If you have money problems, do not make quick decisions

If the plan is to spend no more than you make…you need to think about how you spend.

According to the U.S. National Library of Medicine, heuristics are efficient cognitive processes, conscious or unconscious, that ignore part of the information in a given situation. In more simple terms, it is the idea that your brain makes decisions based on certain triggers, rules of thumb or preconceptions based on earlier experience or ease of relevant examples.

In a presentation about heuristics given on behalf of the Military Families Learning Network and eXtension, Dr. Michael Gutter, an Associate Professor and Financial Management State Specialist at the University of Florida, gave an example related to saving money: Finding the best rate of savings may involve complex calculations. However, in practice, many people follow rules of thumb, such as ten percent of income. Gutter asks the question: are we predictably irrational? This is a good question.

From an article by Jim Edwards for Business Insider, out of the top ten advertisers that spent the most on advertising in 2013, it appears that three of them were companies selling cell phone plans. The combined dollars spent to reach their audience was just over 3.7 billion dollars! Referencing a video by Dan Ariely, Gutter defines one heuristic, anchoring, as the process of seeding a thought in a person’s mind and having that thought influence their later actions. How much of the billions of advertising dollars spent each year is intended to plant such seeds? What practical steps can the consumer take, if any, to make good financial decisions in a world where so much is being spent to influence their decisions?

If a person is experiencing money problems, one of the first places to begin solving the problems is to create a spending plan or budget. However, the word “plan” denotes rational thinking. If the plan is to spend no more than you make and to satisfy your wants and needs without creating money problems (i.e. past-due bills, too much credit), you need to think about how you spend. If you continue making the same choices, your problems will not go away.

In Gutter’s presentation, he does reference how our minds work. If “fight or flight” decisions are made in one section of the brain and deeper, more intellectual decisions are made in another section of our brain, one could conclude that planning should not be done on a whim; it should be done with deeper thought.

Thus, Michigan State University Extension educators and people all over the world often give this the common advice: “Why don’t you sleep on it?”

Sitting down and thoughtfully planning, looking at all relevant information, not just prominent information ,may take discipline in a world where so much money is spent with the possible intention of “seeding” thoughts. However, it is one way to gain control of your finances. The next step is to review the plan often and make decisions based on the goals of the plan. When there is an opportunity or decision that is not addressed by the plan, follow the old advice and sleep on it.

If you are wondering about your financial health, take a financial health survey from MI Money Health to get your financial health score! It is confidential and your answers never connect back to your name. This survey can help you evaluate your current financial situation, provide ideas on how you may improve your financial health and connect you to resources in your local community.

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