Train Your Brain to Make Smarter Money Decisions

Remember that many behavioral decisions that save you money also improve your health and well-being.

It’s no coincidence that one of the most oft-covered pop songs in history is “Money (That’s What I Want),” which was co-written by Berry Gordy and became the first hit for his then fledgling Motown label.

One Smokey, three Supremes, and Four Tops later, he had a lot of it.

Or, if you prefer, there’s Pink Floyd’s song of the same name, with the famous lyrics “get a good job with more pay and you’re okay/grab that cash with both hands and make a stash.”

The music analogies could go on and on because our preoccupation with money is never ending, while our lack of success in keeping it is as well. With a bow toward Warren Buffet, who seems to have never made a bad financial decision, most of us have made terrible ones. Whether you open your wallet or not, you make decisions about your money every day. And it can be hard to think about the long term, when you feel like you're just getting by from paycheck to paycheck. Even with limited resources, however, you can slowly and steadily prepare for the future.

Luckily our brains are somewhat like dogs: they can be trained to do the right thing, whether it’s not peeing on the carpet or spending and saving money wisely and with forethought. Here’s how.

Stop thinking about credit cards as plastic money. Financial experts say that’s how you get into a deep credit card debt. Once all you can afford to pay is the interest every month, you’re in big trouble. Before you go that far, pay off your credit card debt and, to help break the habit, cut those misleading cards up.

Forget about money, and spending it, making you happy. It’s like drug addiction; you feel great until you come down and then you feel worse and need to do it again – and again. If you want to feel happy about spending, Ryan T. Howell told LearnVest, see the credit card reference above.

Howell is an assistant professor of psychology at San Francisco State University and co-founder of a useful website, Beyond the Purchase, that studies why we do what we do with money, often with money we don’t actually have.

Don’t spend mindlessly, according to the website Smart About Money. What you spend your hard-earned money on should matter greatly to you. Imelda Marcos has more shoes than Florsheim. Do they really matter?

No. They’re shoes. Stuff. Howell says spending money on experiences that facilitate things like relationships, learning, and competence is worthwhile.

Make paying your bills a mental habit, says Smart about Money. You start your brain down that path by actually knowing what bills you have and what you owe on them. In other words, become organized, both inside and outside your head. You owe the money.

Procrastination will not make that fact go away. And if you need reminding, a bill collection agency will be happy to make your life hell, and ruin your credit rating for free.

Make lifestyle changes. A big part of making bad money decisions is relying on consumerism for a sense of well-being. Material items are a delusion. MyBankTracker, yet another website with money tips galore, advises consciously living smaller, then realize you’re just fine and feel better while you’re at it.

Specific tips include looking at your phone plan and deciding whether you need or use all the bells and whistles, changing how and what you eat like unnecessary food items that also happen to be unhealthy and expensive, considering public transportation, working out from home rather than in that gleaming metal and glass fortress gym with huge monthly fees, and giving up expensive habits, like smoking and drinking a lot.

More advice: Make good friends because friends help friends and enhance quality of life. What you spend on that is time and effort, not money. The moral? Don’t become a hermit with a 60-inch HDTV and a refrigerator next to your $5,000 comfy chair.

Remember that many behavioral decisions that save you money also improve your health and well-being. Just think about the price for a pack of cigarettes or a watered-down cocktail at an “in” nightspot that is otherwise known as a bar. You might be adding years to your life and dollars to your bank account.

On another worthwhile website, Big Think, Nobel prize-winning psychologist Daniel Kahneman talks about “mental accounting” as the key to training your brain to make the right decisions.

"We all keep our money in different mental accounts for which we have different rules," he says "People... spend their spending money, but then there is a hierarchy of the accounts that they will touch."

"'Numerate people’” -- people who make data-driven decisions -- "have a significant advantage over those who are not." So do people who are able to frame things broadly and keep their emotions in check,” according to Kahneman.

“We're not machines. We all have thoughts, feelings, and personal circumstances swimming around in our heads all the time, whether we're at work or at the bank or in the middle of a negotiation.”

The lesson is to train your brain to keep the irrational out of the equation. Easier said than done, admittedly. But awareness of the concept is a good start.