Financial Planning- How is the lizard part of your brain costing you money?

How is the lizard part of your brain costing you money?

Are you sometimes mystified by how your money seems to mysteriously disappear? That’s because the primitive so-called lizard part of your brain is probably in charge of your spending.

In the middle of your brain is a primitive group of nuclei called the basal ganglia, which, among other functions, is associated with the formation of habits (routine behaviours).

Habit is defined in the English Oxford dictionary as “a settled or regular tendency or practice, especially one that is hard to give up”. But actually, it’s a bit more complex than that…

Psychologists define a habit as an automatic reaction to a specific situation. Essentially, in order to help itself cope with the mayhem and complexity of daily living, your brain actively tries to automate as much of your behaviour as possible.

Earl K. Miller, associate director of the Picower Centre at MIT, says the more primitive, subcortical basal ganglia takes over so that familiar routines can be run off automatically and occupy less of our thoughts.

For example, when you drive to work every morning, does some of it seem to happen in automatic mode? How automatic is it to stop and buy a latte at the coffee drive-in booth on route? That’s almost five dollars you probably didn’t even think about, because it’s a habit.

Automatic behaviours may include:

• Driving your car
• Brushing your teeth
• Cleaning your spectacles
• Sipping from your water bottle
• Buying coffee on the way in to work or purchasing a sandwich for lunch
• Stopping when the traffic light turns red
• Turning the dryer on instead of using the washing line
• Buying certain brand name groceries
• Purchasing your weekend Lotto ticket

Those familiar, unthinking routines usually work off what experts describe as the ‘Habit Loop’, which consists of cue (trigger), routine and reward. You drive to work, you see the coffee kiosk, you buy coffee; you enjoy coffee. Thoughts of what the cost of making that coffee stop may be, never even enter into it.

Nutritionists and sports coaches advocate food diaries, whereby you track everything you eat during the course of the day. Once you know what you’re eating, you can calculate the calories and develop a better understanding of your eating habits. Once you understand your eating habits, and the cost of those habits in terms of health and weight, you are both motivated and in a better position to control your eating in order to form healthy eating habits.

Finance works the same way. A method for uncovering your spending habits is to track your spending. In fact, you can even make tracking your spending a habit. Ideas for tracking your spending include:

• Keep a daily diary of every cent you spend (note it down in a small notebook you carry on you or enter it on your smartphone)
• Get into a habit of asking for receipts for everything. Empty your purse or wallet into a receipt box regularly. Then, once a month, calculate all the receipts to understand where your money is going.
• Buy an app for your smartphone or device. ‘Spendee’, for example, is both an iPhone and Android app that lets you track your income and expenses without requiring you to disclose personal information
• Use the budgeting function that some banks have built into their internet banking to track your spending.

By tracking your spending habits you will develop a better understanding of where your money is disappearing. Nobody is saying give up your lattes, but neither do you want to be leaking money like a sieve – good money management and financial success are a result of taking control.

To take control, you need to first understand what’s going on – especially when you realise that the morning latte habit could be costing you more than a thousand dollars a year.

Can you honestly say to yourself that every cent you spend is accounted for and well spent? If not, it may be time to be thinking about some strategies for making your money work better for you.