Humans aren’t wired to make rational decisions. Our lizard brain, responsible for satisfying all of our primitive survival needs – including safety, hunger and feeling as good as possible at all times – sabotages our behaviour every day. And it can sabotage our bottom line, too.
Lizard brain makes us do the same things – good or bad – over and over again so it’s the king of bad habits. If you’re chronically late to make payments on your credit card or always forget to transfer money to your savings account, your lizard brain could be to blame. That said, you can counter its reluctance to change its well-worn ways of doing things by automating your personal finances as much as possible. This blocks the lizard from making poor spend-or-save decisions.
Tricking Your Lizard Brain
First, make an unbreakable habit of paying yourself first. This is a powerful strategy that treats your savings like a high-priority fixed expense that automatically gets whisked away from your bank account on or around payday. The idea is that you’re more likely to stick to your plan when you make savings automatic.
Imagine if the government, instead of deducting federal and provincial tax from each paycheque, simply asked employees to send in a lump-sum payment at the end of the year. There’s a reason why government automatically deducts taxes from your paycheque – to make sure it gets paid!
So follow suit and pay yourself first through automatic contributions to your RRSP, TFSA, RESP or other savings vehicles and trick your lizard brain into thinking that money was never there to begin with.
Another tricky thing about the lizard brain is that it makes us act emotionally and live each day as if it were our last. Think of it as the original proponent of YOLO.
That impulse shows up in many of us when we’re shopping and can be exacerbated if we’re paying with plastic. Data from McDonald’s drive-thru sales revealed that people tend to spend more when they use a credit card instead of cash or debit. That’s because we feel more pain when we spend cash than we do when we use a card; therefore we’re less likely to part with a dollar bill.
Credit-card rewards can be enticing, however not at the expense of missing a payment and turning your 2 percent reward into a 19 percent penalty.
So what’s the rule? Use a credit card for recurring monthly payments such as your cellphone bill and Netflix subscription. The steady activity helps build your credit rating. Then arrange to have the full balance automatically debited from your account each month. Use cash for groceries, gas and entertainment – all the things the lizard badly wants – that you can’t automate and need to stay in control of.
Also be aware that lizard brain can be baited. Marketers are well practised at using psychology to lure that part of our brain into making irrational decisions, constantly tempting us to spend money.
Use what behavioural experts call a commitment device – something you do today that restricts bad behaviour in the future. Ubiquitous examples include freezing your credit cards inside a block of ice to avoid an impulsive shopping binge, or not bringing junk food into the house when you know you’ll go on a late-night pantry raid. A weekly meal plan can be a commitment device if it prevents you from getting takeout after work. See, this is easy!
As for me, my lizard brain springs to life whenever my wallet is flush with cash. Apparently I turn into Mr. Generosity, over-tipping at restaurants, buying drinks for friends, giving in to my kids’ impulsive requests. It’s really quite pathetic.
My wife smartly suggested I stop carrying cash and simply use my debit or credit card when we go out. Hey, that’s a great commitment device, honey! But then when I pointed out all the money she could save by removing the Lululemon app from her phone, her cold stare nearly sent my lizard brain back to the ice age!