financial implications. As are the less happy life events, such as divorce, bereavement and sickness. Yet many people would be better prepared for these big events, both happy and sad, if they’d got advice or coaching some years before.
Similarly, waiting for a big event before you evaluate your habits is a mug’s game. You’re really just procrastinating. Instead, set a date with yourself to go through your finances regularly and while you’re at it consider your daily life and see if you can find a way to tweak a routine or habit for the better.
Would you save money if you:
Walked a different route and avoided a tempting shop;
Tried a different supermarket or avoided a certain aisle during your usual shop;
Unsubscribed from a mailing list (or twenty);
Changed your evening routine, so you’re not browsing while you’re tired and your defences are down;
Unfollowed certain social accounts;
Made more proactive choices about how you spend your free time, so you feel more fulfilled and connected, and are less prone to emotional spending;
Found a way to reduce friction for your good habits, like automating payments to savings and investments on the day you get paid or using an app with a round-up function;
Considered the big events that could be coming in your life and started working out what you’d need to make sure your finances were in the best shape possible if/when they happen.
I have another blog post about why it’s important to use friction to help you do the right thing and also a podcast episode with the science behind why we shouldn’t rely on willpower, so it’s better to design your life to avoid temptation.
What have you done to help you reinforce good habits and avoid troublesome ones?
Understanding the poppadom effect
Who loves poppadoms? I know I do. Crunchy savoury appetisers are my favourites.
You know who else loves poppadums? (Or olives or prawn crackers or bread baskets or whatever…)
Restaurants. You know why?
Because they cost almost nothing compared to the sale price and almost everyone orders them, even customers who intended not to.
In fact, we quite often order little extras we hadn’t meant to buy. Going to the till with a new sweater we see some earrings that would go with it and think we might as well have them. We get a screen protector to go with our new phone. We buy the upgrade, the insurance, the add-on.
Why?
The poppadum effect.
Once you’re already paying for a whole meal, the cost of poppadoms seems trivial in comparison, so why not? The poppadum effect is a type of mental accounting; a way our brains trick us into making unwise decisions by using a cognitive shortcut that doesn’t take us where we really need it to go.
Once you’re committed to purchasing a new tablet (say), adding the cost of a case seems negligible. Shops know this and they play on it. Salespeople are trained to offer the extras after you’ve decided to buy and there are always tempting small items at the till.
The truth is these little extras are often the poorest value for money in the store and if we were thinking clearly, we wouldn’t have bought them at all, but in the moment of purchase we’ve already overcome the resistance to spending and the part of us that always wants more can take its chance and add to basket.
Being aware that this is a common phenomenon can help you make better decisions. I, for example, will always want poppadums, but only one, thank you.
Take a minute when a shop offers you an extra or an add-on and remember you almost certainly don’t need to make a decision about it straight away. Say you’ll think it over, because nine times out of ten you can come back for it. You might even get a discount.
I did a podcast episode on our weird irrational responses to prices. You can listen here.