“Reduce decision making. Think about the routine things that can be made automatic—from what you eat for lunch to where you live.” – Dr. Michael Joyner
Personal finance people love to compare losing weight and getting your financial house in order. It’s the go-to personal finance analogy and I’ve heard it hundreds of times.
It goes like this:
Everyone knows what you need to do to lose weight – eat less and workout more. The same line of thinking applies to building wealth – live below your means, spend less than you earn and save the rest.
If only we all had more self-control, all of our problems would be solved because we know exactly what we need to do. It’s easy, they say.
While I agree with this premise in theory, it’s obviously just not that easy for people to do when you look at the terrible obesity and retirement statistics. Having an obvious solution doesn’t make it any easier to change your behavior or we’d all be rich and slim.
One of the biggest reasons for this is the concept of decision fatigue. Decision fatigue refers to the fact that as the number of decisions you are forced to make rises, the quality of your decision making ability actually decreases. This can lead to an irrational decision making process and allow you to make harmful trade-offs.
Think about how you feel at the end of a long work week. Would you be at the top of your game at 5:00pm on a Friday afternoon? Probably not, especially if you have spent all week solving problems and making difficult choices.
The same thing applies when you are tired or anxious or had a few too many cocktails the night before. Your brain just isn’t functioning at top speed.
Multiple studies over the years have shown that people perform poorly with self-control when they were previously forced to restrain themselves, even if the prior act was seemingly unrelated.
One study at Florida State had two groups of people. One group of subjects was allowed to eat freshly baked cookies while another group was told they had to resist eating the cookies and eat radishes instead.
Both groups were then given geometry puzzles that were impossible to solve. The group that was able to eat the cookies right away spent an average of 20 minutes trying to figure it out. The group that was forced to resist the cookies gave up after an average of only 8 minutes because decision fatigue set in.
Now think about doing this on a regular basis with a diet. It’s why most diets don’t work. It’s not that they are scientifically wrong or don’t have the right formula for weight loss. Self-control eventually gets broken down from constantly restraining yourself and thinking about it all the time.
You try and try and try and then give in to your urges and eventually give up.
The best way to see results and avoid decision fatigue is to make your decisions automatic. Repetition and automation can reduce the drag that you get from decision overload.
In the 4 Hour Body, Tim Ferris talks about the benefits of planning your meals out ahead of time and simply eating the same things every day to decrease the amount of decisions you have to make. On his slow carb diet you would generally have the same meal every day for breakfast (along with the same lunch and dinner too).
It’s boring, but dieting isn’t supposed to be exciting (just like investing).
Other ways to improve weight loss include working out at the same time of the day and keeping junk food out of the house to reduce temptation.
The same thought process applies to your finances. One of the main reasons we have a hard time saving and investing is that we get overwhelmed with the sheer number of choices that we are forced to make. Trying to make all of those decisions individually is what leads to problems.
Automating your decisions is one of the best ways to see results.
If you are forced to mail in a check every month to Vanguard to save for retirement, chances are every once and a while you will forget or simply forgo that decision to spend the money elsewhere.
But if you have Vanguard take that money directly out of your checking account every month and automatically invest it for you, there is no decision that needs to be made. It’s done for you and that’s one less thing for you to do.
Of course, even with automation and a reduction in decision fatigue, we are all still apt to make irrational decisions based purely on our human nature. But repetition and automating good behavior can help reduce that irrationality and increase your chances of success, in both weight loss and building wealth.