How “If-Then” planning can boost self-control

In last week’s post (Marshmallow Test) I talked about the difference between hot and cool thinking. Hot thinking is our instant impulsive response to every situation, which favours instant gratification – giving in to temptation. Cool thinking is where we take time to consider the longer-term consequences of our actions. Cool thinking takes longer to kick in, usually has to be deliberately invoked, and uses an entirely different part of our brain – the frontal lobe, immediately behind the forehead.

control your cravings

Each of us has our own self-control hotspots – those situations which we find the most difficult. When I tried to give up smoking, it was the cigarette with a cup of coffee after a meal that was the most difficult to do without. We can cool down our cravings by thinking cooling thoughts, for example by contemplating all the dire government health warnings on the outside of the packet whenever we crave a cigarette.

But the cooling effect of cool thinking may not always be strong enough or fast-acting enough to deal with temptation. When confronted with a self-control “hotspot” we can improve our chances of success by using a simple technique called “If-Then Planning”.

A German psychologist called Peter Gollwitzer developed the concept of If-Then Planning in the 1990’s. He demonstrated that people who plan in advance how they will respond to a given situation achieve better outcomes. These plans are called if-then plans because they typically take the form of a simple if-then statement: “if this situation arises then I will respond as follows”.

In one study, a few days before Christmas he asked a group of university students to write a report on how they spent Christmas Eve, and he stressed that the report should be completed during the Christmas holidays. Half the group were additionally asked to specify when and where they intended to write their report, to visualize doing this, and to silently commit to carrying out this intention – in effect to create an if-then plan. The results were striking:

  • 71% of the students who created an if-then plan completed their assignment
  • Only 32% of the students with no plan completed their assignment
  • The students with an if-then plan completed the assignment on average within 2 days of Christmas Eve, compared to the students with no plan who took on average 8 days.


It seems that our brains are primed to remember and respond to these triggers. If a student had committed to write their report on Boxing Day, then when Boxing Day arrived that was enough to trigger the student to start writing their report.

The message is clear and has been borne out by other studies: the more we plan in advance how we will deal with self-control “hot-spots”, the more likely we are to succeed. In over a hundred studies, researchers have found that using this if-then technique typically doubles or triples the success rate.

If-Then Money Management

If-Then Planning can be useful in many aspects of our lives, including money management. Are you struggling to stick to your monthly budget? Try to identify the particular areas where you are regularly falling down, and formulate an If-Then Plan to strengthen your resolve.

Impulse purchases of things we don’t really need and haven’t budgeted for are one of the biggest budget-busters, but we can counter them by committing to an If-Then Plan in advance. For example, if I’m tempted to buy something on impulse, then I will:

  • Phone a friend and talk it over with them before I buy, or
  • Take a photo of the thing I want to buy, then wait until I get home when I can check on the internet if I can get it cheaper somewhere else.
phone a friend
phone a friend

These plans work by taking back control from our “hot” thinking, and creating space and time for our “cool” thinking to kick in. Positive plans are more effective than negative self-denying plans – “I will do something else instead” will work better than “I’ll just walk away”.

In time these planned if-then responses will become habits, like brushing our teeth, automatic responses to given situations. They are just another way of making money management easier for fallible humans like you and me. But don’t take my word for it – give it a try – formulate your very own if-then plan right now.

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Would you pass the Marshmallow Test?

marshmallow book v2

The Marshmallow Test was devised by American psychologist Walter Mischel to explore the ability of  small children to forgo instant gratification in return for a greater reward later.

A pre-school age child was invited by a researcher to choose between eating a single marshmallow now or waiting until the researcher returned and being rewarded with two marshmallows. Some children scoffed the single marshmallow almost immediately, but others held out for up to 15 minutes by using different strategies to distract themselves.

Most amazingly, Mischel and other researchers discovered that the children who demonstrated greater self-control in the test seemed to fare better in later life across a range of measures – they performed better at school, had a lower body-mass index and had better life outcomes.

Mischel described the urge for instant gratification as “hot” thinking, and the ability to defer gratification as “cool” thinking. He found that the children who did well in the test were employing strategies to “cool” their urges. One young girl said she imagined a frame around the marshmallow so that it looked like a picture and “you can’t eat a picture, can you?”


mallow test kid

How well would you have done in this test? If self-control is not your strong point, fear not. The good news is that self-control is like a muscle, and the more we exercise this muscle the stronger it gets. But, like a muscle, it gets tired, so if we rely on it too much for too long it can let us down.

