Time isn’t Money. It’s better.

Time Ins't MoneyIn his Advice to a Young Tradesman, Written by an Old One, Benjamin Franklin first remarked that time is money. No doubt you’ve heard the saying, but I hadn’t known from whom it has originated. At the holidays approach, it’s a great time for reflection. Have those who swarm the malls to purchase the latest gadget found the meaning of life? Senseless accumulation of goods?

Don’t get me wrong, I love tech gadgets. I accumulate more than my fair share. But I’m just thinking out loud here. Most of us trade our time (labor) for money. Each day we work, we are paid a sum. We then use this money on both necessary and unnecessary expenses. Benjamin Franklin said to waste neither time or money. If money is wasted, we must spend additional time to earn back that money that was wasted. Everything we buy should contribute more to our happiness than the time spent working to pay for that item hinders our happiness.

Theoretically, there is nearly no limit to money Whether you have a little or a lot, there is essentially an infinite supply to money. Thus, based on the principles of supply and demand, it must be less valuable than time, which is a finite resource (at this point). While you can always earn more money, you can’t earn more time.

As someone who is obsessed with tracking my finances, sometimes I get too wrapped up and begin to treat my time as if money > time. However, only upon pausing to ponder my life, am I reminded that money > time. So as you spend time with family and friends these holidays, remember that time truly is a finite resource and should be cherished, not wasted.

 

(Image: Flickr)

Preserving and Improving your Financial Willpower

personal finance willpowerWillpower (self-control) is an interesting concept. Over the past ten years there has been a lot of research going into determining whether willpower is a limited resource or not. Willpower is closely linked to our financial success because in order to achieve long-term financials goals, we have exert willpower to delay gratification. First let’s explore some of the science surrounding willpower and deferred gratification, and then we can look at how this affects our financials lives and how we can alter our behavior to use this research to our advantage.

The Science of Willpower and Self-Control

In 1996, Roy Baumeister conducted an experiment designed to test the depletion of willpower. He first took a group of people into a room that contained fresh-baked chocolate chips cookies and radishes. Half of the group was allowed to eat two cookies each, but no radishes. The other half was allowed to eat two radishes, but no cookies. The group that ate radishes only showed clear interest in the chocolate chip cookies, and some even picked the cookies up to sniff them. A third group was not taken into the room. Baumeister then gave each member of these three groups a geometric puzzle to solve. What Baumeister didn’t tell the participants was that the puzzle was impossible to solve. The purpose of this was to determine how long the participant would will himself to struggle with the puzzle before giving up.

So what were the results? Well… those who skipped the taste testing portion spent an average of 20 minutes trying to solve the puzzle before giving up. Those who were allowed to ate cookies lasted 19 minutes, and those who were only allowed to eat radishes lasted a lowly eight minutes. Those who were able to eat the cookies willed themselves to work to solve the puzzle for 137.5% longer than those who had already depleted some of their willpower resisting the cookies. Not only was the willpower of the radish eaters depleted, but the willpower depletion expanded across activities (eating vs. solving puzzles). This study sparked a frenzy of studies and experiments into ego depletion, which is the idea that self-control or willpower is a finite resource that can be depleted.

But then came Carol Dweck. Dweck has long been fascinated with personal growth and the psychological limits we place upon ourselves. Past research by Dweck shows that people’s theories about intelligence have a significant influence on their motivation to learn. Basically, if you’re open to growth and take risks, then you’re going to grow. It makes sense then that she would also be interested in the research over the past 20 years about willpower and the idea of ego depletion.

To perform her study about willpower, Dweck gave an easy task to half of the group involved, and a more complex task that involved some self-control to the other half. Dweck then gave the same tricky task to both groups as their second task. Dweck found that when the first task was easy and no willpower was required, the participants did well on the second task. When the the initial task was difficult, those who believed that willpower is limited made nearly twice as many mistakes as those who had completed the easy task first. However, those who believed that willpower was not limited made few mistakes on the second task.

But Dweck didn’t stop there. She continued to pursue this line of thought with various other studies. In one study, participants who read statements like, “Sometimes, working on a strenuous mental task can make you feel energized for further challenging activities,” scored 15% better on I.Q. tests. Obviously, Dweck doesn’t argue that willpower is completely unlimited. Proper eating and adequate sleep are also very important when it comes to willpower. But she does believe that her research suggests that, with the proper mindset, the limits of willpower are much higher and depletion isn’t as significant as Baumeister suggests.

How to Apply this Research to improve your Financial Willpower

When looking at any research or statistics that you find, it’s important to take a step back and think: “How does this apply to me? How can I use this to improve myself?” I don’t think that these findings are at odds with each other. In my opinion, most people believe that willpower is limited and can be depleted. You may never have really pondered willpower, but you’ve probably heard somebody say: “I didn’t have the willpower to resist that cookie” or “I have no willpower when it comes to shopping at the mall.” The idea of limited willpower is more ingrained in society than that of unlimited willpower.

The first step is to do a true assessment. Do you believe that willpower is limited? Or maybe don’t ask yourself, but look at your actions. When you come home from a long day at work dealing with a difficult problem, do you feel stimulated and want to do more challenging work? Or do you feel tired and want to watch television? If you’re unable to determine where you stand on the willpower supply scale, I think it’s best to assume that you truly believe in limited willpower and take actions that reflect this assessment and aim to increase your willpower limit.

