Will power in a nutshell: If you are sitting in front of the plate of cookies, the cookies already won.

Pug and Pizza
I think the pizza already won.

In some ways, that might be all you really need to know about will-power and temptation. The key is to always put yourself in the right situation. So here is the obvious stuff: Don’t go shopping when you’re hungry, don’t make important financial decisions when you’re tired, and don’t shop for power tools when you’re angry. Don’t wait until you are stressed, worn out or emotionally upset to deal with financial issues or to buy whatever it is you need to buy.

We need to keep ourselves out of potentially tempting or harmful situations because will-power is real, and no matter how strong we are, we all eventually have a limited supply of it.

Most people know that will-power gets depleted to some extent every time you have to resist a temptation–which is why sitting in front of a plate of cookies is a bad idea. But what many people don’t know is that any sort of decision-making appears to deplete will power.

Years ago a study was done on Israeli prisoners applying for parole. The authors wanted to find out what factors were most important in determining whether or not prisoners were paroled. The shocking result was that the time of day of the parole hearing was the most important factor. Prisoners who had parole hearings early in the morning or right after lunch were the most likely to get paroled.

Why on earth would this happen? What was so special about the time of day?

Later studies illuminated one very likely explanation. Researchers went out and bought a bunch of cheap stuff: pencils, pens, t-shirts, etc. Then they brought in students to test how even trivial decision making would affect willpower. Here is an excellent article about the research, and I have decided to quote it at length:

“When they came to the lab, the students were told they would get to keep one item at the end of the experiment, but first they had to make a series of choices. Would they prefer a pen or a candle? A vanilla-scented candle or an almond-scented one? A candle or a T-shirt? A black T-shirt or a red T-shirt? A control group, meanwhile — let’s call them the nondeciders — spent an equally long period contemplating all these same products without having to make any choices. They were asked just to give their opinion of each product and report how often they had used such a product in the last six months.

Afterward, all the participants were given one of the classic tests of self-control: holding your hand in ice water for as long as you can. The impulse is to pull your hand out, so self-discipline is needed to keep the hand underwater. The deciders gave up much faster; they lasted 28 seconds, less than half the 67-second average of the nondeciders. Making all those choices had apparently sapped their willpower, and it wasn’t an isolated effect. It was confirmed in other experiments testing students after they went through exercises like choosing courses from the college catalog.”

So now when you see a sales person and they offer you a million different options you have to choose from, you know why.

Remember the study on prisoners and parole? The prisoners who got their hearings early in the morning or right after lunch were facing parole boards that were rested, well-fed, and ready to make decisions. The ones who came later faced boards that were suffering from decision-fatigue, and when those boards made their decisions, they had a tendency to just pick the default position. And the default position was–No parole. (More on defaults in a second.)

So now maybe you also see why there are always those yummy candy bars at grocery stores where the line is. Think about the difference between someone like, say, me, going grocery shopping and a poor person going grocery shopping. When I go to the store, I know exactly what I’m going to buy. I even tend to buy the same things, walking the same pattern at the store. There are no decisions.

But for a poor person? Maybe it’s different. Maybe some things cost a little more than expected. Then decisions have to be made. Soap or bread? Diapers or detergent? Milk or vegetables? After making all those decisions, a person may want a quick hit of sugar to stop feeling so fatigued. Oh and look, here are the candy bars.

When you realize you spent your entire paycheck on food
When you go shopping hungry, and spend your whole paycheck on food.

Here is another example. I needed to pass the Enrolled Agents exam in order to represent clients before the IRS. Now the best way to practice for that exam is to do mock exams. That gets you used to answering the questions. But of course, doing those mock exams means making little decisions each time an answer is needed. So on the day of the real exam, I did not practice with a mock exam. I just refreshed my memory by reading over a cheat sheet.

Also, I made every decision that I was going to make on the day of the exam before-hand, including where and what I was going to eat, and exactly how I was going to get there. The day of the exam there were no decisions of any sort to be made until taking the actual test. I passed, barely. If I had been more tired or more “decision-fatigued”, I may not have passed. You can do the same things in many areas of life to avoid depleting your willpower, which means you’ll have it available when you need it.

So here is the best way to not give in to temptation. Avoid temptation in the first place by avoiding as many trivial decisions as possible. Put as much as possible on auto-pilot. When you go shopping for necessities, make it a habit to go in the same order and to the same places. Make a list, yes, and then stick to it. Don’t shop when you’re hungry or tired, and don’t make that list when you’re hungry or tired either! Give sleep the respect it deserves.

