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How to Avoid Financial Procrastination and Impulse Buys
Should you do it now or later?
“Procrastination is the art of keeping up with yesterday and avoiding today.”
— Attributed to Wayne Dyer
Imagine that I showed up at your office and offered to buy you lunch. I give you two options; Pizza or a salad.
Most people would choose pizza and, in doing so, would be displaying a textbook example of “present bias,” which is the human tendency to choose immediate rewards and avoid immediate costs even if they know that those decisions are not in our best interest in the long run. Taking the pizza over the salad is an example of preferring immediate rewards that come with a long-term cost.
Preset bias also works the other way, choosing to avoid immediate costs even if we have to pay more later.
The college term paper you did not write until the night before it was due is a classic example. You had weeks to write the paper, but each day you chose to avoid the immediate cost of writing it and paid for that decision with added stress and loss of sleep by leaving it to the last minute.
Continue reading to learn:
How present bias causes us to procrastinate and give in to temptation
The impact procrastination and lack of self-control have on your money
Tips to help you complete important tasks without delay and increase financial self-control
Present bias = self-control issues
Whether you are procrastinating on writing that term paper or giving into temptation and eating pizza instead of salads, both forms of present bias come down to a lack of self-control.
As I have written in the past, increasing your level of self-control has a number of positive financial benefits.
Saving money from every paycheck.
Making better financial choices.
Feeling less anxious about money.
Feeling more secure about your financial situation.
Thinking of present bias as a manifestation of self-control issues will be helpful when we review how you can overcome present bias.
Should you do it now or later?
Choices with immediate costs (why you procrastinate)
Choices with immediate rewards (why you give into temptation)
The researchers also wanted to know if people know in advance that they will decision-making will be impacted by self-control issues (procrastinating or giving in to temptation.)
If you do not know in advance that your decision will be influenced by a lack of self-control, then your decisions in those situations are driven purely by the present bias effect. This means you’ll be more likely to procrastinate and give in to temptation.
People who realize they lack self-control have a bias to taking immediate action. Having a tendency towards acting now rather than later helps avoid procrastination but also makes someone more likely to give into temptation (doing something they will pay for in the long run.)
Put in simple terms: When dealing with procrastination issues, it is helpful to be aware of your struggles with self-control. But when dealing with issues requiring you to resist temptation, ignorance is bliss— not being aware of your self-control issues means you are less likely to indulge in activities with short-term rewards and long-term costs.
It only makes sense that the rest of our discussion on the present bias focus on financial temptation and financial procrastination.
Let’s have a look at what the research says about our ability to predict these three variables.
The Financial Freedom Equation is for anyone who wants to work on their money management skills.
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The impact of giving into temptation on your finances
My previous writing on financial self-control focused exclusively on resisting temptation and impulse purchases. I’ll reprint the highlights below, but if you want to read the full article on financial temptation, you can do so here.
Think of what it feels like after a long stressful day at work. Your boss chewed you out, you’re behind on your project deadlines, and road construction added another 30 minutes onto your commute home. When you get home, you have to feed your kids, and you’re left with two options:
Order in which after delivery fee and tips can easily cost more than $60.
Make dinner yourself at a fraction of the cost.
It takes a tremendous amount of self-control to resist overspending on ordering in when the last thing you want to do is stand in front of a hot stove after a long day.
Money not only impacts what we can buy and how we can spend our time; it also has a massive impact on our psychological well-being. Financial problems are often cited as one of the leading causes of stress, anxiety, and divorce.
A 2017 paper found that after controlling for income, age, sex, education, and financial literacy, people with a high level of self-control were more likely to feel confident about their current and future position and less anxious when thinking about money.2
To summarize, a high level of self-control can help someone:
Save more money
Make better financial decisions
Feel confident in their future
Reduce their level of anxiety
It stands to reason that most of us would live a happier, richer life if we could increase our level of self-control. But is it possible to do that? Is self-control something we are born with or something we can learn?
How to avoid giving in to temptation
Self-control strategies are a broad concept and can include just about anything you might do to avoid the temptation to overspend.
The researchers break down several different types of self-control strategies, but to simplify their findings, you can think of two strategies to implement financial self-control.
