There's one thing we can say with some surety: we don't always make the best decisions for our situations, especially with money. It's part of being human.
But the good news is that we can redesign the environment where we make choices to get better results.
When things could have gone a bit better
It might have seemed the best thing to do at the time, and we might have rational – or rationalised – reasons why we chose to act the way we did. But in hindsight (and with the benefit of a credit card bill to see what went down, for instance), it's not hard to see that sometimes things could have gone a bit better.
Economists used to think that people would make decisions with their best interests in mind. They even counted on them doing so as they thought about economies and structured economic systems.
But with the rise of behavioural economics – which is basically what you get when you cross money with human nature (where the rubber hits the road) – we now know better.
It's the difference between presuming what people would do versus setting them loose and observing what they truly do in the real world.
Someone who is an expert at observing what people do in the real world is behavioural scientist Dan Ariely, who, together with his team at Duke University, has made some important discoveries about how we humans work.
Many times, he says, we're not in control of our decisions. Our environment influences us too much, especially when we are not sure what we want.
In a recent interview, he used credit cards as an example.
"Credit cards are designed for us to spend more and think less."
Too right. Somewhere along the line, in the name of convenience, we gave away some of our ability to choose carefully. So we spend more than we intend to.
The good news is that the environment we make spending choices in can be tailored to fit our needs.
"Don't be a slave to an environment that someone else created," Ariely says.
Making choices? Change your context
One way we can do this is by limiting the amount we have available to spend, so there's much less room for error.
Separating the money we need for bills each time we're paid, for example, does two things: it lets us see how much we have left over to spend on ourselves, and it erases any anxiety we may have about making this week's rent or mortgage payment.
How much do you need to cover your expenses – the monthly kind like power and the weekly kind like groceries? Sorted's budgeting tool can help you see more easily.
For the money we spend on ourselves each week, Ariely recommends making it available in a separate account at the beginning of the week. If it's made available at the end of the work week, we end up spending too much over the weekend and can end up being tempted to dip into another stash.
This is a classic method that can be used with cash: walk around with an envelope full of notes, making sure they last.
These days, however, unless we plan on all our spending being in cash (a radical, but somewhat difficult thing to do), we can also accomplish something similar with a debit card linked to an account that holds only the amount we want to spend on ourselves this week.
A prepaid credit card can work the same way. We spend from that one account, watching our balance carefully as we go.
So if your everyday decisions aren't getting the results you want – we're all human after all – you can redesign the environment you make choices in. There are good ways you can influence yourself in the direction you want.