I recently read the book Decisive by Chip and Dan Heath, about making better decisions, and while the book is not specifically about money decisions, I found myself thinking about money a lot. All the steps in their process could apply very well to making better frugal decisions.
The process in the book is summed up with the acronym WRAP, as in a wrapper to wrap around your decision-making. I'll go through each step, define it briefly as it's used in the book, and explain how it relates to frugality.
Step 1: Widen Your Options
Most of the time, people get hung up on just one or two options ("Should I major in business and make money, or major in art and be fulfilled?") While it's true that people get "analysis paralysis" when trying to choose between, say, twenty jam flavors or insurance options, the book argues that two choices (or a "whether or not" of one choice) is usually too few options and that people unnecessarily limit themselves.
Instead of thinking "or," the book suggests thinking "and": how can get I achieve both of my goals? ("How can I make money AND be fulfilled?") They suggest an exercise where a "reverse genie" vanishes two of your options, and you have to figure out what you would do if those options were off the table. ("What would I major in if I could neither major in business nor art?") The answer to this question could open up new paths you weren't thinking of before, which may end up being better than your original options.
How does this relate to frugality?
Without realizing it, I was applying Vanishing Genie test when I asked readers "How would I solve this problem if I couldn't buy a solution?" I find that I often get hung up on the first solution to a problem that pops into my head, and the first solution is almost always buying something. I blame capitalism. Frequent decisions include "Should I buy Shiny Thing or not?", or maybe "Should I buy Shiny Thing, or Shinier Thing?" But if I can get past that, and widen my options to include at least one non-buy-something option, I can often find a way to solve my problem AND save money.
This chapter also reminded you to think about opportunity costs: every choice to spend your money or time a certain way means not spending it any other way. This was related to money very explicitly in the book. "Or save money" is the opposing option to every purchasing choice, but many people don't think of it unless prompted. Instead of thinking "Should I buy the $20 doohickey or not?" think, "Should I buy the $20 doohickey, or keep $20 for other purchases?" It's a super simple hack and I always feel dumb for "falling for it," but I have toa admit that thinking about the other stuff I could do with the money is often a pretty good way to get me to hesitate longer over a purchase.
Step 2: Reality-Test Your Assumptions
This chapter has to do with gathering the necessary information to choose between the options you prepared in step 1. In particular, it discusses avoiding confirmation bias, or the tendency to seek out information that confirms what you already thought. People actively look to be right, when in fact they should be seeking out information they would need to prove themselves wrong.
The book suggests that you ask disconfirming questions; if buying a secondhand iPod, for example, ask "What problems does this iPod have?" Other suggestions include making a "deliberate mistake," or going against conventional wisdom just to make sure it really is a mistake, and "ooching," or conducting small experiments to test the waters before you go all-in on a decision.
How does this relate to frugality?
I know that when I want to buy something, I look for signs that I should, not signs that I shouldn't. I tend to dwell more on positive reviews of things I want. Paying close attention to negative reviews can be helpful. So can asking disconfirming questions when discussing products with friends or online. Don't just leave it at, "I was thinking of buying a Roomba. Do you like yours?" Also ask, "What problems does it have?"
Questioning your assumptions doesn't just relate to new purchasing decisions, but to questioning the autopilot/already-made decisions that control the basic expenses of your current lifestyle. The idea of "ooching" or conducting small experiments is great for trying new frugal tactics. You don't need to be sure that a particular decision is right for you and go all-in overnight. You can just test here or there and see if something breaks. Instead of deciding, "We're not going to buy any more soda," try a limited experiment: skip a week, or see if you can go a few extra days before buying again. Even if you're pretty sure something won't work for you ("handmade laundry detergent could never handle our clothes"), you don't have much to lose by making a "deliberate mistake" and double-checking.
Step 3: Attain Distance
Many poor decisions involve long-term consequences based on short-term emotion. There's a reason "sleep on it" is good decision-making advice.
The book also suggests gaining perspective with the 10/10/10 test: asking yourself, "How will I feel about this 10 minutes from now? 10 months from now? 10 years from now?" Individuals and organizations can also help sidestep a hodgepodge of high-emotion decisions by defining their core priorities up front. Decide, for example, that in a conflict between work and family, family always comes first. If you know that, a bunch of smaller decisions make themselves.
