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4 Easy Ways to Put More Money in Your Pocket

Fresh strategies to use mental quirks to your economic advantage

By Diane Harris

Your brain and your wallet aren’t always on speaking terms. Despite good intentions, mental tics and tripwires often undermine efforts to save more, spend less and better manage your money, a large and growing body of research by behavioral finance economists shows.

Behavioral Finance
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Of course, that’s old news. What’s new: a report out this month from Common Cents, a financial research lab at Duke University, with findings from 38 projects and experiments — one of the largest applications of behavioral economics of its kind — that help identify ways to counteract those unhelpful impulses and improve your financial health.

“The key is to figure out ways to make doing the right thing with your money easier,” says Common Cents co-founder and head of research Wendy de la Rosa. “Or, if you can’t make it easier, give yourself extra motivation to act.”

Although Common Cents works primarily with financial services firms to create tools and apps that help low- and moderate-income families, the insights can be adapted to benefit people of any age or income. The following four hacks were recommended by de la Rosa and co-founder Kristen Berman as especially suited to Next Avenue readers; all rely on the way you naturally think about your money to nudge you into acting in your own financial best interest (behavioral economist and bestselling author Dan Ariely and Mariel Beasley are the other Common Cents co-founders):

1. Use Natural Milestones as Motivation

Have a significant birthday coming up? If you’ll soon turn, say, 55, 60 or 65, you can use the red-letter date as a catalyst to tackle financial tasks you may have been putting off, such as updating your will, reviewing your retirement plan with an adviser or shopping for long-term care insurance.

In an experiment with Silvernest, a company that matches older homeowners who want extra income with potential renters, Common Cents built on earlier research showing that people are more prone to engage in life-altering behavior as they approach a new decade. To attract homeowners to Silvernest’s service, researchers designed two Facebook ads. One read, “You’re getting older. Are you ready for retirement? House sharing can help.” The other ad began instead with a reference to a specific birthday — saying for example, “You’re 64 turning 65.”

Out of some 75,000 homeowners who saw the ads, more than twice as many clicked on the age-specific one, which drew an overall response rate more than five times the norm for Facebook. The conclusion, says Berman, “When you call out a pivotal age, even if it doesn’t end in a zero, people feel the need to make meaningful changes in their lives.”

How to hack it: In the months and weeks before a milestone birthday, make a short list of specific financial tasks you want to be actively working to accomplish by that age. Behavioral economists call this pre-commitment. “People are much more likely to make decisions and plans for their future selves,” says Berman. “Your future self almost seems like another person, one who is removed from today’s temptations and will make perfect life choices.”

Then, put the action plan on your calendar for the week or so before your birthday as a reminder and nudge yourself again a couple of days before, and on, the actual day. “When you finally hit the milestone birthday, you’ll have an action plan in place, a commitment to do it and the motivation to follow through,” Berman says.

2. Make a Taxing Commitment

In a recent survey of more than 5,000 adults by GoBankingRates, older taxpayers were the most likely to say they planned to save their tax refund. But how do you ensure you’ll actually do it?

As with committing in advance to steps you’ll take before a milestone birthday, pledging to save your refund before you get your check increases the chances that you’ll follow through.

Exhibit A: Working with the savings app Digit, Common Cents asked one group of users to save a portion of their refund as soon as the direct deposit from Uncle Sam hit their accounts; a second group was asked how much they wanted to save of an anticipated refund before they’d even filed their taxes. The latter tactic proved most effective. On average, users saved 17 percent of their tax refund when they were asked right when the refund hit. However, when users were asked to commit to save before their tax refund hit, they saved 27 percent, on average.

How to hack it: When you file your taxes, you can direct the Internal Revenue Service to split your refund among up to three accounts, divided any way you choose. So, you can elect a certain amount to go directly into savings and the rest to your checking account, where you can use it to pay down debt, fix up the house or however else you please. Out of sight, out of mind from the get go makes it more likely you won't touch the portion allocated to savings for everyday expenses. Splitting is easy: Electronic filers just need to follow a prompt; anyone filing a paper return should use Form 8888.

3. Minimize Your Regrets

Like the old Frank Sinatra song, when it comes to regrets, consumers have a few. Among the most common: eating out.


Analyzing more than 30,000 transactions on the financial management app Qapital, Common Cents found that users were 70 percent more likely to regret spending on purchases at restaurants, coffee shops and fast-food joints than other outlays. Similarly, a survey last year by the professional resources website Hloom found 52 percent of boomers and 62 percent of Gen Xers felt they wasted too much money on eating out — the top answer by a landslide.

How best to cut back? Standard advice suggests budgeting a set amount per week or month for eating out. But the jury is still out on whether that works in real life.

To find out, Common Cents researchers surveyed more than 1,400 consumers, asking them to rate budgeting as a technique to curb restaurant spending, along with other methods including limiting the number of times you go to a restaurant (say, twice a week or only on weekends); the places where you can dine or the amount you allow yourself to spend on a single meal.

How to hack it: The winning strategy was to limit the number of times you eat out — in the test case, to twice a week. Consumers rated their chances of success 24 percent higher with this approach versus weekly budgeting and thought they’d save, on average, 64 percent more money a month.

4. Leverage Mental Math

When you think about money — your income or your monthly bills, for example — chances are you visualize whole, round numbers. You may pay $1,064.56 a month for your mortgage and average $237 monthly for utilities, but in your mind, that’s about $1,100 and $250, respectively.

Taking advantage of a natural tendency to round amounts to what de la Rosa calls “psychologically pleasing numbers” can help you pay off debt faster or boost savings. “You’re already thinking of the amounts that way, so you can apply those additional dollars to loan payments or shift them to savings without feeling like you’re paying extra,” she says.

That’s what Common Cents found in an experiment with the lending platform EarnUp, which syncs mortgage and other debt payments to when you get paid at work. Users were sent one of two emails touting a technique to retire their debt sooner and save on interest. The difference was in the framing — one email asked users if they wanted to pay a little extra on their mortgage, the other asked if they wanted to round up their payments to the nearest $50.

Even though the amounts involved were the same, framing the request as a “round up” boosted the number of borrowers who chose to pay more by 35 percent. Their estimated savings: $8,000 in interest over the life of the loan.

How to hack it: If you’re near or in retirement, getting rid of any remaining debt should be a top priority. If you authorize payments on your mortgage or other fixed-rate loans through an automatic bill payment system, you can simply go into your account and round up the amounts being transferred every month. Or you can enroll in EarnUp ($9.95 a month). In addition to the rounding feature, the platform helps borrowers budget throughout the month for debt payments by automatically setting aside some money for loans from every paycheck and then takes care of making the monthly payments for them. (You can learn more about how EarnUp works here.)

You can also use rounding to add to savings, aided by various free apps. With Qapital, for instance, you set rules tied to specific payers, so you might direct it to round up payments to your mortgage company to the nearest $25 and transfer the extra money to a savings account. Apps such as Acorns and Chime, an online no-fee bank, automatically round up your purchases to the nearest dollar and put the change in an investment or savings account.

You won’t retire rich that way. But hey, every little bit helps.

Diane Harris is an award-winning financial journalist and financial wellness advocate. She is the former editor-in-chief of Money magazine, the first woman to hold the top job, and covered virtually every aspect of personal finance during her 22 years there. She is writing a book on financial wellness and launching a related coaching and consulting business. Follow her on Twitter @dianeharris. Read More
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