Particularly when you face big financial decisions, dedicate a day (or days) to making those decisions. Making a big decision is hard work. Treat it as such! Depending on where you are in life, a big financial decision might be buying a new laptop or it might be buying a house. Whatever the decision, in addition to everything else, give yourself a cooling off period before buying. You may find that your decision looks different after you’ve slept on it.

You will be much happier with your financial decisions if you give them the full effort and attention they deserve.

Here is an example from my own life. When I decided to buy a house, I took very seriously the argument that the time to negotiate is when you buy, not when you sell. Don’t tell yourself that you’re going to negotiate when you sell, because it probably won’t happen. So when I bought, I spent a whole day deciding what price to offer. I offered at $20,000 less than what the house was listed at. The offer was accepted. Is there any way I’m going to make $20,000 in one day by working really hard for a single day? Of course not. Saving yourself money by negotiating on a big purchase, or saving yourself money by just not making a purchase you don’t really need, is always going to be worth a day or two that you spend making the decision.

And when it comes to the smaller decisions, habits are good, but defaults are even better. We’ve known this in personal finance forever–if you want to get people to do something like contribute to their 401k plan, you must make it the default behavior.

David Laibson, an economics professor at Harvard, decided to study a fascinating dilemma. Thousands of employees, all over the age of 59 and a half, were not contributing to their 401(k) plans despite a generous match. This is quite incredible, because even if the employees did not want to invest, they could have just taken the match and immediately withdrawn the money. There are no penalties for early withdrawal from a 401(k) plan if you are older than 59.5.

We often say there is no such thing as a free lunch. That’s basically always true. But for the employees in question, here was a generous free lunch–and they weren’t taking it.

What is even stranger is that nothing worked to make the employees more rational. The employees were paid $50 each to attend a seminar explaining their situation and how they could profit by taking free money. Nothing happened. Most of the employees still didn’t take the match!  So education didn’t work, and neither did greed.

Next, the researchers tried fear. They asked the employees about savings, and the two-thirds of the employees admitted they weren’t saving enough. Many promised to save more. But what actually happened? Only minimal additional participation.

So what did work?  An automatic plan worked. When there was an automatic plan to take money out of a paycheck and deposit it in the plan, but you could opt out if you wanted to, people just went with the automatic plan. Not only that, but they tended to simply save whatever the automatic plan suggested. So if the plan suggested they save 3% of their income, they did that. If the plan suggested 15%, then they saved 15%. People simply went with the default.

If you really want people to enroll in a 401k plan, don’t even ask them to check a box. Just make it the automatic, default behavior.

Saving must become the default behavior. There are a lot of ways to do it. If you are just starting, save whatever amount you can, whether it’s 20 dollars or 100 dollars. That amount then becomes the default; it becomes zero. You now need to live as if 100 dollars is zero, and your account can’t go below that. Once you get used to always having 100 dollars saved, then move up to $200. Slowly become a saver. Try to get to the point where you have one month in living expenses saved up, then 3 months, then finally 6 months (which is the ultimate goal for an emergency fund.)

Once you have enough in savings and checking accounts that you can easily survive the sort of emergencies that regularly happen in life, it’s time to invest. If you have a 401k, turning investing into the default behavior is easy. The best way to do it is to set up your 401k so that it will automatically deduct future raises. This is a shrewd way to “trick” yourself into regularly investing for your future self. You don’t have to give up anything now, and if the deduction is automatic you won’t notice that you’re giving it up in the future. Meanwhile, you are setting yourself on the long path to financial freedom.

Speaking of defaults and that long path, pay attention to the patterns of where you walk and drive, and how those patterns affect how you spend money. Get to the point where you are in the right situations by default. And don’t lie to yourself about this one: where you live is critical! If you live in a high-expense area, you’re going to spend money. If you are surrounded by people who spend too much all the time, you’ll eventually find yourself doing the same.

Pugs playfully biting
We eventually become similar to those we surround ourselves with.

On the other hand, as you start to make better decisions about finance, you will find yourself making better decisions about everything else, too. And as you let go of negative spending habits, you’ll find other negative habits leaving your life at the same time. And as you let go of things that drain your energy, you’ll find that you are surrounded more and more by people who feed your vitality. And as the things that surround you change, you’ll find it easier and easier to let go of that old scarcity mentality.

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