Change Your Finances through 10 Counterintuitive Willpower Tricks

Poverty has many causes, not all of it under our self control. But the latest research on willpower has some surprising and useful insights for anyone wishing to change their financial situation.

In a nutshell, the poorer you are, the more stressful every purchasing decision necessarily is. “Shall I buy lunch today, or make my own?” requires some trade-offs, but “shall I buy a new car, or get private Health Insurance?” has much more. The rich have the luxury of making similar decisions based on fashion, taste, or competing benefits.

Recent research shows that such decision-making can be not only emotionally taxing, it can be intellectually taxing, too. The more of these types of decisions you are forced to make, the worse your later decision making becomes. Subjects in psychological tests were shown to do worse in IQ type exams after being asked to make a simple financial decision - such as whether or not to buy some soap that was on offer.

The effect was greater the lower the subjects’ income levels were. “Poverty may reduce free will, making it even harder for the poor to escape their circumstances.” says one researcher. Poverty is, then, a particularly difficult Catch-22 to escape from.

So, what can we do about it? Here are some tips to using this knowledge to your benefit:

1. Lock yourself into savings plans and long term deals, that not only save you money - they remove such decision making in your week, month, or year. This will increase the amount of willpower you have in other areas of your life, and hence the intelligence you apply to other financial decisions.
2. If you find it difficult to avoid distractions such as the internet, TV, or eating, find a workplace where these things are not on offer. You will have to exercise self control less, and your intelligence, willpower and bank balance will increase, as a result.
3. Have a routine. If you know exactly what you will be doing on a saturday morning, monday night, or sunday afternoon each week - it will go a great distance in lessening stresses on how you spend your time. The same is doubly true for your work week.
4. Opt to pay bills automatically, if your bank and service provider offers it. This will allow you to focus on other, more important financial decisions.
5. Make a list of things that will save you time. Where you spend your minutes is another taxing act of willpower, and any benefits here will be felt elsewhere. For instance - cook large meals for freezing on the weekend, or buy things like socks, underwear or shirts in bulk.
6. If someone offers you charity (a friend or family member, for instance), don’t balk at having conditions placed on it - such as limits on what it can be spent on, or what you must do in return. If the conditions match your long term goals, these constraints on your own free will can actually benefit you in the long run. They removing desires you would otherwise have to continually reign in.
7. Make use of electronic reminders and calendar alerts. You will sleep better knowing that you don’t always need to be on edge about when a bill is due, or a job application is about to expire.
8. Whilst ’shopping around’ may be a good savings tip, it underestimates the amount of time you are spending worrying about money. Research the cheapest place to buy your groceries, entertainment, books and other expenses and then stick with it - it will make for a much less stressful week. You will be able to think much more about your larger financial situation.
9. Increase your short term willpower regularly by taking a walk, or doing something that makes you laugh - like watching a good film. Researchers have found that these can have important part to play in resetting your will.
10. Divide up spending decisions with a significant other - be it a roommate, partner, or friend. Give them agency over one half of your expenditure (what food to buy, for instance, or where to go out to eat), whilst you take responsibility for the other half. In this way you can halve your strains on your willpower, rather than both suffering. Make sure you choose someone whose decision making you trust!

Can you think of other ways to take the strain out of worrying where to spend your money, or time?

How to Make Money? Practice.

There is a great article over at Inc.com by Jason Fried of 37signals. Comparing making money to learning to play the drums well, he emphasizes the importance of practice.

I have a degree in finance, but I don’t remember taking any classes that even remotely taught me how to make money. I’ve read plenty of business books. Same thing—lots of talk about money, but not much about how to actually make the stuff. One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. It took me a long time to figure out how to make money. Here’s how the lessons unfolded….

He then goes on to break down all the lessons he had to learn to be good at making money (and he does, actually, make a lot of it these days). Some of my favorite points were

Don’t try to impress customers with acronyms, terminology, or jargon.

