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In this week's episode, Chelsea uncovers the tiny (but super useful!) psychological habits you can start right now to give your financial health the boost it needs! Want even more good money tips? Check out this video:

Learn more about getting great credit no matter where you're starting from here, with Credit Repair!

Our Hierarchy of Needs:

The Smartphone App That Completely Changed the Way I See Money:

Does It Matter Whether You Pay With Cash Or A Credit Card?:

A Beginner’s Guide To The Cash Envelope System:

Mental Accounting:

The Paradox of Choice, 10 Years Later:

The Paradox of Choice: Why More is Less Book:

Why we stress-spend during the holidays — and how to stop:

Writing about emotions may ease stress and trauma:

The 15-Minute Daily Habit That Makes Me a Better Worker:

Media multitaskers pay mental price, Stanford study shows:

The Financial Diet site:

Hey, guys. It's Chelsea from The Financial Diet. And this week's video is brought to you by Credit Repair. And this week, we wanted to talk about all the little changes you can make to your habits, your lifestyle, and your way of thinking that are proven to help you be better with money. Obviously, a lot of money management comes down to earning more of it. But a lot of it also comes down to how you spend it and how you think of it. It's very easy for most of us to fall into these routines of impulse spending or not closely tracking what we have or not really pushing ourselves to save what we can. And while what works for every individual is going to be a little bit different when it comes to being better with money, ultimately, we can really listen to a lot of what the data says about how we can change our mindset around money. Now, these little habits will impact everything from how you make spending decisions to earning a little extra money to just generally being more productive. But they all encourage you to rethink these little everyday routines that can be causing you to miss out on better money decisions. So let's get right into it with five tiny habits that are psychologically proven to make you better with money.

Number one is work an ATM stop into your daily routine. Now, this may come as a shock to you, or it may not. But for many people, the idea of just swiping a credit or debit card does not feel as real as spending cash. Psychology Today quoted a study on this topic, which we'll link you to in the description. And in part, it said, "Raghubir and Srivastava argued that using credit cards dulls the 'pain of paying' for two important reasons. One, there is a separation in time between when the credit card is used to buy something and when the bill has to be paid. And two, using a credit card allows different purchases to be mixed together. When the bill is actually paid-- say, once every month-- the shopper is not able to attribute the payment to any one particular purchase." The point is for many people, spending with a card makes money less tangible and makes you much more likely to overspend. It allows you to be less accountable to yourself and your own decisions. So for most of us, going on a day-to-day cash diet, at least for a set period of time, will really help us rethink those habits. And an easy way to start that is by going to the ATM-- one that doesn't charge you a fee, of course-- to get out the cash you need day to day. There's an even higher-level version of this habit, which is the cash envelope system, which we will link you to in the description. Basically, it allows you to set aside a certain amount of cash in envelopes for your day-to-day spending over a period of time. But the point is psychologists have shown that spending in cash will help almost all of us spend more intelligently. So practice at least a month of this accountability, and start hitting that fee-free ATM.

Number two is putting free money directly into savings. Now, what do I mean by "free money"? Well, a very common example is something like a tax refund. Basically, this is any money that you receive outside of your day-to-day predetermined income. This could be a bonus check or something like a tax refund or even being reimbursed for something. Free money, in terms of your brain and how it perceives it, is any money that you weren't already accounting for. And unfortunately, that free money can often be processed by your brain as money that it is A-OK to spend however you want to. I think we've all been there in terms of your tax refund hitting your account and automatically causing you to think about all the things you're going to spend it on because hey, why not? It's not like you were planning to save this money, anyway. And it's a real phenomenon called "mental accounting." The Washington Post explores it this way. "Employees of a publishing firm who were in the Bahamas for an annual meeting were each given a cash bonus for getting a big contract. Almost down to a person, the bonus recipients took the money to a local casino and blew it. What is interesting is that most of these people did not lose more than the $50. They slowed down or stopped when they felt that they were playing with their 'own' money rather than with the $50 of 'free' money. The irony, of course, is that the $50 these people lost was their own money, too." In other words, we are much more likely to spend money that we weren't expecting to receive. Our brains just don't treat it as money that was already owed to us like we do, let's say, our regular salary. And therefore, it can be the most dangerous money to us because it's the most likely to be spent in a way we never would normally justify. And to combat this, we recommend following an 80/20 rule when it comes to any "free" money. 80% of that free money must go automatically and without hesitation into your savings or into an investment account. And that 20%, feel free to treat it as that free money that you are just probably going to blow on something completely ridiculous that you would never normally allow yourself to spend on. Essentially, meet your brain in the middle by doing that indulgent thing that you want to do with that money while saving the majority of it towards something productive.

Number three is stick to one specific dollar amount that you can feel good parting with and one specific time in which you're saving it. Now, some people love creating budgets with tons of little detailed spending categories with percentage breakdowns for each one. But for many of us, that hyper-detailed level of budgeting can feel very paralyzing. It can even be attributed to what the psychologist Barry Schwartz calls "the paradox of choice." Here's an explainer of the concept from a Pacific Standard article. "Instead of increasing our sense of well-being, an abundance of choice is increasing our levels of anxiety, depression, and wasted time. Whether you're deliberating between breakfast cereals, TV shows, career paths, pension plans, or lifetime partners, the amount of options out there can be overwhelming. In modern America, however, the freedom to decide who you are and who you're going to be is mandatory." So instead of breaking up your budget into all of these overwhelming categories, particularly if you're just starting out in budgeting, start with savings first. And eliminate that paralyzing feeling of having way too many options with what to do with your money by picking a specific dollar amount and a specific day each week that you will save that money. It can be something as small as $10 a week that you put into your account on Wednesday. But allowing the savings aspect to be the primary function of your budget and building out from there will help you not feel overwhelmed by the amount of things you have to spend on before it comes time to save. Ultimately, the primary function of a budget is ensuring that you're allowed to do the smartest things with your money and, most importantly, save it. So instead of working your way down to a savings number, we encourage you to start by fixing that amount and fixing that time. Yes, the rest of your budget may be imperfect for a while. But the point is that you're able to get the savings done first, because that is usually the hardest part of any budget. As you get better at saving and have to think about it less, you can start working backwards in terms of clarifying the rest of your budget.

