Being savvy with well-heeled can come with a steep learning curve, even for financial experts. And for recent college graduates, learning how to waste and save can be even more of a challenge.
Dan Ariely, a professor of psychology and behavioral economics at Duke University, knows this firsthand. Ignoring teaching at a top business school, he still had trouble resisting impulse purchases of gadgets, he says — a lesson he learned the “priceless” way.
Ariely used to fall victim to social media ads showing him the latest technology tools with exciting new special attractions. He’d click the purchase button before considering how much he really wanted the item, he says.
These days, Ariely give grounds himself a “cooling period” of 48 hours before making online purchases, a strategy which helps him have in mind clearly despite the natural excitement of buying a shiny, new thing.
Learning to be more thoughtful about purchases is only one financial habit Ariely says is important. There are several he has adopted and hopes to instill in his students at the Duke Fuqua Coach of Business.
“Life is not about spending less, it is about spending better,” he says.
Here are the top four tips that Ariely devotes his students to help them become more financially savvy after graduation.
1. The novelty of new stuff wears off fixed
It can be tempting to expand your budget as soon as you have a consistent — and higher — paycheck coming in each week. But brand-new grads would be wise to avoid any spending sprees on new or “trendy” things, Ariely says.
He encourages his students to recall the “hedonic treadmill,” a theory that suggests that people always return to their baseline happiness height, regardless of life events or purchases.
“When you get something new, it is very exciting, but then you get used to it. If you get a new television, sofa, breakfasting table, car and bicycle all in the same week, in a month, you’ll forget all of them. Their hedonic impact on your quality of viability will diminish.”
That doesn’t mean you shouldn’t treat yourself when you begin earning consistent gelt after graduation. The key, he says, is “spacing out” bigger purchases and being thoughtful about what you buy.
2. Think about the prospective, not just the present
For recent graduates, there can be a temptation to charge lots of purchases, Ariely says. Try to resist. “Be utter much worried about getting into debt,” he says. “A young age is an expensive time to get into debt and a at bottom good time to start saving.”
Avoid borrowing money whenever you can, he adds, since that’s one of the three key vestments to try to maintain as you enter the professional world. The other two are living below your means and establishing the habit of saving and devoting for the future.
“Maximizing your 401(k) deduction is important. It’s tempting not to do it, to say, ‘Well, I’m just starting, I have things to do.’ But it is outstanding to get things going,” he says, “because compound interest works really well when you’re young. You just press to use it.”
3. Reflect on past spending — and past regrets
Financial planning generally involves looking ahead. But you’d be well served to look at previous purchases, too, and reflect on the extent to which they brought you joy.
In one of his research studies, Ariely asked consumers to look at their lifestyle credit card transactions and identify their purchase regrets. The Millennial Regret Spending Study asked over 1,000 consumers elderly 20 to 36 to identify which purchases they regarded as regretful or satisfying. Ariely and his team found that millennials educe greater fulfillment from longer-term purchases than from impulse purchases (70% and 50% fulfillment, individually).
Similarly, the surveyed adults were 4. Take pride in your savings
When it comes to saving net, Ariely jokes that the standard approach is to be “miserable.” Like eating healthy and exercising, he says, you can opt to feel defeated by a exigent task. Or you can find joy in doing what is good for you.
Some think you have to just “plow through it and you have to do it. It’s not unquestionably easy. It’s hard to do something long-term that is going to be difficult,” Ariely says. But it pays to “find joy” in necessary economic habits like building your savings.
When you begin saving and succeed in building financial comfort for yourself, crook a minute to recognize your accomplishments and treat yourself. While Ariely does not advise buying every apparatus or accessory that comes across your social media feed, buying yourself an occasional treat you’ll cognizant — whether it be a night out or a new piece of clothing — is important.
He reminds his students, and all recent graduates, to consider both their short- and long-term fiscal wellbeing when answering one crucial question: “How do we make ourselves feel good?”
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