Proactive strategies which focus on what you can do to avoid tempting situations to overspend in the future.
Reactive strategies which focus on what you can do to avoid overspending once you are in a tempting situation to spend.
They found that proactive strategies tend to be more effective than reactive strategies.
This is an unsurprising result; how often have you been told it’s better to be proactive than reactive? Well, I am telling you again, but with data to back up that claim.
Think of it like dieting. A proactive dieting strategy would be to avoid keeping any junk food in the house. By being proactive, you reduce your reliance on “willpower” to avoid temptation.
In the context of saving money, think about situations where you will be tempted to overspend and think of a strategy to avoid that ahead of time.
Let’s say a group of friends want to go out for dinner. This is a prime situation where you will be tempted to overspend. To avoid paying marked-up costs at a restaurant, maybe you offer to host a dinner party and ask each guest to bring an individual item. Someone gets a bottle of wine, another person brings dessert, and you cook the main course.
That’s an example of a proactive strategy to practice financial self-control. Anticipate a situation where you will spend too much money and plan to avoid it.
The impact of procrastination on your finances
Here’s a phrase you’ve heard a thousand times Time is money.
Here’s a more practical way that phrase applies to your financial life.
The longer you delay taking action, the more it will cost you. Failing to save and invest for retirement today means you will forgo the benefits of compound interest. The earlier you invest, the more you benefit from compound interest and the less money you need to save. Waiting to invest means you will need to pay one of three costs:
Having to save more money to enjoy the same standard of living in retirement.
Lowering your standard of living in retirement.
Delaying retirement and working longer than you would like.
Financial procrastination also has more immediate and tangible costs. Putting off paying your bills can lead to increased penalties and interest and even impact your credit score, which increases your cost of borrowing in the future.
Time is money; the more you procrastinate, the more you pay.
How to overcome financial procrastination
While advanced planning has been found to help avoid giving into financial temptation like impulse buying, evidence from a 2019 study suggests that planning does little to help us avoid financial procrastination.4
This makes sense as one of the main reasons a financial plan fails is that people don’t execute the plan—they procrastinate. Procrastinators have great intentions; they simply struggle to follow through.
The researchers found that an effective way to eliminate financial procrastination was to increase your financial self-efficacy—your belief that you can execute your financial plan.
Here’s the million-dollar quote from the study:
“The results suggested that the effect of procrastination on financial behavior was completely mediated through financial self-efficacy”
The more you believe in your ability to execute a financial plan, the less likely you will be to procrastinate. As an added benefit, the researchers also found that self-efficacy helped reduce impulse spending and, therefore, can also help with avoiding financial temptation.
Increasing financial self-efficacy means you’ll be more likely to complete financial tasks like paying bills and saving as soon as possible and less likely to give into impulse purchases that might feel good in the moment but hurt your finances in the long fun.
So, how do you overcome present bias? Believe in your ability to create and execute a financial plan.
This is much easier said than done. Stay tuned for future articles where I dive into the research on financial self-efficacy and how you can increase your belief in your financial skills.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
O’Donoghue, T., & Rabin, M. (1999). Doing It Now or Later. American Economic Review, 89(1), 103–124. https://doi.org/10.1257/aer.89.1.103
Strömbäck, C., Lind, T., Skagerlund, K., Västfjäll, D., & Tinghög, G. (2017). Does self-control predict financial behavior and financial well-being? Journal of Behavioral and Experimental Finance, 14, 30–38. https://doi.org/10.1016/j.jbef.2017.04.002
Davydenko, M., Kolbuszewska, M., & Peetz, J. (2021). A meta-analysis of financial self-control strategies: Comparing empirical findings with online media and lay person perspectives on what helps individuals curb spending and start saving. PLOS ONE, 16(7), e0253938. https://doi.org/10.1371/journal.pone.0253938
Gamst-Klaussen, T., Steel, P., & Svartdal, F. (2019). Procrastination and Personal Finances: Exploring the Roles of Planning and Financial Self-Efficacy. Frontiers in Psychology, 10. https://doi.org/10.3389/fpsyg.2019.00775