First, start by understanding that you’re not going to be able to do everything at once. Consider that fact that each decision to make during the day, you choose to either do the “right” or “wrong” thing. Each time you choose to “do the right thing,” you’re using up some amount of willpower. If you’re just starting to save and budget, then this is going to be tough because each decision you make is going to require more willpower. For example, let’s say I’m just starting to save and I’ve identified my financial trouble spots as being clothes shopping, eating out, and Groupon/Living Social deals that I never end up using. I also am not contributing to my 401(k) nor am I saving for that home you want. Obviously, if I’m able to conquer my spending problems, it will be a lot easier to boost my 401(k) and savings.

If we acknowledge that our financial willpower is limited, then we understand that we can’t decide to stop shopping, never eat out, and stay away from Groupon/LivingSocial all at once. Remember that each decision we make in the day depletes our willpower. So in the morning when I wake up to make my lunch, that’s a decision. Then at lunch time I actually have to eat the lunch rather than going out with the others in the office. Then during the day I have to resist checking Groupon and LivingSocial. On the way home I must resist stopping by the mall to pick something up, as well as resist going out to eat. Then while watching television at night, I have to again stay away from those local deal sites. As you can see, from just changing these three areas of my spending habits there are a lot of decisions to make.

To be successful, we need to take each of these adjustments in steps. This is the idea behind Dave Ramsey’s Baby Steps. We need to start by focusing on just one of these areas. For example, I would first focus on not buying deals on Groupon and LivingSocial since I rarely end up using them. To do this, I would first unsubscribe from their mailing lists. Then I would block my ability to even access the websites by using my computer’s hosts file. Then I’d wait. I would continue to eat out like normal. I would shop like normal. I wouldn’t do anything too drastic. For now, I’m just resisting buying local deals. At first it’s difficult, especially when my friends keep emailing me good deals they have found. But after a week it gets a lot easier. I no longer wake up eager to see which deal will be available today. Over time, the willpower it takes to make the decision not to buy from Groupon or LivingSocial is significantly less than it was in the beginning. Once I’m comfortable that the required willpower to avoid these sites is low and I won’t relapse into a buying binge, I can move onto tackling the next trouble area.

As we repetitively make the same decision, whether it’s packing a lunch, or avoiding Groupon, the willpower required to make that decision become less and less. Eventually, this decision becomes habit, and it takes a very negligible amount of willpower. About ten years ago I stopped drinking soda. In the beginning it was tough because I was so used to drinking soda. Every time I had pizza without soda it felt like part of the meal was missing. However, over time, that became a habit and it’s no longer even a decision point for me. I would now have to exert willpower to make myself drink the soda (the thought of soda now disgusts me).

As we continue to tackle these trouble spots in our financial lives, there are a few other things to simultaneous consider and act on. Whenever we make a decision, it’s influenced by a variety of factors. The key to successfully changing our attitude and behavior is to identify these factors and determine where improvements can be made. For example, I may realize that I’m three times as likely to go shopping when I take the route home from work that passes the mall. By altering the route I take home I can avoid driving by the mall, and decrease the likelihood of making any shopping trips. This is the same thing I did with Groupon in the example above. Rather than receive the Groupon email each day and then have to force myself not to buy, I removed myself from the list because that email is a trigger. I then altered my environment by telling my computer to block access to the website to act as an additional barrier.

As we become better at making the right decisions, the impact of these decisions begin to snowball. At first I’m just avoiding Groupon purchases. Then the next month I’m avoiding Groupon purchases and I’m packing a lunch each day. Then the next month I’m also eating out for dinner half as often as I did previously. Then the following month I cut my shopping by 15%. Then the next month I cut by an additional 15%. This money I’m saving is now used to contribute to my 401(k) and save for a home. Soon, I’ve not only made significant improvement in these troubles areas, but the willpower required to make these decisions has diminished so that I’m able to move onto tackling other financial problem areas.

Not only does each decision require less willpower over time, but we’re able to expand the limits of our willpower. By tracking our success, we become more encouraged by our results and we are motivated to persevere. You can further this by constantly exposing yourself to positive messages regarding willpower. Place these messages where you will constantly see them, like the desktop background of your computer or on a piece of paper taped to your bathroom mirror.

What steps are you taking to control your behavior and improve your financial willpower? Are you trying to tackle too many things at once? Do you agree with the conclusion I draw about the research mentioned?

Whew, congrats on making it through this very long post! I debating on making it a lot shorter and digestible, but sometimes I find it useful to have the background understanding of where “common advice” is coming from.

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Resisting Lifestyle Inflation

I basically went a year without experience any of the symptoms of my new income. I didn’t really increase my discretionary expenditures once I started my full-time job. Actually, I probably decreased the money I was “wasting”. This worked for nearly a year, but recently I’ve been itching to spend money. As I mentioned in my last budget update, I recently purchased a new TV. I didn’t need a new TV at all. My previous TV was great, but I just wanted something a little better (bigger).

I know people often say to reward yourself for working hard, but that’s really what leads of out-of-control spending and rampant lifestyle inflation. Think back to those college days, when a crappy car was good enough and a box of pizza fed you for three days. That was “enough” then, and that’s really all I need. However, that doesn’t mean that I’m satisfied with those sacrifices.

While the TV didn’t hurt my personal finance progress too much, the current purchase I’ve been itching for would slow down my progress wayyyyy too much. Recently I’ve been addicted to looking for used luxury cars. Most notably, I’ve been think about a 2001 Mercedes SLK 320. This purchase would set me back about $11k initially, and it would also cost much more each year to maintain, insure, and service than my current car. There’s really no way I should be looking at a purchase like that when I have my student loans.

To avoid making a purchase like a car I’ve been putting my extra money toward my loan to keep it from sitting around and tempting me. But really, I’d like to hear some advice from you. How have you kept lifestyle inflation at bay?