Money management is like an endless marshmallow test – shall I spend now or save for later? We can use both “hot” and “cool” strategies to help us.

  • By coming up with “cooling” thoughts to counter a sudden “hot” impulse to spend – “yes that’s a lovely handbag but I already have several lovely handbags that I bought on an impulse, and now I hardly ever use them”.
  • By heating up our perfectly rational but “cool” decision to save up for something. If I’m saving for a summer holiday I can pin up a picture of the holiday resort and imagine myself lying on a sun-lounger sipping an ice-cold beer.

Face the Future

Pension providers are starting to use this “hot” thinking psychology to help us to visualize ourselves when we are older. Research has shown that when this older self becomes more real to us, we become more prepared to make sacrifices today so that our future self can enjoy a better retirement. Aviva recently launched a very effective ad campaign using this idea– The Aviva Reality Check / Face My Future. You can view the ad here.

face the future

In the ad, a man and a woman are separately shown what they might look like when they are older. This is clearly quite an emotional experience for them. Each is then shown how much their future pension might be – the woman will be comfortably off, but not the man. The reality of this hits home to them. It’s a very effective demonstration of how we can heat up our “cool” thinking about the future.

So basing our actions on our fast, impulsive, automatic “hot” thinking is not always a bad thing – indeed the ability to react to danger almost without thinking is important to our survival. And you can also deliberately choose to invoke “hot” thinking in order to reduce the psychological distance between your current and future self, whenever you need increase your emotional commitment to a future goal.

This is a big topic so I’ll be saying more in my next post. I’m aiming to publish a new post every Monday at 10am. To make sure you’re notified of new posts please be sure to sign up – just click on the “follow” box at the foot of this post.

Credit Cards – swim for shore!

This week I’d like to talk about Credit Cards. I know, I know, it’s not a comfortable subject. But it’s got to be tackled sooner or later. Because borrowing on a Credit Card just doesn’t fit with my philosophy of Easy Money Management.

credit card

Yes, I agree that they can be useful in an emergency, as an alternative kind of “rainy day fund”. But persistent credit card borrowing is very bad for your financial wellbeing. If you pay your credit card off every month, then I congratulate you. But if you are borrowing on your credit card and repaying only the minimum amount each month, then you need to read on.

Let me use an analogy to explain. Using a credit card is a bit like going to the beach.

  • Some people never go to the beach, but most of us do. Likewise, some people don’t have a credit card, but more than half of all adults do.
  • At the beach, a lot of us don’t go swimming. At most we have a quick paddle, or we splash around at the water’s edge, but we never get out of our depth. Similarly, most credit card holders never pay interest – either they don’t use their card at all or they pay off the entire balance every month.
  • And some of us go in deeper for a proper swim. About a third of all credit card holders only pay the minimum amount every month. This is like going in for a swim, and never coming out of the water.

The Financial Conduct Authority (FCA) regulates the Credit Card business. They published a big study about a year ago that’s full of interesting revelations. They analysed actual credit card repayments in 2014 and discovered that:

  • About 30% paid off the whole balance
  • About 40% paid only the minimum payment – or less
  • The remaining 30% paid somewhere between the whole balance and the minimum payment; most of these payments were either for just over the minimum or for just less than the full amount as the following chart shows.

Credit Card Barbell Distrn   This strange-looking chart is worth studying. Notice how all the payments are bunched up at either end of the chart, with almost none in the middle. It’s clear from the chart that credit card users fall into two very different groups:

  • Most cardholders are “Paddlers” who don’t leave a balance on their account – if they use the card they pay off the balance at the end of the month, or within a few months.
  • A significant minority of cardholders are “Swimmers” who have a persistent balance that never gets cleared and typically pay only the minimum payment each month.

The chart shows that there are no “average” or “moderate” credit card holders – we’re all either Paddlers or Swimmers. Which are you – a Paddler or a Swimmer?

paddling v2

Why do so many pay only the minimum?

Of course you can pay any amount you choose. But just including a minimum payment number on their statement makes the customer more likely to decide to pay that amount, rather than a larger amount. Psychologists call this “anchoring”. It’s like the opening bid or offer in a negotiated transaction – the opening number “anchors” the rest of the negotiation.

In fact the FCA found that almost a third of credit cards (31%) are repaid by a monthly Direct Debit that is automatically set to the contractual minimum – these cardholders are permanently “anchored” to the minimum payment.

