Set realistic goals, don’t put too much pressure on yourself or be too strict Three of the keys to improving financial health and, with it, emotional well-being, Online Bank says N26. On the occasion of Mental Health Awareness Month, which is celebrated in May, the entity has teamed up with Professor and Physician Mira Voth Buehler, neuroscientist and professor of economic psychology and neuroeconomics at FOM University in Stuttgart, to identify habits that help them. Improving people’s relationship with money. Although an important part of the causes that generate anxiety about personal finances cannot be controlled, it is possible to develop habits that influence economic decision-making by making them more aware.
1. Avoid compulsive buying
Stress and a bad mood are often behind impulsive purchases that often end in regret, says Voth Buehler. Emotional discomfort “turns off” the control area of the human brain. This is a problem because this area is responsible for managing long-term goals, delaying gratification, and resisting urges and temptations. Instead, the reward system takes over, demanding instant gratification to feel better. Likewise, time pressure and time are the main enemies of rational thought. “If you don’t have time to think about the behavior, the alternatives, and the potential consequences, the reward system takes over,” says Fauth-Bühler.
Both scenarios often end in impulsive buying and questionable financial decisions. Therefore, a critical first step towards more conscious spending behavior is the ability to identify our consumption patterns. From N26 they recommend identifying factors (starting sales, for example) and situations (going shopping after a bad day) that encourage compulsive spending to avoid.
2. Save without compression
According to the analysis by Fauth-Bühler, “The human brain is not made to save or make intelligent financial decisions.” On the contrary, human beings are “programmed for instant gratification and the brain refuses to wait or long-term rewards. Therefore, spending is much easier than saving or investing.”
To relieve the stress of the control system when making conscious saving decisions, N26 suggests setting long-term goals and using tools that allow process automation to avoid having to make active decisions. Digital tools are a good alternative, as they simplify and automate the saving process. For example, N26 allows you to set automatic rules for your slots (sub-accounts) that transfer a predetermined amount on a regular basis. Another function that the user can choose to automate is “rounding”, which, as its name suggests, rounds purchases to the nearest euro and transfers the surplus to the savings space specified by the customer. It should be noted that in the first year after its launch, this tool allowed N26 customers to save more than 12 million euros.
These are examples of how to create a habit-based saving behaviour, which is guided by a “reward system” and, due to automation, requires less effort and energy, freeing the user from the stress or rejection that often includes active saving decisions.
3. Set realistic goals
Responsible money management habits aren’t established overnight, and setting too many or unrealistic financial goals can be counterproductive, as “trying to control too many impulses at once increases the risk of failure,” says Fauth-Buhler.
Instead, Internet banking recommends breaking savings goals into smaller stages and formulating them as specifically as possible. “Achieving goals brings an immediate sense of satisfaction, and because of the positive reinforcement process (neurobiologically reflected in a dopamine blast), the person is more likely to repeat the behavior that led to that success.” Well-being and improvement of the relationship with money, because joyful feelings of success and achievement will be associated with saving.