Reduce Friction to Increase Your Savings

Adopt an anti-budget

In a traditional budget, you make this excruciatingly line-itemized, detailed list of how you want to spend, and then you look at how you have been spending, and you try to get those two to match up as closely as possible. The problem with traditional budgets is that they are very hard to stick to. So if you want to use an analogy from the world of nutrition: traditional budgeting is the calorie counting of money. It’s painstakingly detailing every single morsel of food that you ate and trying to account for every calorie, every macro, every gram of fat, and protein, and carbs. You might be able to pull it off for a month or two, sure. But to be able to do that consistently for your entire life? There are very few people who can do that because it’s so onerous, it’s so detailed.

Instead, what I like to recommend is an approach that I call the anti-budget. And the anti-budget is the intuitive eating approach to managing your money. So instead of calorie counting, like you do with a traditional line-item budget, you are instead following a very simple formula.

First, you decide how much money you want to save. And in this context, when I say save, I mean anything that improves your net worth. So that might be making additional payments towards a debt above and beyond the minimum required. It might mean making investments, or it might mean literal savings in a savings account. Any net worth improvement is what I call savings in this context. Step two, pull that off the top first, and step three, just live on whatever is left over. And if you do that, your spending will naturally, over time, fit into the amount that’s left over because your brain sees what’s in your bank account and your brain intuitively has the sense of like, “All right, I paid my rent. I paid my bills. This is how much is left. I can or cannot have a big weekend on Friday and Saturday.” You tend to adjust to that new normal baseline once you’ve pulled your savings off the top first.

Don’t rely on willpower

Willpower is a limited resource. There’s only so much of it that we can generate. Oftentimes, in the morning, our willpower is strongest because we wake up refreshed, and oftentimes, at night, that’s when we make our worst decisions, right? You probably make worse decisions at 2:00 AM than you do at 9:00 AM. And so it is folly to try to assume that we can just willpower or muscle our way through making smart decisions with our money. Instead, to the extent that you can, automate your decision-making, meaning it’s outside of your cognitive load and you don’t even have to think about it. It just hums in the background, outside of your level of consciousness — that’s the best. Savings is a really good example of that. You get paid every two weeks and automatically some portion of that paycheck gets pulled out of your bank account and gets sent into a retirement account, gets sent as an extra debt payment, or gets sent into an investment account, right? That automation? Perfect! You don’t have to do anything. It just hums in the background for you.

Now, for anything that you can’t automate, if you can form a habit around it, that habit is better than any source of willpower. So for example, if you form such an automatic habit of making a cup of coffee at home first thing in the morning, you nail that habit to the point where you don’t even think about doing it. It’s muscle memory. You hit the water kettle right when you brush your teeth. That habit is going to be much more powerful than the alternative, which is trying to willpower yourself into not buying that latte at Starbucks.

Form new habits in 2 steps

The best way to form a habit is, number one, to start small, and number two, to tie it to an existing habit. So when I say start small, if you want to do a hundred pushups a day, start with one pushup. Get down on the ground, do a pushup, and then get back up again. Once you form a habit of doing that, then that one can turn into two, can turn into three, and it can grow from there. But what you want to do is reduce friction. The bigger you make that habit, the more of a lifestyle change it is, the more friction there is, and therefore, the more likely it is to fail.

Now, on top of that, tie it to an existing habit. This is something that’s called “habit chaining” or “habit linking.” It’s another effective strategy because there are certain things that you already do that are already habits. You probably, I hope, brush your teeth twice a day, right? That’s already a habit. So what can you do that ties directly to that? Something that becomes so ingrained that it’s muscle memory. And it might not even make any sense. It might be the moment that you’re done brushing your teeth, you check the balance in your checking account. Now you’ve developed a habit of checking the balance in your checking account every single day when you brush your teeth. And based on that, you know how much is left in your checking account. Based on that, you get an intuitive sense of how much you can spend this weekend, and that’s what makes the anti-budget work.