This has a negative effect. “When you describe things in terms people don’t understand, they tend not to trust you as much. Trust is important. You can bluff your way into money, but for only so long.”

Understand what the customer really wants.

This needn’t be an impossible, Freudian level analysis. Perhaps think about what are the top three things a customer thinks is important, in making a purchasing choice:

Once I stopped slinging the technical terms, I realized that when customers shop for shoes, they do three things. They consider the look and style. They try them on to see if they’re comfortable. And they consider the price. Endorsements by famous athletes help a lot, too. But the technology, the features, the special-testing labs—I can’t remember a single customer who cared. I sold a boatload of shoes and tennis rackets that summer.”Understanding what people really want to know—and how that differs from what you want to tell them—is a fundamental tenet of sales. And you can’t get good at making money unless you get good at selling.

Sell only things you’d want to buy for yourself.

You can understand a buyer best, and most naturally, when you honestly would like to buy your own product. And if you can offer people things that you want - for less than they can get anywhere else - you have a winning combination.

His advice about practicing by buying and selling things repeatedly on eBay is a good one.

Here’s a great way to practice making money: Buy and sell the same thing over and over on Craigslist or eBay. Seriously.

Go buy something on Craigslist or eBay. Find something that’s a bit of a commodity, so you know there’s always plenty of supply and demand. An iPod is a good test. Buy it, and then immediately resell it. Then buy it again. Each time, try selling it for more than you paid for it. See how far you can push it. See how much profit you can make off 10 transactions.

Start tweaking the headline. Then start fiddling with the product description. Vary the photographs. Take some pictures of the thing for sale; use other photos with other items, or people, in them. Shoot really high-quality shots, and also post crappy ones from your cell-phone camera. Try every variation you can think of.

Other tips include:

People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.

Charging for something makes you want to make it better. There is a type of intimacy involved with selling (and buying) a product. Living up to expectations makes you perform.

Don’t just charge. Try as many different pricing models as you can. Jason’s description from his own business is persuasive here:

Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project.

It worked great. But as the projects started getting bigger and costing a lot more, I noticed that clients became more reticent about signing on. Big numbers and long time frames make people nervous. More money and more time mean more risk, and risk is something all companies would prefer to avoid.

I thought about the problem and decided to try something new. Instead of doing long, expensive projects, we’d do short, affordable ones. Instead of billing $50,000 for a 15-page website redesign that would take three months, we’d charge $3,500 per page and offer to complete the page in a week. If you want another page, it’s another $3,500 and another week. We called it 37express.

It took off. It took the risk out. It let companies try us out before committing to something big. And it was a lot more fun for us—fewer meetings, less stress, fewer decisions to be made. Just a quick one-week project for a fixed price. If you want more, we’ll sell you another.

We no longer design websites, so we don’t offer 37express anymore. But it was a fantastic way to make money. Remove the fear, and people will be more willing to pay you. People don’t like uncertainty—especially when they have to pay for it. A week and a fixed price is certain.

We’ve continued to experiment with pricing models. It’s been a great way to get a 360-degree view of how customers think about their money and our products. Our apps, for example, are available as monthly subscriptions for $24 to $249 per month. We’ve sold our book Getting Real as an instant download for $19 and as a paperback for $25. We’ve sold tickets to our eight-hour workshops for up to $1,000. Listings on our job board are $400 for 30 days. We sell listings on Sortfolio, a service we built to help small businesses find Web designers, for $99 per month.

We’ve even sold promotional T-shirts, for $19, when just about everyone else in the business gives them away. People wear shirts they paid $19 for. People turn free T-shirts into rags. Rags don’t promote anyone.

Read the whole article here.

How to Book by a Dying Banker

A dying Wall Street mogul decides to write a book in his last few months left to him. It contains the secrets of investing, and he wants average people to have access to it. Is it the Da Vinci code of investment?

Well, the book is more plain common sense than secrets, though it may just make you a fortune. See the article in the NYTimes for more info.