5 ways to work with your brain’s wiring for better financial outcomes

•  Adopting new financial habits at birthdays and other new beginnings can increase the odds they’ll stick.
• Visualizing and making emotional connections with desired outcomes can make it easier to forgo pleasure in the present and put funds toward future plans.
• In general, working with your brain’s natural wiring can make it easier to engage in financially helpful behaviors.

We’ve written in the past about how cognitive biases can hurt your ability to make sound investment decisions. Today, we’re going to look at the reverse phenomenon: how to tap into your brain’s natural wiring to make it easier to make solid choices with your money.  

We’ll look at five distinct strategies, all of which play to the strengths of the human brain: “fresh start” tactics, visualization, automation, account naming strategies, and values framing. 

1: The “fresh start” effect: make new habits stick 

If you’ve ever set a New Year’s resolution, you’re familiar with the premise of the “fresh start” effect.  

Katherine Milkman, a professor at the University of Pennsylvania’s Wharton School, conducted a study that found “fresh starts”—like a new year, a birthday, or anniversary—can help people be more effective at setting and achieving goals. These events tend to make people stop and evaluate their lives and any meaningful change they may want to make, so “fresh starts” can make for good nudges to change your habits and make new ones stick. 

“The fresh start effect is why we are more motivated around significant events like the start of the year or our birthdays,” says Dr. Dan Pallesen, a licensed clinical psychologist and financial advisor who serves as the Chief of Investor Behavior at Keystone Wealth Partners in Chandler, AZ.  “We put greater significance on these days because it feels like whatever we have done in the past can be wiped away and we get to start over. We no longer define ourselves by our past bad habits, which is why good habits are more likely to stick.” 

“We naturally keep a record of wins and losses in our heads, so identifying a day that allows us to start fresh can really feel motivating,” he said. 

But New Year’s Eve is still months away, and you have too many chances to say “maybe tomorrow.” Your birthday may good “fresh start” day you can use to set new goals. If your birthday is also a ways off, don’t worry. There are plenty of other ways to tap into your brain’s natural tendencies to improve your financial habits. 

2: Visualization: make abstract financial goals feel real 

If you’ve ever struggled to prioritize funding your retirement accounts over something you can enjoy today (or even this year), you’re not alone. 

“Our brain is wired to make decisions in the moment that move us toward pleasure or away from pain,” explains Dr. Pallesen. In most cases, that means we’re more inclined to make financial decisions that provide immediate pleasure or relieve discomfort we’re experiencing now – even though most of us are responsible for funding distant expenses like retirement. 

One way to make such decisions easier? Visualization. 

“Visualizing a desired outcome like getting the keys to our first house or walking down the beach at our dream vacation spot helps us to truly value saving because we are seeing what the end goal is,” Dr. Pallesen notes. 

One study found that people who saw digitally aged photos of themselves – i.e., a clear visualization of themselves in the future – saved more for retirement than those who didn’t see such images. The researchers noted that this was likely because, without such visualizations, people tend to think of their future selves the same way they think of other people. And when it comes to money, aren’t you more likely to save for yourself than for someone else?  

Even without the benefit of digital aging technology, though, you can reap the benefits of visualization. In an article on the neuroscience of visualization, Dr. Amy Palmer, associate professor of chemistry and biochemistry at the University of Colorado Boulder, explains why this method works: the more we engage in visualization, the more likely we are to let opportunities to achieve our goals pass into our conscious perception. 

So the more you picture yourself as a retired 70-year-old, the more likely you’ll be to notice ads for books on retirement investment strategies or articles about the perfect city to retire in (for example). 

One key to making visualization most effective: include as much detail as possible when picturing the future, and you’ll increase the power of the visualization to affect your actions. 

3: Automation: rely on something stronger than willpower 

Derek Hagen, Certified Financial Planner™, Certified Financial Behavioral Specialist® , and founder of Money Health Solutions, noted that one way to improve financial outcomes is to find ways to “cut down on the use of willpower by automating our financial decisions.” 

This can be powerful because research shows that willpower can be thought of as a limited resource. While it’s possible to build up your willpower, it’s generally best not to put yourself in a position where making positive financial choices depends on you being properly motivated at the random moments when those choices come up. 

Instead, aim to put positive financial behaviors on automatic pilot – that is, make them habitual so that they are what you default to. This might involve doing things like… 

• Setting up an automated contribution to your retirement account(s) so that you  don’t forget to contribute. 
• Setting up automated transfers from checking to savings or investment accounts. 
• Programming your coffee pot to start brewing when your alarm goes off so you’re not tempted to grab a $5 latte on your way to work. 

4: Give your accounts nicknames: tie positive emotions to positive financial behaviors 

If you dread putting money in your savings or investment accounts each month, there’s a good chance you’ll avoid doing it. Overcome that negative emotional connection by giving key accounts nicknames, or even dressing them up with emojis. 

For example: “Name a savings account after something you value,” suggests Dr. Pallesen. “This will help increase motivation to put money in there and actually keep it there.”  

If you’re tempted to raid your account for non-designated purposes, the nickname might also trigger feelings of guilt that can stop you from going through with it. After all, it’s harder to justify an unplanned withdrawal from your “down payment for my dream house” fund than it is to justify sneaking a few extra dollars from “savings account.” 

5: Values framing: align financial choices with your moral compass 

Another strategy Hagen recommends for keeping financial behavior on track is framing decisions through the lens of your big-picture values. 

“If you run a financial decision through the filter of, ‘Is this something that makes sense in terms of what I believe?’ then you can make more informed decisions in ways that are true to who you are,” he says. 

So if you really want to have a yard where you can grow your own vegetables but you’re having trouble saving for a down payment on a property with a yard, it may be helpful to reframe nonessential purchases in terms of whether they’ll help you achieve your gardening dreams. 

If you’re struggling to connect with that potential future version of yourself, try writing a letter. One study found that people who wrote a letter to a version of themselves from 20 years in the future were less likely to make a choice that didn’t align with their moral compass than those who weren’t thinking about their future selves. 

Play to your strengths for financial success 

It’s not always easy to make financial choices to set yourself up for future success, but it gets easier when you take advantage of the things you’re naturally inclined to do. By understanding how our brains’ wiring predisposes us to certain behaviors, we can put ourselves in situations that are more likely to lead to positive financial outcomes, regardless of our long-term financial plans.