How does this relate to frugality?
All sorts of advertising is designed to get you to make purchasing decisions based on short-term emotions: greed, fear, lust, boredom, anxiety, hunger… The Buy With Intention List and other wish-list techniques are effective because they put time between the first moment you desire a thing, when your short-term emotion is at its most intense, and the actual decision to purchase. If you purchase in a cool state, you can be more certain that your choice was a good one.
The 10/10/10 test is new to me, and it's something I'm going to be putting in my arsenal. The key to saving money is the ability to empathize with your future self; to give money to that person, instead of blowing it on your current self. The 10/10/10 test is designed to get you to shift perspective at will to that person, something that's often quite difficult to do. How will I feel about buying this lunch out 10 months from now? I probably won't even remember it. How will I feel about this new shirt 10 years from now? Well, if I even still have it, it will probably be worn and stretched out, and it will most likely spend most of its life closer to that condition than like-new, so it better be something I like even when it's not shiny and crisp and perfect.
Enshrining your core values is another powerful tool, although it's hard to do up front. Often your core values are things that aren't revealed until a choice forces the tension between them. But in the heat of a decision with a bunch of other factors involved is when it's hardest to remember them. This is something that I was getting at a little bit, sideways, in my Balancing Act post. When there is tension between frugality, minimalism, eco-friendliness, and simplicity (or between global and individual simplicity), which way should I choose? I'm not really sure yet, but I have a feeling that making those decisions in a cool moment will be more effective than trying make them on a case-by-case basis in the throes of various conflicting emotions.
Step 4: Prepare to Be Wrong
This chapter has to do with setting up "tripwires," or triggers that will cause you to re-evaluate your decision if you are wrong. Cue the David Lee Roth/brown M&M's story. By thinking about what would cause you to change course at point of decision-making, you can prepare yourself to look out for those signs and make timely corrections. An example was a spouse with a crazy business idea. You might say, "Ok honey, you can start that business, but if you don't have three clients by the end of six months, it's time to pack it in." Not only does the tripwire give a clear condition that calls for action in a specific set of circumstances, it lets you relax in the meantime: instead of constantly worrying if you've made the right call, you know you can safely go on autopilot until the tripwire is hit.
How does this relate to frugality?
As I read this section, it became clear to me that a budget is a series of tripwires. You decide up front how much of this month's money you are willing to sink into various expenses and goals. Once you hit the tripwire (spend to the limit), you change your behavior (stop spending). But until you hit the limit, you can relax, because you know you're spending according to the plan. That sense of relaxation was one of the most unexpected and welcome benefits of budgeting, to me. You expect that you'll feel more constrained with a budget than without, and in some ways I do, but in others, it's really relaxing to not second-guess every purchase. Things that we buy that are within the budget, we don't have to worry about. I only start second-guessing in the second half of the month once I've exceeded my limits.
When deciding to purchase something:
- Brainstorm more options, including ways to solve your problem that don't involve buying something
- Think about opportunity costs; what else could you do with the same money?
- Read negative reviews and ask disconfirming questions like "What problems does this item have?" "What don't you like about it?"
- Put your desired items on a wish list and only make actual purchases in a cool state
- Think about how you will feel about this purchase 10 months, 10 years from now
- Ask yourself what information would cause you to change your mind/not make the purchase/return the purchase? Then look for that information (before you buy it, or when it's still in a returnable state)
When considering changes to your lifestyle:
- Think of outside-the-box ways to accomplish your everyday goals and solve everyday problems
- Conduct small experiments and make intentional mistakes to see what will and won't work for you
- Decide on your core values and make small choices that are in line with those big values
- Set up tripwires: decide now under what circumstances you will change course
I really enjoyed this book, and it was a quick read. I recommend getting it out of the library if you like this sort of pop psychology book, or if you're wrestling with a big decision. I've laid out of a lot of the major ideas here, but there are more sticky examples and tips and tricks. I'm hoping these ideas stay with me, and that I have to discipline to actually apply them; right now, it's easier for me to use them to advise others than to actually change my own behavior, but hey, it's something.