Simple Ways to Make Better Money Decisions

Making good decisions about how to manage your personal finances can be challenging. Educating yourself and developing financial literacy can help, but there are other things that might make life easier for you, effectively providing shortcuts to sounder financial decisions.

Stop Relying on Willpower

When it comes to basic decisions around what to spend our money on, we often rely on willpower. We think that we can simply exercise self-control over our spending decisions, whether they’re big or small. As Benjamin Hardy points out in his book Willpower Doesn’t Work, this is a bad idea. Not only is willpower unreliable, it is also depletable, to a certain extent. The more we have to use it, the weaker it can get.

When it comes to spending decisions, it can be helpful to set up a life that supports better money decisions by changing your environment. Where you are, who you’re with, and what your expectations are can influence how much you spend. To make adjustments, you might want to track your spending carefully for a while, and take a look at what might have influenced those decisions (a finance journal can work well to help you with this).

You might find numerous small things impact your spending. Maybe you’re more likely to hit an expensive club after the bar if you’ve already had a lot to drink, or order an expensive take-out meal if you don’t have simple, healthy food in your kitchen. Bigger things can obviously have a bigger impact. Maybe you spent far too much on your last car or house because you were influenced by someone else, or failed to set a budget for the purchase.

There are many ways you can set up your life so you’re not relying on willpower to help you make better spending (and saving) decisions. Just a few examples include:

• Automating transfers to your savings accounts
• Spending your leisure time in non-retail environments
• Unsubscribing from persuasive marketing emails
• Using ad blocker on your devices
• Budgeting for fun, as well as everything else
• Having a strict budget for big purchases like cars and houses (based on what you actually want and can comfortably afford, not just ‘the maximum my lender will offer’)

The ways you can set up your life to support better decisions, without the need for willpower, will depend on you and your circumstances. What works for your friend or colleague may not work for you. Which brings us to the next point.

Customize Your Money Decisions

The world is full of ‘rules’ about money. There are literally books called Money Rules, The Rules of Money, 7 Money Rules for Life, and The 9 Money Rules Millionaires Use. It doesn’t hurt to know the rules, as long as you accept that not every rule will apply to all of the people all of the time.

You’ve probably heard of the 4% rule when it comes to retirement saving, or the 30% rule, when it comes to housing costs. The problem is that, beyond one or two obvious ones like “pay your taxes”, there are no financial rules. Personal finance is just that. Personal. And those generalised ‘rules’ may or may not apply to you and your current situation.

So learn the rules, by all means, but also learn the logic behind them. This will help you work out if they need to be adapted to fit your goals and circumstances. Some people take drastic action to cut their housing costs to well below that 30% and work towards FIRE. Others make a decision to spend more on housing costs, perhaps because that’s what’s important to them, and they’ve cut other costs to balance things out.

How about the 4% retirement rule? Again sound, but very generalized, advice. What you’ll need in retirement depends on a lot of factors, including when and whether you’ll retire, what your retirement goals are, and where you’ll live. Your retirement plan could mean you need to be saving a lot more, or a lot less, than other people your age.

Get Help if You Need It

People think that professional financial advice is expensive, and it can be. It can also be worth it if you’re struggling to work out what’s best for you. A financial advisor can help you work out what the best investment decisions might be for you, while a credit counsellor can help you make a plan to deal with debt. If you have more general problems around how you manage money on a day-to-day basis, you might want to see a financial coach.

It’s worth remembering that there are financial professionals who work with a very specific population. Whether you’re a recently divorced woman or a small business owner, for example, you may benefit from an advisor who specializes in that area. Financial decisions are getting increasingly complex, so talking to someone with specialist knowledge may help you address aspects of your situation you haven’t yet considered.

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