Buy once but pay twice

 The average interest rate on credit cards is about 18%, which much higher than for overdrafts (10%) or personal loans (7%). As a result, users who pay only the minimum repayment each month, typically end up paying for everything at least twice. Does that seem incredible? Let me demonstrate.

Minimum monthly repayments vary, but “1% of the balance plus interest” is quite common. On a balance of £4,000 the minimum repayment will typically be about £100:

– £40 of principal repayment (1% of £4,000), plus

– £60 of interest payments (18% per annum = approx. 1.5% per month x £4,000)

So for every £10 you repay, less than half goes to pay for things you bought, and all the rest goes to swell the profits of the Credit Card company.

Don’t pay the minimum amount

The FCA report recognized the “anchoring” effect of the minimum payment amount that appears prominently on your monthly statement. Paying such a low amount every month means that the debt never gets repaid – just endlessly rolled over.

The FCA is now in talks with the industry about how this anchoring effect can be removed. Not surprisingly, the big banks are dragging their feet. Big fat turkeys don’t vote for Christmas.

Ideally your monthly statement should say something like this:

“If you are very hard up this month then it’s OK to pay the minimum. But please don’t make a habit of it.”

 Here’s a useful rule of thumb – if you can afford to pay off 10% of the balance on your card, then you can pay the whole thing off, including interest, within a year. But only if you pay the same fixed amount every month. Whatever you can afford to pay, why not pay that by standing order, so it goes out of your Bills account every month, just like a personal loan repayment. The payment will go out automatically, so you won’t be tempted to pay only the minimum payment amount that appears on your statement.

So forget about the minimum payment – cut yourself free from the anchor and swim for the shore.

swim for shore v2



Money Management for Humans


Most cars are less than 2 metres wide. The maximum width of a lorry is 2.55 metres. So why are most A-roads about 7.5 metres wide? Because none of us are perfect drivers. Imagine if all the roads we had to drive on were only 6 metres wide. There’d be a lot more collisions – but whose fault would that be – the driver who couldn’t drive in a straight line, or the road designer who didn’t allow for the fact that cars are driven by Humans?

That’s why my blog strapline is “making money management easy for fallible humans”. The way we handle our money needs to allow for the fact that we are human. We are not perfect, we are “fallible” – we can be relied on to make mistakes.

And that’s also why I recommend that you separate your bills and your spending into separate ‘jam jar” accounts (see link), because that’s a much more robust and fault-tolerant way of managing your money. Using only one bank account for everything is like trying to drive down a traffic lane that’s only a little bit wider than your car – you can do it, but you’ll have to concentrate hard the whole time.

Concentrating on a difficult task is an example of “slow” thinking – we can do it but we don’t like doing it for long. Mostly we rely on “fast” thinking – we decide what to do almost instantly without seemingly stopping to think at all – instead we rely on our experience, judgement and intuition. I explain more about fast and slow thinking here.

Fast thinking usually works pretty well but we do make misjudgements from time to time. The way we manage our money needs to take this into account. Yes we need to do “slow” thinking sometimes, such as when we’re updating our monthly budget, but we haven’t got the time or the energy to check our budget every time we spend money. So we need a “fault-tolerant” money management system that can operate with a minimum of “slow” thinking.

Bobby Moore Stamp

Even Bobby Moore made mistakes

Bobby Moore was arguably the best central defender of all time. He played over 500 first team games for West Ham, but in only a quarter of those games did he manage to stop the opposition from scoring. That didn’t make him a failure. Football is played at high speed, unexpected things happen. Bobby was much better than most at anticipating danger and timing his tackles. But he made mistakes every time he played. Because he was human, and making mistakes is normal for us humans.

So when the wheels come off your family finances, don’t be too quick to blame yourself or your partner. Financial “accidents” are typically a combination of human error and exceptional circumstances, and they will happen. Instead try to learn from the experience. Is there some way you can strengthen your money management system to lessen the likelihood of the same thing happening again:-

  • Should I be using cash or a prepayment card to stop myself overspending? (see link)
  • Should I put more money aside in a ‘Rainy Day Fund’? (see link)

Setting up your Savings Account

The money management system that I recommend to “fallible humans” like me is the three-account “Jam Jar” system I described in an earlier post. I’ve also talked about how to set up a separate Spending Account here. In this post we’ll look at the final piece of the puzzle – setting up a Savings Account. Here’s how they fit together:


Why save?