Number four is taking up a daily journaling habit, even for just five minutes a day. Now, it should come as no surprise to essentially everyone that stress is an enormous cause of reckless spending. Stress is proven to inhibit our ability to make good decisions and also leads us to feel overwhelmed with emotion when it comes time to make day-to-day spending decisions that are otherwise really manageable. I think we've all been to a grocery store in times of stress and walked out with several items that are objectively inexcusable to be buying. As psychologist Teodora Pavkovic told NBC News, "Stress spending is a bit like having coffee while you are stressed. It's an impulsive behavior that you think will calm you down, but all it does is make you feel even more jittery and anxious. We engage in stress spending when we feel unpleasant emotions, such as anger, sadness, anticipation, et cetera." So we know we need to reduce stress to be better with money. But how do we do that? Well, one of the best and most accessible ways to help reduce stress on a day-to-day basis is journaling. Many social scientists believe that journaling is an effective way to reduce stress and even help manage the effects of trauma. And here's the thing about journaling. It's nearly free and a habit that you can work in in very small increments throughout your day-to-day routine. And to take it one step further, you can even center your journaling around how you spend. For example, taking even a few minutes at the end of each day to write down one money decision you made that day that you're happy with and one that you're not happy with will allow you, A, to reduce that stress by becoming a bit more objective about your own day-to-day actions, but also allow you to really look at these decisions in cold terms. So many of our decisions can feel cumulative and like we can't take a step back from them. But journaling helps us look at ourselves from the outside. And being able to look at a few weeks of these decisions back to back will help you identify patterns. For example, if you tend to spend way more when you're hanging out with one person or after you get off the phone with your mom or on Wednesdays at lunch, now you can start to think of strategies to mitigate those decisions. The point is everyone should be doing their best to reduce stress on a day-to-day basis to help make all of their spending decisions clear and level-headed. And journaling can be an extremely effective way to do that.

Number five is quit it with the multitasking. So generally speaking, finding more time each day can be extremely beneficial to your finances, notably because for those of us with full-time jobs, it can free up space for things like side gigs. And having those higher money goals that we want to work extra hard toward can really incentivize us to try and get a maximum amount of things done at once. And for a lot of us, that involves multitasking. But being productive does not mean seeing how many things you can get done at once. And in fact, many psychologists believe that multitasking can actually worsen our attention span and other cognitive abilities. A team at Stanford University conducted a study analyzing the cognitive control of groups engaged in both heavy and light multitasking. And they found the following. "The test subjects were shown images of letters and numbers at the same time and instructed what to focus on. When they were told to pay attention to numbers, they had to determine if the digits were even or odd. When told to concentrate on letters, they had to say whether they were vowels or consonants. Again, the heavy multitaskers underperformed the light multitaskers. They couldn't help thinking about the task that weren't doing. The high multitaskers are always drawing from all the information in front of them. They can't keep things separate in their minds." Remember that being able to accomplish one task well is infinitely more valuable than being able to technically finish a few tasks shittily at the same time. And while we can definitely be tempted to heavily multitask when we're starting, let's say, a new side gig, it's so important to make sure that each section of our time throughout the day is dedicated to focusing on one thing before moving on to the next. Just like we've said before on the channel that checking your email constantly throughout the day is way less effective than dedicating a few times to dive deeply into your email, trying to think about multiple projects or responsibilities at once almost guarantees that each one will be done worse, which is why we recommend that when starting out a new side gig, you dedicate one specific chunk of time on one specific day of the week and only focus on your side gig during that time. Making the most of, let's say, three hours every Wednesday evening will be much more effective than trying to cobble together 15 minutes here or there throughout the week during your downtime at your regular job. Not only can you get in the zone and really focus on what you're doing, therefore having more attention to detail, you can also mentally compartmentalize that time so it doesn't feel overwhelming. We're much less likely to feel exhausted about something when it's a very contained and practical part of our week. Ultimately, as the saying goes, it's about working smarter, not harder. And ultimately, so much of being good with money comes down to understanding our own brains and habits and doing our best to overcome our worst ones. These small changes are psychologically demonstrated to really help us get out of our own way and make the most of what we have. Everything from how we spend to how effectively we can earn extra money depends on knowing our brains.

And one thing that might be causing you unnecessary stress and distraction is an issue with your credit. But if you're having an issue with your credit, you are definitely not alone. And there's a lot you can do. And one of the first places you should check out is Credit Repair. Basically, is your own personal mentor for repairing, building, and maintaining your credit. They help you build a customized strategy for improving your score, work directly with the credit bureaus to dispute any dings on your report, and teach you how to understand both your own score and the rating system. If you feel like you're struggling to build or rebuild good credit and want someone to guide and advocate for you the whole way, check out at the link in our description to learn more. As always, guys, thank you for watching. And don't forget to hit the Subscribe button and to come back every Tuesday and Thursday for new and awesome videos. Bye.