 Our spending tends to be “lumpy”. On top of our regular outgoings we also spend relatively large amounts at irregular intervals, whether it’s planned spending on a summer holiday, or unplanned but essential spending on a replacement washing machine. And these lumps in our spending don’t match our income. So where are we going to find the money?

Most of us have a simple choice – we can either pay for this lumpy spending out of savings or out of debt – typically by putting it on the credit card. Now debt is much easier to get into than to get out of. So whether you want to avoid getting into debt, or you’re trying to get out of debt, the best way to help yourself is to start saving regularly. Cultivating a savings habit is essential to your financial wellbeing.

Make a commitment

If you’re not saving already, now is the time to start. So go back to your budget, and add a line for monthly savings. Decide how much you can afford to save each month. It doesn’t matter how much – £10 or £100 – so long as you commit to saving something every month, starting now. You can always increase this amount later, perhaps when you get a pay rise or you finally manage to pay off that credit card.

Choosing a Savings Account

Saving takes discipline and will power, which is always in limited supply, and can run low just when we need it. So it makes sense to bolster our will power with commitment devices – self-imposed barriers which we can use to make it harder for us to deviate from our commitment. For example, if I’m on a diet, I don’t buy chocolate and keep it in the cupboard. If I’ve given up alcohol, I invite my friend to meet me in a coffee shop, instead of a pub. Money management for fallible humans works the same way, so I suggest you choose a savings account with the following two features:

1.Save by standing order: Make sure you can pay into your Savings Account just like paying any other bill. Set up a monthly standing order for the amount you’ve committed to save so it comes out of your Bills Account before you transfer whatever’s left into your Spending Account. Don’t spend all month trying not to spend all your money so you can save whatever’s left. Do your saving first, not last.

2. Ease of access: this is probably the most important feature of a Savings Account – it shouldn’t be too easy to access. So make sure your savings account is not too close to your spending account. I have several accounts with Barclays and I can see them all at the same time on my banking app. With a couple of taps I can instantly move money between accounts. When I had my Spending Account with Barclays this was a real problem – when I ran short of spending money, it was just too easy to transfer money out of my Savings Account. So I moved my Spending Account to a Monzo prepaid debit card. When my Monzo balance gets low, it’s no longer easy to dip into my Savings Account.



But ease of access when you really need it is still important, so using an instant access account will enable you to draw your “rainy day” savings out at short notice without paying a penalty.



Set Goals

It’s a very good idea to set yourself a Savings Goal – and reward yourself in some way when you reach your Goal. In my last post I suggested that every household should aim to have at least £1,000 of “rainy day” savings. If that sounds too challenging, then aim for £500. If you’re well on the way, then you might want to start saving for other things, so you should consider using a specially designed savings account that will allow you to set multiple savings goals and keep track of how your doing, all within a single account.

The Fairbanking Foundation independently tests banking products to find out just how helpful they are to consumers. Only one Savings Account has achieved their highest award – a 5 star Fairbanking Mark – and that’s the Instant Saver Account with Savings Goals offered by NatWest. Here are some of the features which earned it a 5 star award:

  • You can set up one or more goals or savings ‘pots’
  • You can set up a specific “rainy day” fund for emergencies
  • You can find out how much you will need to save and for how long
  • You can easily set up a regular payment into your saving account
  • You can easily see how you are progressing towards your savings goals

The aim of this blog is to make your life simpler, so if you already have a savings account set up which is working fine and is not too easy to access, then you don’t need to set up another one. But a specialist account like this one is worth considering if you’re starting from scratch, or if you’re already saving up for more than one goal.

 What about the rate of interest?

 The NatWest Savings Account described above pays interest of 0.01% per annum –  that’s as close to zero as makes no difference. But the Fairbanking Foundation has still given it a 5 star award. That’s because the positive features of this product will contribute much more to a customer’s ability to achieve their savings goals than earning a slightly higher rate of interest.

It’s the money that you yourself save that makes all the difference, and not the little bit of interest on top. If you do manage to build a rainy day fund of £1,000 then earning an extra 1% of interest would add an extra 83 pence per month to your savings. So unless you’ve got a lot of money saved up (i.e. over £10,000) then all the other factors I talk about in this post are going to be much more important to your ability to save than the rate of interest.

Financial wizards might care about the rate of interest – but it’s really not that important to the “fallible humans” I’m writing this blog for.